IVA News

A Debt Relief Order (DRO) is a new individual insolvency procedure which came into force on 6 April 2009 and which provides an alternative route into personal insolvency for certain categories of over-indebted individuals, subject to some restrictions namely the individual must have liabilities of less than £15,000, assets of less than £300 and surplus monthly income of less than £50. The Insolvency Service (IS) published its figures on Friday 5th February and DRO’s represented 11, 831 of the total individual insolvency figures for 2009.

Almost a year on and DRO’s are still only available to individuals who meet the criteria above, however, gaining access to services who provide DRO’s is proving to be the biggest obstacle as in the case of Fred Mc Carthy,(see extract from the The Times below), who found himself struggling with debt and but for advice given by a veteran group he would have found himself in a Debt Management Plan as opposed to a DRO which, given his circumstances would likely have been unsuitable.

Mr McCarthy’s case paints a picture of a debt advice network that it is said to be struggling to cope. Citizens Advice Bureaux in England and Wales are dealing with nearly 10,000 new debt problems every working day. His story also highlights the sometimes inconsistent and confusing guidance provided by different advisers. This has prompted calls by industry experts for tighter regulation to toughen up the policing of debt advisers and to ensure that they are providing the best advice. However, you can apply for a DRO only through an approved debt adviser. The CAB says that it has more than 1,000 trained intermediaries who can advise on the full range of debt remedies, including DROs. Unfortunately, one wasn’t available at Mr McCarthy’s local branch, which recommended that he contact the debt charity Payplan. The adviser he spoke to there was “not very friendly” and he was told that, contrary to CAB’s advice, he could not apply for a DRO. Instead, Payplan recommended that he take out a debt-management plan (DMP).   

Unlike a DRO, this would not wipe out his debts. Instead Payplan would work to agree a budget acceptable to Mr McCarthy and his creditors. He should then have been able to repay his debts at a reduced and more affordable rate. Mr McCarthy decided to get a second opinion and approached the government-backed National Debtline, another charity. He says: “I was kept waiting on the telephone for nearly an hour. When I got through, I was asked about my expenditure and income and was told that I would not qualify for a debt-relief order.”It was a similar story at the Consumer Credit Counselling Service (CCCS). After giving details of his finances over the phone, it was more than a month before he was able to talk to the CCCS again, although it claims it tried to contact Mr McCarthy in that period. “The months were rolling by and I was worried that my creditors were beginning to get threatening. My wife imagined bailiffs knocking on the door.”He spoke to a number of other fee-paying debt advisers, none of whom recommended a DRO. When one offered to arrange bankruptcy, for a £1,000 fee, he phoned the British Legion, as an ex-serviceman, to see if it would pay the charge. The Legion declined his request, but one of its financial advisers said that a DRO was the best route forward, and that the Legion would even pay the required £90 fee. He says: “The British Legion came to my house and kept me informed every step of the way by e-mail and telephone. It is a big weight off my mind, even though the journey to the DRO was horrific.

Although McCarthy got his DRO in September, Payplan, National Debtline and CCCS insist that the advice he was given was appropriate. (source: The Times)

As with all new procedures, over time DRO’s will bed down and are expected to increase but individuals are still at danger from unscrupulous debt management companies who do not offer DRO’s (though granted, many people don’t always fit the strict criteria).

The Insolvency Service reported that some of those who had a DRO approved would have been declared bankrupt had the DRO route not been an option, but said it was not possible to quantify this proportion.

The worrying trend for DRO’s is seemingly access and satisfying the strict criteria, the effect will only become clearer once they have been in place for some time.

Will the new comer pass the test or will it need to be re vamped to make it more accessible to the individuals it is meant to help?

Blayne (Mar 2010)

This entry was posted on Wednesday, March 10th, 2010 at 10:15 pm and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.