Proposals to help more people in problem debt set out

More people with severe financial difficulties could be helped to get a fresh start under Government proposals to widen the eligibility criteria for debt relief orders (DROs).

DROs are a type of formal personal insolvency in England and Wales, sitting alongside bankruptcies and IVAs (individual voluntary arrangements).

DROs tend to be a low cost solution aimed at people who have smaller amounts of debt but no realistic prospect of paying it off. They protect people from creditor action and after 12 months the debts within the order are written off.

The Government is consulting on proposed changes to DROs which would increase the maximum total debts allowable from £20,000 to £30,000.

The maximum value of assets that can be owned by someone under the DRO eligibility criteria would be doubled, from £1,000 to £2,000.

People could also be allowed to have more surplus income under the eligibility criteria, at £100 per month instead of £50 currently.

The Government said research indicates that the demand for debt advice could increase by up to 60% by the end of 2021 and around three million more people than before the coronavirus pandemic will need support with problem debt by the end of 2021.

Business Secretary Kwasi Kwarteng said: “Suffering from financial difficulties places a huge amount of stress on people’s mental health and wellbeing – which is why we are committed to giving more people who are struggling with debt a chance for a fresh start.

“Debt relief orders are a valuable tool for supporting vulnerable people to get to grips with their problem debts. Our plans to increase the eligibility criteria will mean many thousands more could benefit from this help.”

Phil Andrew, chief executive of StepChange Debt Charity, said: “Lower income households with few assets are among those most deeply affected by debt during the pandemic.

“Extending eligibility for debt relief orders will help to give more people a chance to avoid the long-term misery of being trapped by debt that they cannot afford to repay over a reasonable period.”

The consultation will run for six weeks and any potential changes are expected to be put in place in spring 2021.