Consultation on Debt Relief Orders

The government is consulting on some proposed changes to Debt Relief Orders, which could help 15,500 more people per year with their debts. But there are now nearly 3 million more people who are at risk of long-term debt problems because of the pandemic.

The proposed changes don’t go far enough. By making your voice heard, and taking part in the consultation we can get support for more people who are in debt.

This is an important opportunity to help more people access debt relief.

We are collecting responses to the consultation and will submit them to the government securely in bulk. Unfortunately, we cannot submit anonymous responses, and will also need to share your name and contact details when we submit your response.

However, we will only pass on the same details as you would have had to provide to the government if you responded directly to the consultation.

At the moment, to apply for the Debt Relief Order someone has to:

• have debts of £20,000 or less
• own assets that are not worth more than £1,000 in total (bedding, furniture, tools or other equipment that are essential for work are excluded)
• own no more than one domestic vehicle (which must be worth under £1,000)
• have no more than £50 surplus income each month, after paying tax, national insurance and normal household expenses, and
• Pay a fee of £90.

The government is proposing to:

• Increase the overall debt limit from £20,000 to £30,000
• Increase the overall asset limit from £1,000 to £2,000 (but people still won’t qualify for help if they have a vehicle worth more than £1,000)
• Increase the maximum ‘surplus income’ limit from £50 to £100 and
• Maintain the fee of £90.

The proposed changes are meant to give more people who are in problem debt access to debt relief.

1. Do you agree that changes to the eligibility criteria for DROs are necessary? Please state your reasons.

What it means:

Do the criteria that exist for people to be able to access a debt relief order work? Do you think they go far enough to help people who need support?

Suggested points to include in your response:

Yes, there should be changes to the overall debt limit, asset limit and surplus income limit, but they don’t go far enough. With 3 million people expected to need help with their debts by the end of 2021, expanding the Debt Relief Order scheme to provide help to only 15,500 more people just isn’t good enough.

2. Do you agree with the proposed increases to the debt (to £30,000), asset (to £2,000) and surplus income (to £100) levels? If not what do you think they should be? Please state your reasons.

What it means:

The government is proposing some specific changes to the criteria, what do you think of these? Do they go far enough? Is there anything else you would include?

Suggested points to include in your response:

The limit on the amount of debt that people hold means that those most in debt can’t access the scheme. The limit should be abolished altogether, not just changed to £30,000. It makes no sense for those with the most debt to be excluded from debt relief. Their only other alternative would be bankruptcy, where they would need to pay a fee of £680.

People who own cars which are worth more than £1,000 are excluded from the scheme. Many people need their vehicles to get to work, or to access essential services. The vehicle asset limit should be increased to £5,000.

The increase in the monthly surplus income limit from £50 to £100 is not enough. The government should ensure that anyone who needs to is able to access the scheme. Under the current proposals, only those in poverty will be able to.

Most people who need a Debt Relief Order struggle to raise the £90 fee required to take part, and many can’t access the scheme because of it. The fee should be abolished.

3. Do the proposed changes strike the right balance between ensuring that the most vulnerable individuals are able to access low-cost debt relief at the same time protecting the interests of creditors by maintaining the ‘can pay, will pay’ ethos? Would these levels of assets lead to a return to creditors in another debt relief solution? Please state your reasons.

What it means:

Will creditors lose out too much with these proposed changes?

By the time many people apply for a Debt Relief Order a lot of their debts have already been sold to debt collection agencies at a knockdown rate by the original lenders. So the debt has already been written off by the original lender. The only people who will lose out are the debt collection agencies, and they already assume that 80% of the debts they have bought won’t be repaid anyway.

Suggested response:

It’s not just about the balance of interests between the debtor and their creditors.  If people don’t get access to the scheme, debt can cause serious health problems, including mental health problems. This can affect children, and create barriers to employment. In the most severe cases, worry about debt contributes to relationship breakdown and even suicide. There are wider social costs, which need to be considered and which should be more important than whether or not creditors get repaid. 

There are benefits for some creditors from helping more people get debt relief through Debt Relief Orders.  For example, some people will be better able to pay their rent and Council Tax bills moving forwards because their other debts will have been written off.

The changes could coincide with the introduction of the ‘new breathing space’ scheme for individuals in problem debt, expected in May 2021. This scheme will provide people in problem debt with 60 days of protections from creditor action, including unwanted pressure, whilst they access professional debt advice. 

Making the proposed changes at the same time that 'new breathing space' becomes available will give individuals more choice when considering their debt options and will also ensure that the debt advice sector is ready to deal with any increase in demand as a result of the economic effects of the Coronavirus pandemic.

4. Do you think that Government should aim to implement and commence any changes to the monetary limits for DROs to coincide with the introduction of breathing space in 2021? Please state your reasons.

What this means:

Do you think it would be good to make these changes at the same time?

Suggested points to include:

Yes, improvements to the Debt Relief Order scheme should be made as soon as possible.

5. Do you think there are any other impacts that should be considered? Please state your reasons.

Suggested response:

Once people access the Debt Relief Order scheme they have to keep their monthly incomes low. If they earn too much money at any time over the next 12 months, the Debt Relief Order can be withdrawn and creditors allowed to pursue them for the full debt again. This acts as a disincentive for people to get work or increase their incomes, and keeps them in poverty.

The government should reduce the length of time that Debt Relief Orders last, and should release people from the scheme after 6 months, with their debts written off at that point.  

People who have taken out a Debt Relief Order in the past six years are excluded from taking out another. This makes no sense, because the pandemic may have pushed them into debt again.  The six year exclusion on reapplying for Debt Relief Orders should be suspended, people should be able to apply for a DRO when they need to. 

Even if someone is able to get a Debt Relief Order, their credit score will still be damaged, and any credit they are able to get will be more expensive because of this. The government should require credit ratings agencies to delete someone’s debts from their file when a Debt Relief Order is completed, so that they can get a genuine clean start.

 6. Are there any other comments you would like to make?

You can write whatever you like here.

You could talk about your own experience of debt and trying to get debt relief, and what helped or didn’t help you.

You could also talk about the fact that more changes are needed than tweaks to the system. 3 million more people will need support with their debts because of the pandemic. The proposed changes will only help around 15,500.

So much more can be done.

Thank you for giving us your opinions on the proposed changes to Debt Relief Orders. We will share your responses and the contact details you have given above with the government department which is conducting the consultation.

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