UPDATE 10 May 2021
The Insolvency Service has announced the new limits that will be introduced for Debt Relief Orders (DROs) from 29 June 2021.
These are:
- the total debt allowable in a DRO goes up from £20,000 to £30,000.
- the level of “surplus income” after paying your bills and everyday expenses has been increased from £50 to £75 per month.
- an increase in the general assets you can have from £1,000 to £2,000.
- an increase in the value of a car from £1,000 to £2,000 (this is in addition to the general assets you can have.)
This is very good news. The Insolvency Service expects they will allow over 13,000 more people a year to go through the cheaper, simpler DRO route rather than having to go bankrupt or opt for an expensive IVA where there is a very high failure rate.
The Insolvency Service published details of the consultation responses here. I am very pleased the Insolvency Service listened to debt advisers and decided to increase the allowable car value, which it had not originally proposed. It is disappointing the monthly “surplus income” was only increased to £75, not the £100 the IS had consulted on.
The remainder of this article was written in February 2021 about the consultation on these measures.
In January 2021 the Insolvency Services started a consultation on proposals to widen the eligibility criteria for Debt Relief Orders (DROs). It estimates these changes will mean that 15,500 more people could be eligible for a DRO each year.
DROs were introduced in 2009 as a simpler alternative to bankruptcy for people with few assets and no realistic chance of paying much towards their debts:
- no monthly payments are made and your debts are wiped out at the end of a year;
- the £90 DRO fee is much lower than the £680 bankruptcy fee which helps the people in debt;
- the Insolvency Service benefits as its costs of administering a DRO are much lower than a bankruptcy case.
Contents
Why reform is urgently needed
DROs have restrictive eligibility criteria, including several financial limits. These criteria were widened in 2015, but by the start of 2020, it was already clear that they again needed to be revised. Debt advisers were seeing clients who were failing to meet some of the DRO eligibility criteria but for whom a DRO should be the natural debt solution as they could not make realistic payments to their creditors in bankruptcy or an IVA.
The pandemic has now made this more urgent. A form of insolvency is likely to be the best option in 2021 and 2022 for thousands more people than would have needed this is a normal year.
But there are major problems with all three forms of insolvency – debt relief orders, bankruptcy and IVAs. Without changes, these problems may mean people are either unable to access the insolvency solution they need or they are mis-sold the wrong solution. Last summer I proposed a number of changes to personal insolvency to tackle this, including widening the DRO eligibility criteria.
Now the Insolvency Service has identified the expected increase in personal debt levels as a key reason for revising the DRO criteria, saying:
Given the likely increase in personal debt and the need to ensure the DRO regime continues to provide appropriate and proportionate debt relief for those that need it, we believe there is a case for changes to be made to the monetary eligibility criteria for obtaining a DRO.
It is proposed the new changes would start in May 2021 when the breathing space changes come in.
Personally, I would like to see them in now, so the sooner the better! But as it is anticipated that publicity around the breathing space may increase the number of people seeking debt advice, that seems a logical date to aim for.
The proposed DRO changes
Three changes are being proposed by the Insolvency Service.
1) increase the maximum debt to £30,000
The total level of debt currently allowed is £20,000. This needs to be increased if only because debt levels have gone up since 2015.
But there is no good reason for trying to keep this low. If someone has debts of say £40,000 but they have no spare income and no assets, what is the point in barring them from them a DRO and making them go for bankruptcy? It costs them more as the bankruptcy fee is higher, it will often leave them in limbo for many months as they try to save that up, it wastes a debt adviser’s time trying to get the client a grant to pay the fee and it will cost the Insolvency Service more to go through the full bankruptcy process. Who has gained by this?
£30,000 will cover most of the advice clients we see, without a doubt. But the level of harm to the small number that are over this limit but who would otherwise qualify for a DRO is significant. So I suggest the limit should instead be increased to £50,000.
2) increase the value of assets to £2000 (but leave car at £1000)
The current asset limit is £1000. This is rarely a problem – not many debt advice clients have assets more than that when they start a DRO.
However, increasing the limit is a good idea for two reasons:
- often people don’t understand many household goods are excluded and that only the second-hand value that matters. They see a sofa that cost over £1000 a year ago and an old laptop and think they will be over the £1000 limit. So they may not come forward for a DRO but instead get mis-sold an IVA.
- it means fewer DROs will be revoked if someone gets a small windfall. At the moment if someone gets a lump sum is between £1000 and £1990 their DRO is usually revoked as they would not have qualified for a DRO with that much money in the bank. This is a pretty pointless procedure as that little money doesn’t mean they can repay their debts – the best advice is usually for the person to immediately go bankrupt. An increase in the basic asset level should mean the test for revocation goes up in line.
But there also needs to be an increase to the £1000 allowed for a car. This is a real and significant barrier to people choosing a DRO who would meet all the other conditions.
