Debt Relief Orders
Debt Relief Orders (‘DROs’) came into force on the 6th April 2009. They are aimed at debtors with relatively low levels of debt, minimal assets and minimal surplus income.
The requirements which apply are as follows:
- the debtor is unable to pay his/her debts;
- the debtor’s total unsecured liabilities must not exceed £20,000;
- the debtor’s total gross assets must not exceed £1000 (and a car worth no more than £1000);
- the debtor’s disposable income, following deduction of normal household expenses, must not exceed £50 per month.
- 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.
- the debtor must not have previously been subject to a DRO within the last 6 years.
The debtor must not be involved in another formal insolvency procedure at the time of application for a DRO.
Upon receipt of the application and payment of the fee of £90, an Official Receiver is able to make the order, administratively, without the involvement of the court, if it appears that the applicant meets the requirements.
The Official Receiver is able to refuse to make an Order or can choose to delay the decision pending further information from the applicant.
During the period that an order is in force, the debtor is:
- protected from enforcement action by the creditors included in the application (bar certain creditors whose debts cannot be scheduled in the DRO and those creditors whose debts are included in the DRO but who have successfully obtained leave from the court to pursue their debts).
- be free from those debts at the end of the period (normally 12 months from Order).
- be obliged to provide information to and co-operate with the Official Receiver.
- be expected to make arrangements to repay their creditors should their financial circumstances improve.
As with other forms of personal insolvency, a DRO debtor’s credit rating will be affected and there will be both civil and criminal penalties for those who abuse the system.
The Official Receiver is able to investigate, either on his own account or as the result of an objection from creditors, and is able to revoke the order if the debtor is found to have failed to provide a full and accurate account of their financial affairs (for example, an understatement in their assets or income). Failure to provide such an account may result in civil and criminal sanctions.
For the duration of the Order, the debtor will be subject to similar restrictions as in bankruptcy, and their details will be on the publicly available Individual Insolvency Register.