Changes to Personal Insolvency Regime

Businesses dealing with consumer credit should be aware that on 15 January 2015, the Government announced plans to provide easier access to debt relief for insolvent individuals. It estimates that the changes will make another 3,600 people eligible to enter into Debt Relief Orders ('DROs') each year.

DROs enable individuals who do not own their home and do not have significant spare income to be relieved of the burden of their debts.  Currently they are only available for those with debts of £15,000 or less; assets of less than £300; and £50 or less of surplus income after the payment of household expenses.

If the individual has a car, to eligible for a DRO, it must be worth less than £1,000.  The applicant must also have been resident in England & Wales for the last three years and not have had a DRO, an individual voluntary arrangement or been made bankrupt in the last six years.

To apply for a DRO it is necessary to contact an approved intermediary or DRO adviser who will assist with the application.  DRO advisers can be found through most Citizens Advice Bureaux.

Subject to Parliamentary scrutiny the proposed changes will come into force into force - after the forthcoming election - in October 2015.  The changes include the following.

• The DRO ceiling is to be raised from £15,000 to £20,000 - enabling more people with low debt levels to use DROs instead of the bankruptcy process
• The DRO asset ceiling is to raised to £1,000, plus a vehicle (although this is still provided it is worth not more than £1,000)
• A light touch monitoring of the approved intermediaries.

The ceiling surplus income a person can have to qualify for a DRO will remain at £50 per month.

In a related proposal the Government intends to increase the minimum level of debt for which someone can be forced into bankruptcy from £750 (the level set in 1986) to £5,000.  This is a very significant shift and will preclude creditors owed relatively modest sums from forcing individuals into bankruptcy against their wishes.

Although these proposals are not scheduled to come into force during the current Parliament, given their relatively uncontroversial nature, we would not expect them to face undue opposition.

Struggling with debt can cause immense stress and have adverse health and relationship consequences.  Individuals struggling with debts of £20,000 or less are encouraged to seek early advice from the National Debtline (0808 808 4000).