For a significant time it has been a common perception that bankruptcy proceedings are a better option for those individuals who find themselves in a position that they cannot repay their debts – thereby seeking sanctuary away from the stress of aggressive creditors and debt collectors. But what is not commonly known or understood is that to avail of this protective measure, the same individual has to stump up £495 to pay for a Court fee and deposit payable to the Official Receiver.

For the socially excluded – such as single parent families or persons whose only income is derived from state benefits or pensions this can effectively deny them from this option leaving them to the mercy of unscrupulous loan sharks or never-ending repayment plans where they will be lucky to be ever freed from the burden of unmanageable debt.

What is a Debt Relief Order (DRO)?

In order to address this anomaly, the Department of Constitutional Affairs has introduced the Tribunals, Court and Enforcements Bill which intends to introduce a new styled method of debt relief for people in England and Wales who owe a relatively modest amount, have no assets to repay what they owe and cannot afford the money to declare themselves bankrupt. This procedure is to be known as a Debt Relief Order, and is to be introduced with effect from 1 April 2009.

Who can apply for a Debt Relief Order (DRO)?

Debt Relief Orders are designed to give those who have debts of £15,000 or less, assets of less than £300 and surplus income of less than £50 per month the opportunity to apply for an Order that will lead to the debts being discharged after just one year. During this period, the people party to the Order will be protected from enforcement action from their creditors and subject to similar restrictions which are currently instigated under more formal bankruptcy proceedings.

How do Debt Relief Orders (DRO’s) work?

The process for obtaining a Debt Relief Order will be to apply to the Official Receiver via an approved intermediary – currently anticipated to be the Citizens Advice Bureaux, debt management companies and insolvency practitioners to see how this may operate in practice. It is anticipated that Debt Relief Orders will be more suited to those with consumer debt rather than businesses, but sole-traders will not be specifically excluded, and the application fee is likely to be £100.

As and when the situation is further clarified Debt Divas will publish more information.

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