Debt Relief Orders
IMA has been approved as a Competent Authority
This means that you will be able to apply to us to be approved as an Intermediary.
Training
A DRO training programme has been developed by the Money Advice Trust (MAT) which will run from 9th February 2009. The training programme will be a four step approach incorporating e-learning, distance learning and for those who are applying to be approved as intermediaries, a face to face training session.
To keep up to date with training issues log onto Wiseradviser by following the link. Once you have logged on select E-Learning and DROs.
Background to DROs
As a result of a consultation by the Department of Constitutional Affairs in 2004, it was determined that for some people who get into debt, the solutions that are available are not appropriate. As a result of this the Insolvency Service under took a consultation exercise in 2005 to deal with the perceived need to offer a remedy for such people. A proposal was put forward for a non-court based scheme of debt relief aimed at people who have no assets, a relatively low level of liabilities and no surplus income with which to come to an arrangement with creditors.
The existing debt relief remedies either require the debtor to have assets or funds available to distribute to their creditors on a regular basis (for example Individual Voluntary Agreements, Count Court Administration Orders or a non statutory debt management plan) or have financial barriers that make them inaccessible.
Therefore, in order to provide debtors with better access to debt relief, one of the measures introduced by the Tribunals, Courts and Enforcement Act 2007 was a new form of debt relief called a Debt Relief Order (DRO).
How it will work
DROs are expected to come into force on 6th April 2009. In contrast to other forms of debt relief, DROs are delivered in partnership with debt advisors, primarily from the advice sector. Representatives from the advice sector act as 'intermediaries' and assist debtors in making their application for a DRO to The Insolvency Service. This process will be done on-line.
DROs will not be available through the court system. Instead the orders will be made by an Official Receiver, and a separate unit for this purpose is being set up at the Official Receiver's office in Plymouth. An application for a DRO will be made online, through an authorised intermediary who is a skilled debt advisor.
Once the order is made creditors who are included in the DRO will then be prevented from taking any action to recover or enforce their debts against the debtor. Generally those debts will be discharged at the end of one year.
The Official Receiver will not routinely investigate the affairs of debtors subject to a DRO. However the Official Receiver retains significant powers of enquiry and enforcement (ranging from revocation of the DRO to criminal and civil sanction). This may be relevant where, for example, creditors advise the Official Receiver of substantial assets or liabilities not disclosed in the DRO application, but equally investigation may be arbitrary.
Eligibility for a DRO
In order to be eligible for a DRO a debtor must satisfy stringent qualifying conditions, including full disclosure of his income and expenditure. The principle parameters for a DRO are liabilities of less then £15,000, assets under £300 and a disposable income of less then £50 per month. The Official Receiver will then carry out certain checks to verify information provided. Applicants will be allowed to have a vehicle with a value of less than £1,000.
Payment
The fee for a DRO will be £90.00; this covers the cost of the Official Receiver's work in administering the application and making the order, and has been set to cover the cost of the actual work involved. The DRO payment can be made by the client via 'Pay Points', will be made directly to the Insolvency Service and not to the adviser or their agency. The DRO application can only be finally submitted when full payment has been received by the Insolvency Service. Any money paid can be returned if the applicant does not wish to complete.
In Perspective
Although DROs are aimed at providing a cheaper method of seeking debt relief, they are not an easy option to resolving indebtedness. Debtors subject to DROs will still be subject to the same restrictions as bankrupts and will only be able to access a DRO once every six years. There will be a lasting impact on the debtor's credit rating and the DRO will be displayed on the Individual Insolvency Register as currently happens in bankruptcies.
One major difference between bankruptcy and DROs is that there is no debtor's estate when a DRO is made, hence the Official Receiver will have no legal claim over the debtor's property and will not be seeking to realise assets and pay dividends to creditors. It is a basic requirement of the DRO process that debtors do not have sufficient assets or surplus income to make any realistic payment towards their debts.
Currently 11% of all bankruptcies would have qualified for a Debt Relief Order. The Insolvency Service anticipates that there will be within the first year of DRO availability up to 21,000 DRO applications, with a middle estimate of 14,000. It is projected that this will rise to up to a maximum of 43,000 in the second year of operation, with a middle estimate of 26,000.
From April 09 Debt Relief Orders will be an option for clients to consider and organisations will therefore need to ensure that they are able to provide this service or have suitable referral systems in place to organisations which do.
Further information on DROs including FAQs and a link to the primary and draft secondary legislation is available on the Insolvency Service website - follow the link: Insolvency Service and DROs
Competent Authorities
The IMA amongst other agencies applied to the Secretary of State to become a Competent Authority. We have now received confirmation that our application has been accepted. Skilled debt advisers will have to apply to one of the Competent Authorities to be an approved Intermediary. A Competent Authority will have the power to approve or decline the applicant and to continue to assess their suitability as Intermediaries.
Intermediaries
There are statutory conditions attached to becoming an intermediary, for example Intermediaries will need to be:
- Not subject to a bankruptcy or a Bankruptcy Restriction Order
- Able to prove their identity
- Covered by an OFT Consumer Credit Licence (or exempt) and by suitable indemnity insurance
- Suitably trained and experienced
Urgent Enquiries
If you have an urgent enquiry please email me sallie.johnson@i-m-a.org.uk
