Eligibility criteria for debt relief orders set to change

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The Insolvency Service – an executive agency of the Department for Business, Energy and Industrial Strategy which administers compulsory liquidations and personal bankruptcies – has revealed that from 29 June 2021, changes will be made to the eligibility criteria for debt relief orders.

Debt relief orders were established in April 2009 following a consultation in 2004. Their purpose was to offer cheap and easy access to debt relief for individuals who found themselves in financial difficulties, and provide an alternative to bankruptcy.

A debt relief order is a potential route for anyone in a position where they are unable to pay their debts. The order ensures that a person in debt will not have to pay certain kinds of debts for a given period, usually 12 months. At the end of the debt relief order period, the debts identified will be written off.

The current eligibility criteria, in place since 2015, for an individual to apply for a debt relief order is as follows:

  • Debts of £20,000 or less
  • Assets of less than £1,000
  • No more than £50 surplus monthly income
  • Lived or worked in England or Wales in the last three years
  • Not had a debt relief order in the last six years

However, the government plans to implement new legislation in Parliament at the beginning of June 2021 to introduce new eligibility criteria:

  • Increase the threshold on the value of the assets that a person can hold and be eligible to enter into a debt relief order to £2,000
  • Increase the value of a single vehicle that can be disregarded from the person’s asset threshold to £2,000
  • Increase the level of surplus monthly income received by the person before payments should be made to a debt relief order creditor to £75.
  • Increase the total debt allowable for a debt relief order to a minimum of £30,000

As a result of the imminent changes, the Insolvency Service foresees an exceptional increase in the number of people using debt relief orders in the next year. Furthermore, these new criteria may work in tandem with the end of the first 60 days of the debt respite scheme which commenced on 4 May.

In order to apply for a debt relief order, an individual will need to appoint an authorised debt adviser to assist them. The debt adviser will complete all the necessary application forms and submit them to the official receiver. The official receiver’s fee is £90 which must be paid when the application forms are submitted.

The individual will need to declare to the official receiver if in the last two years:

  • Payments have been made to some creditors but not others
  • Assets have been given away or sold for less than their value

The official receiver will need look into the individual’s financial affairs before granting a debt relief order.

If a debt relief order is granted, or one was granted previously, it will impact an individual’s credit rating and their ability to get credit in the future. The debt relief order will appear on all credit reference files and will remain for up to six years after the date when the order was made.

An individual may find it difficult to open new bank accounts and will not be able to get credit of £500 or more without informing the lender that they have a debt relief order.