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If you’ve had your application for an IVA, Bankruptcy or Debt Management Plan rejected, you may qualify for a Debt Relief Order.
From 6th April 2009 the Government will give debtors who do not own a property and have very little assets, help with repaying their debt.
The Debt Relief Order aims to tackle the problems faced by a specific group of consumers who cannot obtain debt relief from any other source, be it Bankruptcy, IVA or a Debt Management Plan.
If you have debts of £15,000 or less in both secured and unsecured loans, do not own your property and have disposable cash of £50 or less – a Debt Relief Order may be for you.
The Government’s proposal is focused at helping Britain’s poorest, typically those reliant on benefits or extremely low income, repay their debt. It’s expected that the cost to participate in a Debt Relief Order will be £100, which is not only cheaper than bankruptcy but more efficient and easier to understand.
With the assistance of a debt counsellor, consumers will be able to apply for a Debt Relief Order. The authorised debt counsellor – details of which have yet to be finalised – will prepare individual cases to ensure they adhere to the stipulations as laid out by the Debt Relief Order. After which, the debt counsellor, or adviser will send it to the official receiver for processing. The official receiver will be able to authorise the order without taking the application before the courts, thereby saving expensive fees.
The Insolvency Register and various credit reporting agencies will have access the individual’s records once on the Debt Relief Order. The duration of the order will be 1 year, at the end of which time the debt owed will be discharged leaving the debtor debt free.
NB. Creditors will be granted rights of redress if an application is found to be fraudulent or if the debtor receives a windfall payment.
Debtors must meet the following conditions:
1. The debtor must be unable to repay their debts
2. The debtor’s total unsecured liabilities must not exceed £15,000
3. The debtor’s assets must not exceed £300 gross
4. The debtor’s disposable income, ie what remains after typical household expenses, must not exceed £50 per month
5. The debtor must be domiciled in England or Wales, or in the last 3 years have been resident or carrying on business in England or Wales
6. The debtor must not have had a Debt Relief Order within the last 6 years.
The debtor must not be involved in another formal insolvency procedure at the time of application for a Debt Relief Order, such as:
a) An undischarged bankruptcy
b) An ongoing IVA
c) An ongoing Bankruptcy Restrictions Order
d) An ongoing Debt Relief Restrictions Order
e) An interim order
f) If there is a current pending debtor’s bankruptcy petition in relation to the debtor but the debtor has not been referred to the DRO procedure by the court as a more suitable method of debt relief
g) If there is a current pending creditor’s bankruptcy petition against the debtor but the debtor has not obtained the creditor’s permission for entry into the DRO process.
Debt Relief Orders have been given a warm welcome by almost everyone, especially those who have been seeking a way of reducing their debt but have been unable to go through more common channels, ie IVA or Debt Management Plan.
The length of a debt relief order is 12 months, after which the debtor is relinquished of debt. Like bankruptcy, it allows the individual to have a fresh start. But not without some key restrictions, for example there will be some jobs that are off limits to someone with a debt relief order and of course the DRO will have a serious effect on future credit ratings.
The fact is people on low incomes and with assets worth less than £300 are applying for a DRO because they already have a poor credit history. Therefore the DRO will not be as catastrophic as some fear. For many, applying for a debt relief order is the last, or only available option for people with unmanageable debt.
The debt relief orders are only available to people in England and Wales, but a slight variation of the order is in the planning for Northern Ireland. Scotland currently has its own version of a DRO called, Low Income Low Assets.
