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What do the New Rules Around DROs Mean for Consumers?

Changes to eligibility means that an estimated 13,000 more people will be able to access DROs.


DROs were introduced in 2009 as an alternative to bankruptcy for those who have little to no assets and who were unlikely to ever be able to pay much towards their debts.


What is a DRO?


As defined by gov.uk, a DRO is a debt solution which, when taken out, means you don't have to pay certain kinds of debt for a specified period (usually 12 months). At the end of the DRO period, the debts included in it will be written off ('discharged') and you won't have to pay them.


At the beginning of the year, The Insolvency Service began looking into making changes to the existing rules around DRO (Debt Relief Order) eligibility, and decided to implement some of those changes starting from tomorrow.


Here's what's changing from the 29th June 2021:


1. Total Allowed Debt Increasing by £10,000


In line with increasing debt levels since its last revision in 2015, when the amount of total allowed debt was increased from £15,000 to £20,000.


Now, almost 6 years later, the amount has doubled to £30,000 - meaning that those with accumulative debt amounts up to this are able to access debt relief orders.


2. 'Disposable Income' Level Increasing by £25


The new disposable income amount is £75.


Due to a number of factors, including inflation, the rising cost of goods and general living, an increase in the permitted amount of disposable income (which is income remaining after paying all bills and expenses) is an important and valuable change that will really help those who, for a while, have been unable to access a DRO by just a few pounds.


This could also be a step forward in looking to prevent poor mental health as a result of debt, which limits social interactions, ability to eat a nutritious diet, or be able to travel to access mental health services. Even a slight increase will give debtors a little more freedom with what they spend.


3. Increase in General Assets Value by £1,000


The increase in the value of assets will give people more leeway if they were to receive a windfall or gifted asset that might usually have voided their DRO.


Currently, assets with a value of more than £1,000 make a DRO unaccessible to the debtor, despite the value of any assets listed being based on the second-hand value. As of tomorrow, the accepted cost of assets for a DRO is £2,000.


4. Increase in Car Cost by £1,000


By increasing the value of a car allowed in order to access a DRO, this could provide those who need a car to travel to work, people with families, or those who need a car for other essential reasons to still take out a DRO as long it has a value of no more than £2,000.


Many low-paid workers require a car to both access their place of work, or even as part of their job. For example, juggling work and the school run, working night shifts, or living in a more rural area where public transport is either unaccessible or unreliable.


In these cases, cars are a necessity and the increase from £1,000 to £2,000 is a positive step forward.


So, what does this mean for consumers?


These changes have been a long time coming, and definitely needed following a global pandemic that caused financial and/or debt problems for many who suffered some income loss, sickness, or other unfortunate financial issues as a result of a difficult year.


The increase in both debt amount and disposable income are good news for those who may have just missed out on being able to qualify for a DRO beforehand. The current disposable income allowance of £50 is extremely low, and often, is a factor that can affect debtor's decision to look for work, as they fear that their DRO might be revoked.*


By increasing the disposable income amount, this might give some people the freedom to seek work without reaching an amount that stops them from going ahead with the DRO.


Overall, these changes to eligibility factors for debtors to qualify for a DRO will hugely help those in extreme or unfortunate financial circumstances that mean there are limited other affordable options for them to pay off, or get rid of, their debt.


*For context, a DRO writes off all debts as long as the debtors financial situation doesn't improve over a 12-month period. If a debtor begins to receive a higher income or can afford to pay more, the DRO no longer stands.



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