Member Article

The proposed implementation of Debt Relief Orders

With Watson Burton LLP Law Firm

The Draft Tribunals, Courts and Enforcement Bill published by the Department for Constitutional Affairs includes proposals by the Insolvency Service to provide debt relief for people in England and Wales. This proposal has been made in light of the current economic climate as an increasing number of households struggle to cope with rising debt problems caused by factors such as increasing household bills, increasing fuel costs and the fact that Lenders are less willing to offer finance to borrowers. In response, the Government proposes to introduce Debt Relief Orders (“DROs”) next April.

The DROs are aimed at people who owe less than £15,000.00, have a surplus income of less than £50.00 per month, assets of less than £300.00 and cannot afford to make themselves bankrupt through the courts. Although these may appear to be relatively narrow criteria it is estimated that 14,000 people will apply for a DRO in the first year of its implementation. If eligible, people will be able to apply for a DRO online and have their debts discharged after one year.

During this year they will have to notify the Insolvency Service through an approved intermediary if their financial situation changes, for example if they gain higher paid employment or win the lottery in which case the order will be cancelled. During this relief period, people who have a DRO will be protected from enforcement action by their creditors and will be subject to similar restrictions to bankruptcy which include, having no control over your assets, not being able to obtain credit without the permission of the lender, not being able to act as a company director, lawyer or chartered accountant and your ability to obtain credit in the future is likely to be affected.

The new proposal takes some of its principles from bankruptcy but it has been adapted for simplicity and cost efficiency. However, perhaps one of the biggest criticisms of this system is the fact that it will be possible to obtain DROs online. Therefore, the system will not be policed as tightly as the current court system and will be open to abuse. The intermediary may not be able to carry out detailed investigations into the affairs of the debtor and doing so is unlikely to be financially worthwhile. People with access to the internet may be able to declare themselves or others bankrupt at the push of a button without really understanding the consequences of their actions. Although there are concerns that it will make it easier for people to break the law, it is likely that there will be stringent civil and criminal penalties in place for those who do abuse the system.

This proposal aims to find a binding alternative, recognised by law that will give debt relief to those persons who have debts of £15,000.00 or less, have little or no income, no assets and cannot even afford to make themselves bankrupt. However, it remains to be seen whether this cheap and convenient online bankruptcy will succeed (if implemented) or whether it will leave the system open to abuse as the UK struggles with the ever increasing debt problem.

If you have any queries about this article or any other bankruptcy matters please do not hesitate to contact Victoria Ferguson on victoria.ferguson@watsonburton.com.

This was posted in Bdaily's Members' News section by Ruth Mitchell .