Debt Relief Order/Bankruptcy rules should be changed, says R3

R3 has called on the government to change the entry requirements for Debt Relief Orders and to raise the minimum level of debt for which an individual can be made bankrupt, in its response to a government ‘call for evidence’ that closes today (9th October).

R3 says the changes are needed to bring the England & Wales personal insolvency regime up-to-date, and to ensure indebted individuals are able to access a debt solution suitable to their needs.

However, R3 president Giles Frampton warns that it is important the ‘call for evidence’ is not a missed opportunity for a much-needed review of the whole personal insolvency landscape. He says:

“R3 has been very keen for Debt Relief Order entry requirements to be reviewed. At the moment, these requirements are unnecessarily restrictive and prevent people from accessing a debt solution that could really help them.”

“Quite frequently, people can be caught between Debt Relief Orders and bankruptcy. They can’t afford the up-front £705 cost of entering bankruptcy but they have too many debts or assets to qualify for a Debt Relief Order. The end result is often that they don’t deal with their debts: this is bad news for both the indebted individual and their creditors.”

“We’re relieved that this ‘call for evidence’ means there is a very real chance that the ‘creditor bankruptcy petition threshold’ will finally be raised. This was last set in 1986 so its value has been eroded by inflation over time.”

“Bankruptcy may be an appropriate way for some to deal with their debts, but it is not an option suitable for everyone. This makes effective safeguards important: placing someone in bankruptcy over a low value debt could be a disproportionate response. Raising the creditor petition threshold would restore some strength to what is currently a weak safeguard.”

“However, it is disappointing that the ‘call for evidence’ only focuses on these two issues. The personal insolvency landscape is inter-connected and should not be updated piece-by-piece. It is to be hoped this is the prelude to a comprehensive review of the personal insolvency landscape. There has not been such a review for three decades – one is long overdue.”

R3 is calling for:

Debt Relief Orders (DRO)

  • The current DRO asset and debt thresholds act as barriers to entry into a DRO. R3 believes that the debt threshold should be increased to £30,000 and the asset threshold to £2,000 in order to ensure that those individuals who need access to debt relief are able to enter the most appropriate debt relief solution for their circumstances.
  • The DRO surplus income threshold should be maintained at a maximum of £50 per month.
  • Where an individual’s circumstances change, such as an increase in salary or an asset windfall, and they no longer fulfil the DRO eligibility criteria, they should be offered the option to transfer into bankruptcy.
  • Revocation of a DRO should apply retrospectively where the individual has provided false information or deliberately sought to mislead or leave out information on their DRO application form.
  • A Debt Relief Restrictions Order should only be imposed for reasons of an individual’s behaviour prior to the DRO and should not be applied simultaneously with the revocation of the DRO.

Creditor bankruptcy petition threshold

  • R3 believes that the creditor’s bankruptcy petition threshold should be raised to £3,000 (from £750). This level would both cover the creditor’s petition costs and ensure an element of legislative ‘future-proofing’ against inflation.

Submitted by R3