Debt Relief Orders
The IMA is a Competent Authority
This means that if you are a member of the IMA you will be able to apply to us to be approved as an Intermediary.
Background to Debt Relief Orders
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 works
DROs came into force on 6th April 2009. In contrast to other forms of debt relief, they are not 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 can be made online, through an authorised intermediary who is an approved, 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 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.
Debt Relief Orders have been an option for clients to consider and organisations should therefore 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 legislation is available on the Insolvency Service website – follow the link: Insolvency Service and DROs.
Urgent Enquiries
If you have an urgent enquiry please email me katherine.hougham@i-m-a.org.uk
