what is a debt relief order?

DEBT RELIEF ORDERS - FREQUENTLY ASKED QUESTIONS

The following is correct as at March 2008 but note that processes and legislation are currently under development and the details below may change.

When will debt relief orders (DROs) be available?

It is anticipated that debt relief orders will come into force in April 2009.

Who might DROs be suitable for?

People with relatively low liabilities, little surplus income and few assets and who are currently unable to access other forms of debt relief.

How can I get a DRO?

By seeking financial advice and then if a DRO appears appropriate, an intermediary will complete an application. The intermediary may be the same person that advice was originally sought from, or may be a further advisor that you are referred to once it is considered a DRO is appropriate.

What are the requirements of applying for a debt relief order?

The requirements will be detailed in the secondary legislation, which is not finalised, but the following are anticipated to be the criteria. An applicant must:

• Be unable to pay their debts.
• Have unsecured debts of less than £15k.
• Have assets of less than £300.
• Have surplus income of less than £50 per month, as defined using common financial statement (1).
• 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.

How will a DRO be made?

DROs are applied for online, with an approved intermediary completing the application on behalf of the applicant.

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

The Official Receiver is able to refuse to make an Order or can choose to delay the decision pending further information from the applicant.

Further, the Official Receiver is able to investigate, either on his own account or as the result of an objection from creditors and is able to revoke the order if the debtor is found to have understated assets or income or does not meet the entry criteria or if the debtor doesn’t co-operate.

What are the effects of a DRO?

During the period an order is in force, the debtor will:

• Be protected from enforcement action by the creditors included in the application (those creditors would need to seek leave from the court to pursue their debts).
• Be free from those debts at the end of the period (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 financial circumstances improve

As with other forms of personal insolvency, credit rating will be affected and there will be civil and criminal penalties for those who abuse the system.

What restrictions will be placed upon a person who has a DRO?

For the duration of the Order, the debtor will be subject to similar restrictions to bankruptcy and their details will be on the Individual Insolvency Register on http://www.insolvency.gov.uk

Furthermore the Official Receiver will be able to apply for a Debt Relief Restrictions Order, similar to the bankruptcy restriction order, which will extend the period of restriction for up to fifteen years for debtors who are dishonest or culpable.

I am a creditor and have information to indicate that the debtor does not meet the criteria, what should I do?

Provide that information to the Official Receiver who will consider every valid objection and is able to revoke a DRO if appropriate.

Aren’t DROs just an easy way for people to run up debts then get them written off?

DROs are aimed at people with no assets and a low income with no other access to debt relief and no prospect of the situation improving. If people do have assets or there is a possibility of an improvement in financial circumstances, a DRO is not an appropriate solution and other debt remedies are available.

Whilst the official receiver will not automatically investigate cases, he or she is able to do so. Investigations may lead for example to a revocation of the order or an application to court for a restrictions order, the effect of which is to extend the restrictions placed upon a person under a DRO for a period up to 15 years.

What is an intermediary?

A trained debt advisor who has been approved to act as an intermediary by a ‘competent authority.’

It is anticipated that the intermediary will have completed basic checks on the information provided by the debtor, such as considering paperwork and evidence of income, liabilities. If it is considered that a DRO is suitable in the circumstances detailed by a debtor, the intermediary will complete the online application upon the debtor’s request.

The role of the intermediary is not yet finalised. A working group consisting of representatives from the advice sector has held regular meetings to work out the detail. Minutes of these meetings are available on the insolvency service website.

How can I become an intermediary?

By application to a competent authority. It is expected that intermediaries will already be trained money advisers.

What is a competent authority?

A body designated by the Secretary of State as being able to authorise intermediaries. It will be a matter for the competent authority to determine the suitability of each intermediary that they authorise and to ensure those intermediaries have, for example, appropriate training, experience, complaints procedures, equal opportunities procedures.

How can I become a competent authority?

By application to the Secretary of State. The process is not yet finalised but it is anticipated that it will include evidence to support the requirement that a competent authority will satisfy itself as to the suitability of the intermediaries it authorises.

What stage are developments at?

The primary legislation received Royal Assent in July 2007 and the detail is being finalised, both the secondary legislation and the processes, including development of an IT infrastructure.

New legislation generally comes into force in either April or October of each year. It is anticipated that debt relief orders will come into force in April 2009.

Where can I get more information?

The primary legislation, the Enforcement Courts and Tribunals Act 2007 is available on http://www.opsi.gov.uk (http://www.opsi.gov.uk/acts/acts2007/uk ... 70015_en_1) Debt relief orders appear at clause 108 and are detailed in Schedule 17, page 266 onwards.

Once the secondary legislation is in draft form, it will be available for public viewing on The Insolvency Service website as part of a public consultation.

The original consultation document entitled ‘Relief for the Indebted – An Alternative to Bankruptcy’ is available from http://www.insolvency.gov.uk under the section entitled ‘I am interested in insolvency law, policy changes and evaluation and consultation,’ then follow the link to the consultation register.

The minutes of the Intermediaries Working Groups are available from http://www.insolvency.gov.uk under the section entitled ‘I am interested in insolvency law, policy changes and evaluation and consultation.’