The Debt Relief Order (DRO) system should be available to more people, including some homeowners, we’ve said today.
DROs are currently available to people with under £15,000 of unsecured debt, under £300 in assets, and under £50 disposable income per month. If someone is granted a DRO, creditors can’t chase their debts and they are written off after a year. They’re intended to give people on low incomes who can’t pay off their debts an alternative to the expensive process of bankruptcy.
We’ve told the Insolvency Service that the debt and asset limits should both be increased, and that how assets are calculated should be changed. At the moment the gross value of someone’s property is used, not the amount that they could actually realise if they sold the house and paid off their mortgage. This means that people in negative equity – whose mortgage is greater than the house’s value – can’t get a DRO, even though they wouldn’t have any money left over after the sale. We think someone’s house should only be treated as an asset if they could actually raise money to repay their debts by selling it.
It’s also important that processes that deal with people’s debts should help them get back on their feet sustainably, so we’d like to see money management training as part of the DRO process.
Finally, we’ve called for creditors to be prevented from applying to make someone bankrupt if they are owed less than £3,000. The current level is £750, and has been the same since 1986 – we think this is much too low for such a serious consequence.
Our full response can be found here.