Reforms ‘will make it easier for people with debt problems to get a fresh start’

More people struggling with their debts across England and Wales will have access to a solution which would give them a fresh start.

The maximum total debts allowable for someone taking out a debt relief order (DRO) will increase from £20,000 to £30,000, the Insolvency Service said.

This will enable more people struggling with their debts to qualify, rather than turning to bankruptcy which is often seen as a “last resort”.

DROs are a formal type of financial insolvency. They are aimed at people with relatively low levels of unmanageable debt for whom bankruptcy would be a disproportionate response.

A DRO means debt repayments and interest are frozen, while creditors are unable to pursue debtors for a 12-month period, after which the debts are written off.

The Government also plans to increase the value of assets allowed to be owned by the debtor from £1,000 to £2,000.

The level of surplus income received by the debtor before payments should be made to creditors will also increase from £50 to £75 per month.

And the value of a single motor vehicle that can be disregarded from the total value of assets will increase from £1,000 to £2,000.

It is expected that over 13,000 more people may use DROs in the next 12 months compared to 2019, an increase of nearly 50%.

The changes will come into force at the end of June.

Joanna Elson, chief executive of charity the Money Advice Trust said: “These welcome changes will significantly improve access to debt relief orders for people in financial difficulty.

“Along with the launch of Breathing Space (a new debt respite scheme) and the forthcoming introduction of statutory debt repayment plans, we are making real progress towards the ultimate goal of ensuring that everyone has access to a safe route out of debt.

“The increase in the debt limit for DROs to £30,000 is welcome, as is the increase in the amount of disposable income someone can have to qualify – although we are disappointed that the Government will only increase this to £75, rather than the £100 initially proposed.

“We are pleased to see that the Insolvency Service has listened to feedback and increased the limits for motor vehicle assets to £2,000 – a change we have long called for. Taken together, these measures will make a real difference for many people who contact us for support with their debts, who may now qualify for a DRO.”

Minister for corporate responsibility Lord Callanan said: “Debt relief orders help those with problem debt get to grips with their finances, these changes will enable more people experiencing problem debt to get a fresh start.”

Peter Tutton, StepChange head of policy, research and public affairs, said: “DROs can act as a valuable form of ‘reset’ from debt for some people, and are likely to be particularly useful in the wake of pandemic debt.

“However, we very much agree that the changes need to form part of a wider review of the insolvency landscape, and we look forward to contributing to the Government’s forthcoming call for evidence on this.”

Christians Against Poverty’s social policy manager Rachel Gregory said: “Now these changes have been made, the biggest roadblock preventing low-income families in debt from being freed from poverty are the fees attached to a DRO or bankruptcy.

“Many of those who still don’t meet the criteria for a DRO, are often faced with the prospect of bankruptcy. The process costs £680. People in crippling debt, with little or no assets, struggling to put food on the table, don’t have £680. It’s not right that these people will remain trapped because they can’t afford such a large amount.”