Debt Relief Orders - Frequently asked questions
The following is correct as of November 2008, but please note that the processes and legislation are currently under development and the details below may change.
When will debt relief orders (DROs) become available?
It is anticipated that debt relief orders will come into force in April 2009.
Who might DROs be suitable for?
People with relatively low liabilities, little surplus income and few assets and who are currently unable to access other forms of debt relief.
How can I get a DRO?
By seeking financial advice from a debt advisor and if a DRO appears to be appropriate, an approved intermediary will be able to help you complete an application. The intermediary may be the same person from whom advice was originally sought, or may be a further advisor that you are referred to once it is considered that a DRO is appropriate.
What are the requirements for a debt relief order?
The requirements will be detailed in the secondary legislation which is not yet finalised. It is anticipated that the following will apply:
- The debtor is unable to pay their debts;
- he debtor's total unsecured liabilities must not exceed £15,000;
- The debtor's total gross assets must not exceed £300;
- 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, such as:
- An undischarged bankrupt;
- A current Individual Voluntary Arrangement;
- A current Bankruptcy Restrictions Order or Undertaking;
- A current Debt Relief Restrictions Order or Undertaking;
- An interim order
- 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;
- 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.
How will a DRO be made?
DROs are applied for online, with an approved intermediary helping to complete an application.
Upon receipt of the application and payment of the fee, 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.
What are the effects of a DRO?
During the period that an order is in force, the debtor will:
- Be 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 (normally12 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 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.
What restrictions will be placed upon a person who has a DRO?
For the duration of the Order, the debtor will be subject to similar restrictions as in bankruptcy, and their details will be on the Individual Insolvency Register.
These restrictions include the following:
- The debtor must not obtain credit of £500 or more, either alone or jointly with another person, without disclosing that they are subject to a DRO to the lender.
- The debtor may not carry on a business (directly or indirectly) in a name that is different from the name under which they were granted a DRO, without telling all those with whom the debtor does business the name under which they were granted a DRO.
- The debtor may not be involved (directly or indirectly) with the promotion, management or formation of a limited company, and may not act as a company director, without the court's permission.
- The debtor may not hold certain public offices, or hold offices as a trustee of a charity or a pension fund.
- The debtor will only be able to obtain a DRO once every six years.
Furthermore the Official Receiver will be able to apply for a Debt Relief Restrictions Order, similar to the bankruptcy restriction order, which will extend the period of restriction for up to fifteen years for debtors who are dishonest or culpable.
I am a creditor and have information to indicate that the debtor does not meet the criteria, what should I do?
Provide that information to the Official Receiver who will consider every valid objection and is able to revoke a DRO if appropriate.
Aren't DROs just an easy way for people to run up debts then get them written off?
DROs are aimed at people with no assets and a low income with no other access to debt relief and no prospect of the situation improving. If people do have assets or there is a possibility of an improvement in financial circumstances, a DRO is not an appropriate solution and other debt remedies are available.
Whilst the official receiver will not automatically investigate cases, he or she is able to do so. Investigations may lead for example to a revocation of the order or an application to court for a restrictions order, the effect of which is to extend the restrictions placed upon a person under a DRO for a period up to 15 years.
What is an intermediary?
A trained debt advisor who has been approved to act as an intermediary by a 'competent authority.'
It is anticipated that the intermediary will have completed basic checks on the information provided by the debtor, such as considering paperwork and evidence of income, liabilities. If it is considered that a DRO is suitable in the circumstances detailed by a debtor, the intermediary will help to complete the online application upon the debtor's request.
The role of the intermediary is not yet finalised. A working group consisting of representatives from the advice sector has held regular meetings to consider the detail. Minutes of these meetings are available on the insolvency service website.
How can I become an intermediary?
By application to a competent authority. It is expected that intermediaries will already be trained money advisers. A list of the competent authorities will be made available on the Insolvency Service website.
What is a competent authority?
A body designated by the Secretary of State as being able to authorise intermediaries. It will be a matter for the competent authority to determine the suitability of each intermediary that they authorise and to ensure those intermediaries have, for example, appropriate training, experience, complaints procedures, equal opportunities procedures.
Where can I get more information?
http://www.insolvency.gov.uk/insolvencyprofessionandlegislation/DebtRelief.htm
Source www.insolvency.gov.uk