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Debt Relief Orders: Will New Changes Cause More Problems than Solutions?

Debt Relief Orders (DRO) are a suitable debt solution for many people in unmanageable debt, depending on their personal circumstances.


A man sits at a dining table in a small modern kitchen. He appears to be working from home; With a notebook and hot drink to his side, concentrating on an open laptop.

Since 2015, eligibility criteria for a DRO included the debtor having under £20k of debt and a disposable monthly income of £50 or less.

Recent reports have highlighted the consideration for eligibility criteria for this debt solution to be adjusted, with suggestions that the debt amount be increased by 50% to £30k, and monthly disposable income to be increased by 100% to £100.

How will these changes affect the debt industry, creditors and debtors?

Johny McCusker, Head of Debt Advice and Harjit Moore, CEO, of Freeze Debt offer their differing opinions on the change in DRO eligibility rules:



Johny: "The cost of living has increased, money is worthless"


Inflation means that everything is constantly getting more and more expensive.


Regardless of how much you earn, or how much you owe, what may have been £20 five years ago, could now be £25 - and putting everything we buy into perspective, this quickly adds up.


In relation to the suggested changes, £100 in this day and age really isn’t a lot of money, and increasing the monthly disposable income from £50 to £100 could give those struggling more viable options to pay back their debt.

Equally, the rise from £20,000 to £30,000 as a cut off point for the amount of debt will give more people the option of a debt relief order, rather than being forced into bankruptcy if they can’t afford to pay back their debt.



Harjit: “We should never be encouraging that people avoid paying back debt.”


Debt isn’t inherently bad and there is a place for it - but part of this is the agreement to pay back what you owe.


I believe that a large majority of those who have taken out debt do so as a temporary measure but it’s just so easy to continue relying on what seems like ‘free money’ to fund certain parts of your life.


However, for those that are faced with unaffordable debt, sometimes a clean slate is the only option.

An increase in monthly disposable income and debt threshold will mean that lenders will lose out on more than they already do as a result of DROs and these increases could unintentionally encourage people not to pay back their debt.


There’s no doubt that if it was available, we’d all rather wipe our debts over paying them back, so if this option is provided on a wider scale, more people could take advantage of this by increasing their debts despite not having the money to pay them back.


Debt solutions like DROs should be used when debt becomes unaffordable and begins to affect a person’s life in a range of ways - not just financially.



Our suggested compromise


The proposed changes have struck a chord with both creditors and debtors but not in the same way. Creditors face losing out on more money than ever before, whilst debtors look at the possibility of a little more breathing space when it comes to their debts.

Realistically, meeting the needs of both parties is what we want but it may not be possible depending on the final decision.


Our suggestion, as a FinTech working in the debt industry and communicating with both creditors and debtors on a daily basis, is a CDRO.


What is a CDRO?


We may have just coined this phrase but a CDRO (Coronavirus Debt Relief Order) does exactly what it says on the tin.


CDRO stands for Coronavirus Debt Relief Order and would provide those whose finances have been affected by the pandemic with a debt solution relieving them of any debt taken out as a result of being furloughed and then made redundant, made redundant without furlough, a loss of income due to reduced hours or sickness or having lost their job due to their employer ceasing to continue business.


The pandemic has undoubtedly changed the landscape of personal finance, with many struggling financially as a result of such an unexpected change in the way we work, live and go about our daily lives. Therefore, a dedicated debt solution would be a huge support to those who have found themselves suffering as a result of the global crisis.

According to a study by StepChange, ‘an estimated £6.1bn of debt and arrears have accumulated by 4.6m people affected since the outbreak began.’ And whilst not all of those affected would need complete relief from their debts, the simultaneous strain being put on people's finances and mental wellbeing by the pandemic is argument enough for some sort of additional help to be offered.


Of course, there are the more minute details to think about such as eligibility criteria, debt amounts and whether such a debt solution should be able to affect someone’s credit report going forward. But for now, we believe that putting something in place to give those struggling a little more hope and support regarding their financial future is the right thing to do.



About Freeze Debt


Freeze Debt is the first debt advice and solutions app helping UK users to take their first steps towards a debt-free future. Our free service provides those struggling with unmanageable debt a confidential space to speak openly about their debt and financial worries and find a suitable solution based on their personal circumstances.


Freeze Debt's in-app messaging service is a revolutionary and modern way for users to address their debts and find solutions in less than 5 minutes, compared to the traditional and uncomfortable ‘call-centre-model’ that can take an average of 45 minutes.


So far, we’ve helped clear over £30m of debt and helped many people begin their journey to a debt-free future.