Debt relief orders - Commons Library Standard Note

Published 03 February 2015 | Standard notes SN04982

Authors: Lorraine Conway

Topic: Insolvency

Debt Relief Orders (DROs) were introduced under the Tribunals, Courts and Enforcement Act 2007 (TCEA 2007) and came into force on 6 April 2009. DROs are administrative rather than court based – they are made by Official Receivers working in partnership with the professional debt advice sector.

A person in financial difficulty can apply for a DRO if they cannot afford to pay off their debts. A DRO is a cheaper option than going bankrupt. To apply for a DRO, the applicant must satisfy the current eligibility criteria, namely:

• debts of no more than £15,000;

• less than £300 worth of assets;

• less than £50 a month spare income;

In addition, the applicant must have lived or worked in England and Wales within the last 3 years and must not have previously been subject to a DRO within the last 6 years.

A DRO lasts for 12 months during which time creditors cannot take debt recovery action without court permission. At the end of the year, the debtor will be free of all the debts listed in the order provided his/her circumstances have not changed.

The aim of DROs is to provide a low-cost debt remedy aimed at the financially excluded who have relatively low liabilities, little surplus income and few assets. DROs provide a workable debt relief remedy for those who cannot take advantage of other debt remedies such as county court administration orders and Individual Voluntary Arrangements (IVAs) and where bankruptcy would be disproportionate. In a nutshell, DROS are designed to provide a fresh start for vulnerable people trapped in debt.

In August 2014 the Government announced a call for evidence in order to review the way in which DROs have performed. On 15 January 2015, the Government announced that it would increase the DRO eligibility criteria, the maximum debt level to be increased from £15,000 to £20,000 and asset limit from £300 to £1,000. No change would be made to the maximum level of surplus income allowed. These changes to take effect from 1 October 2015.

This note outlines the background to the introduction of DROs and the main features of the new orders with particular emphasis on the eligibility criteria.

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