The Debt Relief Order is a form of insolvency that is designed to offer a simple and affordable path to debt relief for those otherwise unable to get out of debt. However, due to the current criteria, many people are not eligible for a Debt Relief Order. This leaves them with no choice but to go through the more expensive route of bankruptcy to get out of debt, or remain trapped in the grip of problem debt.
The Simplify the Solution report presents CAP clients’ experiences of accessing debt relief through an insolvency solution and examines the roadblocks that they face.
The key findings are:
As well as being significantly more affordable than bankruptcy, Debt Advisors also report that Debt Relief Orders provide a more timely, more certain and less stigmatised journey for clients.
More than half (53%) of CAP clients who apply for bankruptcy are the target demographic for the DRO. These clients have a considerably lower income and fewer assets compared to the average client on a bankruptcy route, but do not qualify for a DRO because of the debt limit or a previous DRO.
The debt limit of £20,000 is the biggest obstruction to accessing a Debt Relief Order. More than a third (37%) of CAP’s bankruptcy clients fail to qualify for a Debt Relief Order solely because of the debt limit. Increasing the debt limit to £50,000 would bring 92% of CAP clients currently wrongly excluded from a DRO (due to the debt limit) back into that solution.
The vehicle value threshold of £1,000 is problematic for people who need a reliable car for commuting or taking children to school, as well as for those with disabilities who must give up a mobility car or scooter to meet the limit.
Debt Relief Orders can be ineffective because only debts scheduled in the Debt Relief Order application are discharged. This is out of step with bankruptcy and is difficult to avoid due to the practices of some creditors and incomplete records on credit reports.
The recognition that further changes are needed now is encouraging to see (see Insolvency Service’s consultation on the Debt Relief Order monetary eligibility criteria), but we need to ensure these really do make sure the solution works for those it was created to help. This will not only benefit people in problem debt, but also support the debt advice sector and economy.
- Raise the debt limit from £20,000 to £50,000, so that people with a higher level of debt are able to access a Debt Relief Order.
- Allow additional pre-existing debts to be scheduled in the Debt Relief Order after the application has been made, if this would not breach the debt limit.
- Raise the vehicle value threshold to £2,000 to reflect the current costs of a low-priced reliable vehicle, and excluding mobility scooters from the limit.
- Review the Debt Relief Order monetary eligibility criteria regularly (every three years) to futureproof access to Debt Relief Orders as a debt solution.