BEIS proposes to increase DRO threshold to £30,000

Plans have been unveiled by the government to increase the eligibility criteria for debt relief orders (DROs) by 50 per cent to £30,000 as concerns about the financial impact of the pandemic continue to grow.

Delivered in partnership with the professional debt advice sector, DROs protect vulnerable people from creditor action and after 12 months all debt within the order is written off.

Under the current criteria, a person who is unable to pay their debts, owes no more than £20,000 and has no more than a £50 monthly surplus after bills can apply for a DRO. The applicant must not own their own home and not have assets worth more than £1,000.

During the order, which usually lasts 12 months, the debtor does not have to make payments to most types of debts and creditors cannot force payment.

The Department for Business, Energy and Industrial Strategy (BEIS) meanwhile said the demand for debt advice could increase by up to 60 per cent by the end of this year and that around 3 million more people than before the pandemic will need support with problem debt.

As such, the government is publicly consulting on changing the eligibility criteria to enter a DRO to:

• Increase the total amount of debt allowable to £30,000
• Increase the value of assets owned by the individual to £2,000
• Increase the level of surplus income to £100 per month

In its consultation document BEIS cites the last time changes were made to the DRO eligibility criteria (in 2015), adding that 35,000 more people were able to access a DRO than would have under previous rules. BEIS believes that under the proposed new changes, 15,500 more people could be eligible for a DRO, representing a 58 per cent increase on the number of individuals who obtained one in 2019/20.

Research published by Citizens Advice in August last year estimated that 6 million UK adults have fallen behind on at least one household bill during the pandemic, with 1 in 5 of those who have fallen behind on their bills unable to afford essentials.

Further research published by the watchdog in December revealed 2.1 million energy customers are currently behind on their energy bills, 600,000 more than in February.

Business secretary Kwasi Kwarteng said: “Suffering from financial difficulties places a huge amount of stress on people’s mental health and wellbeing, which is why we are committed to giving more people who are struggling with debt a chance for a fresh start.

“Debt Relief Orders are a valuable tool for supporting vulnerable people to get to grips with their problem debts. Our plans to increase the eligibility criteria will mean many thousands more could benefit from this help.”

Phil Andrew, chief executive of StepChange Debt Charity, said: “Lower income households with few assets are among those most deeply affected by debt during the pandemic.

“Extending eligibility for debt relief orders will help to give more people a chance to avoid the long-term misery of being trapped by debt that they cannot afford to repay over a reasonable period.”

The consultation will run for six weeks and any changes are anticipated to be put in place in spring 2021.