Debt relief order

In the United Kingdom, Chapter 4 of the Tribunals, Courts and Enforcement Act 2007 introduced debt relief orders (DROs) as a new form of insolvency. A DRO is a simplified, quicker and cheaper alternative to bankruptcy in the United Kingdom, suitable for debtors who have few or no assets (less than £300 and not homeowners) and little disposable income (less than £50 per month). It is possible to apply for a DRO without attending court and the fee is £90. The fee may be paid by instalments prior to applying for the order.

Debt relief orders introduction

Debt relief orders came into force in England and Wales on 6 April 2009.

Who can qualify for a debt relief order

Debt relief orders are intended to provide debt relief for people in England and Wales if:

• the debtor is unable to pay his/her debts;
• the debtor’s total unsecured liabilities must not exceed £15,000 (increasing to £20,000 with effect from 1st October 2015^[1]);
• the debtor’s total gross assets must not exceed £300 (£1000 from 1st October 2015) (this includes houses so homeowners will not be eligible); the debtor will usually be allowed to keep a car if it is worth less than £1000 or it has been adapted for them because they have a physical impairment that has a substantial and long-term adverse effect on their ability to carry out normal day-to-day activities;
• 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
  • 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;
  • 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.

Applying for a debt relief order

A debt relief order is a form of insolvency, like bankruptcy, and will be subject to a public listing through the Insolvency Service website.

Debt relief orders can only be completed by an approved intermediary and competent authorities. Approved intermediaries will be mainly experienced debt advisors attached to debt advice organisations such as a Citizens Advice Bureau, the Consumer Credit Counselling Service or an AdviceUK member. The approved intermediary can review the persons information, make a determination that they are eligible and appropriate for a DRO and file the DRO application online. Approved intermediaries will not charge a fee for completing or submitting an application.

Organisations approved by the Insolvency Service as competent authorities are listed on the Insolvency Service web site, and include AdviceUK, Citizens Advice, Consumer Credit Counselling Service, the Institute of Money Advisers, Baines and Ernst National Debtline, Payplan and Think Money.^[2]

Upon receipt of the application and payment of the fee, an Official Receiver may make the order, administratively, without the involvement of the court if it appears that the applicant meets the requirements.

If the Official Receiver becomes aware of information which means the debtor does not qualify for a DRO, the application will be refused. If this information comes to light after the DRO is made, the Official Receiver may revoke the DRO without reference to the Court. The effect of revoking a DRO will be to leave the debtor open to actions by his or her creditors. If a DRO is revoked the debtor cannot apply for another one within six years. ^[3]

Implications of a debt relief order

During the year that a debt relief order is active, the applicant 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 (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.

Certain activities by debtors subject to a DRO may result in an application to the Court for a Debt Relief Restrictions Order. These include:

• Failing to keep records which account for a loss of property by the debtor, or by a business carried on by him, where the loss occurred in the period beginning two years before the application date for the debt relief order and ending with the date of the application for the debt relief restrictions order;
• Failing to produce records of that kind on demand by the official receiver;
• Entering into a transaction at an undervalue in the period beginning two years before the application date for the debt relief order and ending with the date of the determination of that application;
• Giving a preference in the period beginning two years before the application date for the debt relief order and ending with the date of the determination of that application;
• Making an excessive pension contribution;
• A failure to supply goods or services that were wholly or partly paid for;
• Trading at a time, before the date of the determination of the application for the debt relief order, when the debtor knew or ought to have known that he was himself to be unable to pay his debts;
• Incurring, before the date of the determination of the application for the debt relief order, a debt which the debtor had no reasonable expectation of being able to pay;
• Failing to account satisfactorily to the court or the official receiver for a loss of property or for an insufficiency of property to meet his debts;
• Carrying on any gambling, rash and hazardous speculation or unreasonable extravagance which may have materially contributed to or increased the extent of his inability to pay his debts before the application date for the debt relief order or which took place between that date and the date of the determination of the application for the debt relief order;
• Neglect of business affairs of a kind which may have materially contributed to or increased the extent of his inability to pay his debts;
• Fraud or fraudulent breach of trust;
• Failing to co-operate with the official receiver.

In addition certain more serious misconduct may result in criminal prosecution.

Data released in November 2014 shows the number of debt relief orders in London between 2009 and 2013 was much lower than the average for the rest of England. The study was produced by New Policy Institute and funded by Trust for London.^[4]

See also

• Simplified Individual Voluntary Arrangement
• Bankruptcy
• Liquidations
• Administrations
• Administrative Receiverships
• Trust Deeds (only available in Scotland)

External links

• Insolvency Service website
• Debt Relief Orders - Competent Authorities
• Insolvency Practitioners Association website

References