The Truth About The 12 Month Bankruptcy Or Debt Relief Order

Tuesday, 1. September 2009

We are hopefully seeing some green shoots of economic recovery in various parts of the world. In the UK we paid off more than we borrowed last month for the first time ever and house prices are starting to rise but company closures and redundancies are still running at a high level and will probably do so for some time as we bump along waiting for the sustained upsurge in the UK and world economy. This means that many more of the population will continue to find themselves in financial difficulty. There are many new laws and much more help for those that are struggling but there appear to be some misunderstandings when it comes to the mini bankruptcy solution called a Debt Relief Order introduced in April 2009. The DRO lasts for just 12 months but not all people qualify as it was set up to help those at the bottom end of the debt chain but who suffer most over relatively small debts. The solution is available to those who have no other solution such as bankruptcy, maybe because they can’t afford it. To qualify they must also satisfy the following:

Low liabilities – must not exceed £15,000
Limited disposable income – less than £50 per month excluding household expenses
Few assets – total gross assets not to exceed £300
Not subject to any other formal solvency arrangement – bankruptcy or individual voluntary arrangement
Living in England or Wales or resident or carried on business here in the last 3 years
Unable to pay off debts in a reasonable time

As can be seen the help is at a very low debt threshold and not, as some believe, available to all. Application must be made to the Official Receiver for a fee of £90. If the Debt Relief Order (DRO) is granted it protects the applicant from enforcement action by those included in the DRO. Any debts not included can be pursued by the creditors through to bankruptcy so it is important to include all debt. The debtor’s credit rating will be affected and their name placed on the Individual Insolvency Register which can be searched by anyone. No debt can be entered into over £500 without disclosing the DRO during the period of the DRO and the debtor cannot be involved with the management of a company or be a director without the consent of the court. The issue of a DRO will not affect the lenders rights under an HP agreement so he is entitled to reclaim a vehicle that may be subject to an HP contract. Whilst the value of the car cannot be taken into account when calculating the asset strength of the debtor, as the car is owned by the lender, the outstanding debt must be included in the liabilities which may disqualify him by taking him over the £15,000 threshold. If the debt has been included in the DRO no further action can be taken against the debtor, if it hasn’t been included the lender can pursue the debtor as he is not constrained by the DRO. By Graham Hill