Debt Relief Order – is it really? A relief?

As Debt Relief Orders, more informally known as DRO’s roll out this week, many of those around the country continue to struggle with their ever growing debt.  The Debt Relief Order (DRO) is a new tool built to help those who can’t afford to help themselves and genuinely see no way out. Helping the poorest within our communities, this legislation could be a remedy we’ve all been waiting for, lifting the burden of debt in many households.

In theory, the DRO appears to be the perfect remedy to what, for many, has been the headache of a lifetime. Costing only £90, and without the stigma of bankruptcy, DROs write off all remaining debt after 12 months. The only consequence – being placed on the Insolvency Register, which would happen to you anyway even if you entered into an IVA, or became bankrupt.

On closer inspection though, it seems not everyone qualifies for this new debt prescription.
To be eligible for a Debt Relief Order, in addition to being a UK resident for a minimum of 3 years (or have lived in the UK within the last 3 years if currently living abroad), you must have liabilities no higher than £15,000; not own a house or have total assets exceeding £300; and disposable income after bills must be no more than £50.00 per month.
According to Credit Action, the average UK household is £9,500 in debt. So the average UK household, if not a house owner will actually qualify for this form of debt relief.

R3 (the Insolvency Practitioners Trade Association) claims that over the period of the next 12 months, 1 person every 3.3 minutes will either become bankrupt or enter into an IVA. So clearly, there is demand for such a service.
However, despite the need for a DRO, and despite many of us having the right amount of debt to qualify, the question which must be asked is, how many of us really have assets less than £300? How many of us could honestly say we have an income (after bills are paid) of £50 a month and not a penny more? And, therefore, how many of us could genuinely benefit from a DRO at all?

At the Reform of the Debtor Bankruptcy Petition Process Seminar the other week, I was advised that this DRO initiative would help 11% of all current bankruptcies – this would therefore amount to around 5,000 per year!

I admit, wholeheartedly that there are people out there that will qualify for a DRO and will be in desperate need of this service. But for many in this country, for various reasons, this remedy is completely inadequate and they’ll need to look at DMP’s, IVA’s or Bankruptcies as more realistic options to undertake.

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