Debt relief usually comes through one of three channels:
individual voluntary arrangement (IVA), a debt management plan or
bankruptcy and all three have become increasingly popular as the
financial crisis has deepened. Debt relief
orders represent the latest debt reduction programme,
due to be unveiled in April.
Debt relief orders are different from any of the
usual debt help plans in that they are designed to help a very
significant minority group in society. People who do not own their
own property, have little or no assets and earn a low wage, have up
until now been ineligible for debt help, such
as IVA, bankruptcy and debt management plans.
IVAs and debt management plans both require a
certain level of disposable income, a proportion of which will be
offered to creditors as part of repayment negotiations. IVAs fees
can be expensive depending on the level of debt, and a fee of
several thousand pounds is not uncommon. Both of these debt
reduction plans are therefore out of reach for people with no
assets and low incomes.
Similarly, bankruptcy also comes with a fee and
requires the sale of assets in order to pay creditors. Again, there
is a very significant section of society who cannot file bankruptcy
because their circumstances render them
ineligible.
The government's response is Debt Relief Orders,
which are designed to help the people in society who are stuck with
debt and have now way out. At present
aconsultation paper is being
circulated throughout the insolvency industry before proposals will
go before Parliament.
Insolvency experts believe that Debt Relief Orders
will be made available in April.
So who can qualify for a debt relief
order?
The criteria is straightforward. A debtor
must:
• Be unable to pay their debts;
• Own unsecured debts of less than £15,000;
• Hold assets of less than £300;
• Have surplus income of less than £50 per month, as defined
using common financial statement;
• Be domiciled in England or Wales, or for the last three
years have been resident or carrying on business there.
• Not have an existing Bankruptcy Order, Bankruptcy
Restrictions Order or Individual Voluntary Arrangement or have had
a Debt Relief Order in the last six years.
Unlike bankruptcy and IVAs, the cost of application
is a modest £100. The debtor will apply for the DRO through a third
party, most likely a debt counsellor or insolvency firm - details
of which are yet to be finalised.
The debt adviser will evaluate each case to ensure
that it meets the DRO requirements before submitting it to the
Official Receiver. The official receiver will be authorised to
issue the DRO without the involvement of a court. After which the
order will be entered on to the Insolvency Register and credit
agencies will be able to use the information for their
records.
The order will last for 12 months and, at the end of
that time, the debt owed will be discharged leaving the debtor debt
free. Creditors will have the right of redress similar to those for
Bankruptcy, if it is found that the application was fraudulent or
if the debtor receives a windfall payment.
For debt advice, visit http://www.debts.org/
