Written by Molly Rowe
The government announced changes to Debt Relief Orders (DROs) in its Spring 2024 Budget, providing further assistance to individuals in financial difficulty. However, these changes may have an impact on how effectively creditors can recover the sums owed to them.
A Debt Relief Order (DRO) is a formal insolvency solution designed to help individuals with low income and minimal assets manage unmanageable debts. DROs are aimed at those who cannot afford other debt solutions, such as bankruptcy, and provide a low-cost alternative for dealing with financial difficulties. Once a DRO is granted, it freezes the debts included in the order for 12 months, during which creditors cannot take legal action to recover the money owed. If the individual’s financial situation does not improve during this time, the debts are written off entirely.
To qualify for a DRO, individuals must meet specific criteria. They must owe less than the maximum debt threshold (recently increased to £50,000), have less than £75 per month in disposable income, and own assets valued below £2,000, excluding an essential vehicle, which can now be worth up to £4,000. Additionally, the individual must not have been subject to a DRO in the last six years and must not be involved in any other insolvency proceedings.
In April this year, the £90 administration fee required to obtain a DRO was abolished, making it a more accessible debt management option. Further, in June, the amount of debt that can be included in a DRO rose from £30,000, up to £50,000 and maximum permitted vehicle value doubled to £4,000
The removal of the administration fee may bring with it an increased number of applications for DROs, meaning creditors cannot legally recover the money owed to them for the 12-month duration of the DRO. If the individual’s circumstances do not change then any debt included in the DRO will be written off. Creditors should be aware that this may become a more viable option for individuals over that of bankruptcy or potentially an Individual Voluntary Arrangement, dependent on the individual’s circumstances.
Now, more than ever, it is particularly important to create open correspondence with individuals surrounding the debt they owe and encourage the use of reasonable payment arrangements with regular reviews.
For expert advice on how these changes could affect your business or personal circumstances, and guidance on managing creditor-debtor relationships effectively, contact Silverback Law today. Our team is here to help you navigate these developments with confidence.
Molly Rowe
Debt Recovery Paralegal