Debt Relief Orders hit record numbers

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debt relief orders hit record numbers

A record number of Debt Relief Orders (DROs) were taken out in April, as the £90 fee for the insolvency option was scrapped.

DROs are available to those on low incomes and clear existing debt on everything from council tax to energy bills and rent.

Some 3,436 Debt relief orders were taken out in April – the highest monthly number since they were introduced in 2009, figures from the Insolvency Service, external show.

It drove a rise in the total number of insolvencies in England and Wales, up 10% on the previous month and 4% higher than April last year.

Following an announcement in the Budget, the government scrapped the £90 fee to apply for a DRO in England and Wales on 6 April.

The number taken out that month was then 63% higher than the monthly average over the last 10 years.

Debt charity Citizens Advice said that nine in 10 of the people they helped apply for a DRO had struggled to cover the £90 fee, with many being priced out of insolvency.

Debt Relief Orders – When can they be used?

There are Specific rules are specific rules regarding Debt relief orders, which means:

  • It is for those whose debts do not exceed £30,000, although this will rise to £50,000 from 28 June

  • Applicants have to work with a debt organisation and have no more than £75 left each month once essential costs have been paid

  • Those applying for DROs can own a car up to the value of £2,000, but this will rise to £4,000 from 28 June

  • If an application is accepted, some debts will be frozen for one year, then written off

  • In Northern Ireland, DROs still cost £90 and have tighter qualifying criteria, but the Northern Ireland government say similar changes “are currently being considered”

  • In Scotland, the equivalent scheme is a Minimal Asset Process, and the fee was scrapped in 2020

In 2023, some 31,717 DROs were granted in England and Wales – more than during any year for five years.

After the plan to scrap the fee in England and Wales was announced, charities called for greater resources to help deal with a predicted rise in demand.

What is a Debt Relief order?

A Debt Relief Order (DRO) is a form of debt solution available in the UK that allows individuals to deal with their debts without going through bankruptcy. It is designed for people who have a low income, few assets, and minimal disposable income.

In order to qualify for a DRO, an individual must owe less than £20,000 in unsecured debts, have less than £1,000 worth of assets, and have less than £50 per month left over after paying essential living expenses.

Once approved, the individual’s debts will be frozen for one year and then written off.

The cost for applying for a DRO was previously set at £90 in Northern Ireland but has been eliminated as of 2020 in Scotland under their  new “Debt Arrangement Scheme”. In England and Wales, the fee remains at £90.

It is important to note that a DRO will have an impact on one’s credit rating for six years. However, it is considered a less severe option compared to bankruptcy and can be a helpful tool in managing debt. It is always best to seek professional advice before making any decisions regarding debt management.

Additionally, it is crucial to understand the eligibility requirements and the potential consequences of a DRO before applying.

Overall, a Debt Relief Order is a valuable option for individuals struggling with unmanageable debt. It provides a means to have their debts written off and start fresh after one year.

However, it should not be taken lightly and careful consideration should be made before submitting an application. Seeking professional advice is highly recommended in order to fully understand the implications and make an informed decision.

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