More people in serious financial difficulty could be helped to get a fresh start thanks to government proposals to broaden the eligibility criteria for Debt Relief Orders (DROs).
DROs are a type of formal personal insolvency in England and Wales, alongside bankruptcies and IVAs (individual voluntary arrangements).
DROs tend to be a low-cost solution for people who have smaller debts but have no realistic prospect of paying them off. They protect people from actions of creditors and after 12 months the debts within the order are cancelled.
The government is consulting on proposed changes to DROs which would increase the maximum total amount of debt allowed from £20,000 to £30,000.
The maximum value of assets that someone could own under the DRO’s eligibility criteria would be doubled from £1,000 to £2,000.
People could also be allowed to have more excess income under the eligibility criteria, at £100 a month instead of the current £50.
The government said research indicates that demand for debt advice could increase by up to 60% by the end of 2021 and that around three million more people than before the coronavirus pandemic will have need help with debt problems by the end of 2021.
Business Secretary Kwasi Kwarteng said: “Suffering from financial hardship puts a huge strain on people’s mental health and wellbeing – that’s why we’re committed to giving to more people struggling with debt. a chance for a fresh start.
“Debt relief orders are a valuable tool to help vulnerable people deal with their problematic debts. Our plans to increase eligibility criteria will mean that many thousands more could benefit from this aid.
Phil Andrew, chief executive of StepChange Debt Charity, said: “Low-income households with few assets are among the most deeply affected by debt during the pandemic.
“Expanding eligibility for debt relief orders will help give more people a chance to avoid the long-term misery of being trapped in debt they can’t afford to repay. over a reasonable period.”
The consultation will last six weeks and any potential changes are expected to be in place in spring 2021.