Difference DRO and bankruptcy

grantmondo2010

What are the advantages of choosing a DRO over bankruptcy?

i know bankruptcy is several hundred pounds and DRO is less than a £100 but the DRO sounds much harder.

with bankruptcy you don’t have to get all your debts listed, it doesn’t matter if you left one out. But DRO if you forgot to list one then you still owe it?

bankruptcy can be done every year but DRO every six years?

what are the other differences?

fatbelly

grantmondo2010 said:

What are the advantages of choosing a DRO over bankruptcy?

Off the top of my head:
Cheaper application fee
Can only be done in conjunction with professional debt advice 
A car up to £1000 is protected
Assets up to £1000 are protected
You can keep up to £50 per month surplus income
Basic investigation by the Official Receiver
Landlord not informed, bank not informed, not in London Gazette
If you have a large windfall, acquire assets or increase surplus income during the moratorium, the DRO fails but you are not required to pay creditors or the OR - you just go back to square one.

If I think of any more I'll be back

sourcrates

You will hardly know you are in a DRO, its a very unintrusive process, and its not difficult to list your debts, for the slight bit of effort involved on behalf of the debtor, having them all written off after 12 months is a bonus.

Your involvement with the IS is limited to one letter, if your debts are under 20k, and you meet the other criteria, then its a no brainer.

However, its not a question that usually gets asked, as anyone concidering bankrupcy usually has debts of several tens of thousands, well over the threshold for a DRO.

grantmondo2010

I wonder if that £20K will get increased in light of the global crisis?

fatbelly

Yes, there's talk of it. When it went from 15k to 20k it took the government about six months to implement the change. However, when they realised social fund loans weren't excluded in the DRO legislation, they changed the law overnight. So it could happen quickly if they wanted it to.

mwarby

I would caution against holding off, waiting for a rule change. As the months roll on hopefully the economy will start to recover, which could jeopardise a DRO or result in an IPA in bankruptcy.

If you were to start bankruptcy now the 12 month limit to setup an IPA starts now, so the sooner you can take advantage of any upturn. 

grantmondo2010

mwarby said:

I would caution against holding off, waiting for a rule change. As the months roll on hopefully the economy will start to recover, which could jeopardise a DRO or result in an IPA in bankruptcy.

If you were to start bankruptcy now the 12 month limit to setup an IPA starts now, so the sooner you can take advantage of any upturn. 

What does this mean please?

i just want all my debts gone not set up an IPA or anything?

SkintSquaddie

grantmondo2010 said:

mwarby said:

I would caution against holding off, waiting for a rule change. As the months roll on hopefully the economy will start to recover, which could jeopardise a DRO or result in an IPA in bankruptcy.

If you were to start bankruptcy now the 12 month limit to setup an IPA starts now, so the sooner you can take advantage of any upturn. 

What does this mean please?

i just want all my debts gone not set up an IPA or anything?

What is an IPA?

An IPA:

• is a formal, legally binding agreement between you and the bankruptcy trustee
• means you'll usually make regular monthly payments towards your debts, although you could also be asked to make a one-off lump sum payment
• normally lasts for three years, even though you will usually be discharged from bankruptcy earlier than this
• is normally a minimum of £20 per month
• doesn't require you to go to court
• can be changed if your financial circumstances change.

Will you be asked to make an IPA?

If your only income is from benefits, you won't be asked to make an IPA.

If you have any income that isn't from benefits, such as wages or maintenance, you'll only be asked to make an IPA if you're bankrupt and you have more than £20 of disposable incomeeach month after paying for you and your family's bills and day-to-day living expenses.

If you have more than £20 of disposable income each month but don't agree to the IPA, the bankruptcy trustee can apply to the courts for an income payments order (IPO). This would mean a proportion of your salary or wages would be paid to the trustee. You'll be given at least 28 days' notice of the court hearing. You can either:

• agree to the IPO, which would mean there won't be a court hearing
• oppose the IPO, meaning you'd have to attend the court hearing and explain why you oppose it.

How an IPA or IPO is worked out

Normally, if you have more than £20 disposable income per month you'll be expected to pay it all as your IPA or IPO payment. So the more disposable income you have, the more you'll have to pay.

Your disposable income is what's left after the reasonable day-to-day living expenses for you and your family have been paid. The official receiver will always consider your views about what is 'reasonable' or necessary spending for your circumstances, but these expenses would normally include:

• your rent or mortgage payments
• food
• heating and lighting
• TV licence
• broadband and telephone service
• household insurance
• car tax and insurance, if the trustee has allowed you to keep your car
• membership of the AA, RAC or similar, if you're allowed to keep your car
• professional membership fees that are part of your job and not paid by your employer
• prescriptions, dental treatment and opticians' fees
• payments under a maintenance order or child support agency assessment
• a reasonable monthly cost of a mobile phone
• dry cleaning.

Reasonable amounts of spending on other items may also be considered, including:

• clothing
• holidays
• hairdressers
• extra-curricular activities for your children
• after-school clubs
• pets.

The following spending would not generally be classed as reasonable day-to-day living expenses, although there may be situations where you can argue otherwise:

• gym membership, sports expenses or club membership, although you may be able to argue you need this for medical purposes
• pension contributions you're making to enhance a private pension
• private health insurance
• money for gambling, alcohol or cigarettes
• satellite TV, although if you have a 'combined' package with broadband and telephone service, the official receiver will look at whether this saves money overall
• excessive mortgage payments
• regular payments to charities or religious organisations.

If your circumstances change

If you're paying an IPA or IPO and your circumstances change, you should tell the trustee straight away. A change of circumstances could include:

• your income has gone up or down
• you've received a lump sum payment, for example through an inheritance
• you're having financial difficulties, such as losing your job

mwarby

grantmondo2010 said:

mwarby said:

I would caution against holding off, waiting for a rule change. As the months roll on hopefully the economy will start to recover, which could jeopardise a DRO or result in an IPA in bankruptcy.

If you were to start bankruptcy now the 12 month limit to setup an IPA starts now, so the sooner you can take advantage of any upturn. 

What does this mean please?

i just want all my debts gone not set up an IPA or anything?

An IPA (Income Payment Agreement) is a repayment of your disposable income for 3 years and applies to bankruptcy only. You don’t decide if you get one or not really, but there are ways of mini sing the chances of one being sought

The best way of avoiding an IPA is to earn very little, which in a recession/depression isn’t too hard.

If you don’t get an IPA setup in the first year, they can’t setup one at all 

fatbelly

If you were in Scotland there are some changes going through.
https://www.lexology.com/library/detail.aspx?g=39ce7220-090c-4357-9cd7-95d44e9faddd
However, the two jurisdictions (England&Wales being the other) rarely take any notice of what the other is doing.

Flyright

There are no changes to the English insolvency process as a result of Covid-19 planned currently.