How will changes to the bankruptcy level and debt relief orders affect the personal insolvency landscape?

How will changes to the bankruptcy level and debt relief orders affect the personal insolvency landscape?
Will changes to the eligibility criteria make it easier for people to access debt relief orders (DROs)? Giles Frampton, president of R3, the association of business recovery professionals, considers how these changes will affect the personal insolvency landscape.

Original news

The minimum level of debt for which a person who is owed money can force another person into bankruptcy will be increased from £750 to £5,000, the Department for Business, Innovation and Skills has confirmed. In addition, the DRO eligibility criteria will be changed to increase the maximum debt level from £15,000 to £20,000 and the asset limit from £300 to £1,000. No change will be made to the maximum level of surplus income allowed. Statutory instruments have been laid to give effect to the changes from 1 October 2015.

What is the general impression of how DROs have performed since their introduction?

DROs have proven to be a useful addition to the personal insolvency landscape. Bankruptcy can be a good way of dealing with debts, but its consequences can be disproportionate for those with little or no assets and income and relatively low value debts. DROs are a quicker, easier, and more appropriate debt solution for those in this situation.

How do DROs operate and how can they assist vulnerable people?

DROs are open to those with fewer than £300 of assets (not counting those assets which are ‘excluded’), under £15,000 of debts, and less than £50 a month in spare income. If you’re subject to a DRO, creditors can’t recover their debts without the court’s permission and you’re usually freed from your debts after a year. While subject to a DRO, you can’t borrow more than £500 without telling the lender about your DRO or act as a company director, among other things.

What have been the challenges when using DROs?

The biggest problem with DROs has been their restrictive entry requirements. These can be exacerbated by the way bankruptcy works.

For those trying to access bankruptcy,

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