Many people who need DROs are in low-paid work have to own a car. For example care workers, night shift workers, people juggling work and getting children to school may find public transport impractical. And bus coverage has got worse over the last ten years in many areas.
For these workers, a car is a necessity not a luxury. And one that is worth less than £1000 is very often too unreliable and so too expensive to run. As a result, the £1000 car limit prevents people from choosing a DRO at present, leaving them with an IVA as their only possible form of insolvency, even if they cannot really afford the monthly IVA payments.
I suggest that the car limit should be increased to £3000, which is what it is in Scotland at the moment. And the rules around bankruptcy should be brought into line with this higher car value too.
3) increase the level of surplus income to £100 per month
At the moment the permitted amount of surplus income is £50. Increasing this to £100 is sensible.
Take someone on £70 a month spare income. That’s only £840 a year. If they can’t have a DRO, what are their options?
- a debt management plan will too often be very long. That isn’t good for the person with debts and it isn’t good for the economy either.
- in bankruptcy, an IPA would be imposed but all this will do is pay the Official Receiver’s fees – creditors won’t get anything.
- in an IVA almost all the £70 a month payments will be taken in the Insolvency Practitioner’s fees. And too many of these low-value IVAs end up failing, so the creditors get little or nothing.
So increasing the limit to £100 is a sensible, pragmatic move. It will enable people trapped in very long DMPs to have a DRO instead. And it will make it harder for IVAs to be mis-sold.
It will also have the very desirable effect of encouraging people out of work to take a job. At the moment too many are worried that their DRO may be revoked as even though their benefits would be reduced they could be left with more than £50 a month spare income. That is not good for them or for the economy.
Other changes that would help
The financial eligibility criteria aren’t the only problems with DROs at the moment. Here are three changes that would make a real difference to getting people who need a DRO the help they need in the next few years.
1) All debts included even if not listed
In bankruptcy, all debts are included (apart from some specific ones such as student loan) even if a debt is not listed on the bankruptcy application. But for a DRO only the listed debts are included.
Changing DROs to follow the bankruptcy model would benefit people getting a DRO as there would be no chance of them having to pay an omitted debt that later came to light despite having very little spare income. This has been happening increasingly often with benefit over-payments, which often only emerge when a universal credit application is made. And with the sorts of debts such as parking tickets which don’t show on a credit record.
Insolvency needs to be a clean start and DROs are not providing this at the moment.
Equally importantly it would benefit debt advisers as it would reduce the time taken to set up a DRO application. It would remain important to list as many debts as possible so creditors can be informed, just as debt advisers try to do with bankruptcy applications. But the need to check and recheck that one hasn’t been missed off would be a great help.
Trained DRO intermediaries are a scarce resource. With the Insolvency Service expecting that 15,000 more people a year may need a DRO under the new criteria, it is important to make the application process simpler and more efficient.
The changes that the Insolvency Service has proposed can be made by May. But changing the debts included would require amending legislation which would take longer. I don’t think this should be allowed to hold up the simple changes but the more complicated ones are still needed and should be planned for. That is why I am calling the proposed changes a good start.
2) Provide fee remission
If you have a well-paid job, the £90 DRO fee may sound eminently reasonable. But many people who need a DRO have no “disposable income” at all and £90 can be a real barrier to them getting the help they need promptly. With the breathing space will protect debtors for just 60 days. That is supposed to be enough for them to enter a suitable debt solution. This isn’t compatible with charging a fee which may take much longer to save up.
Last month the Woolard Review for the FCA said:
The FCA should discuss with the government how an emergency fund could be provided to cover the cost of the DRO application fee for people who cannot afford the fee but who would benefit from the solution. This could be delivered to the poorest clients through debt advice providers where they act as DRO administrators, as they have sufficient information to assess if an individual would have available funds to cover the fee or not. Alternatively, of course, government may wish to consider if the fee itself could be amended, waived or reduced, but like other fees is based on a cost-recovery basis.
The amount raised by these fees is tiny. If DROs increase as the Insolvency Service expects, it will raise less than £4million pounds a year.
I suggest that the cost of discussions between the FCA, the Treasury, MAPs and the Insolvency Service, then setting up and administering a fund to give relief to some selected group of clients may be more than the cost of abolishing the fee.
Waiving the fee for two years to get through the current crisis would help, while a simple longer-term solution is considered.
3) Able to have a second DRO after three years
At the moment someone has to wait six years after a DRO to have another one. I do understand why there needs to be some limit, but six years is out of touch with reality. Some of the people who have now lost their jobs will have had a DRO only a few years ago. What is the rationale to force them through the bankruptcy process instead of a second DRO? Bankruptcy is more expensive both for the client and for the Insolvency Service.
Reducing this to three years would be a reasonable compromise.
What if you will qualify for a DRO under the new rules?
So where does this leave you, if say your total debts are £25,000 at the moment? And you have no assets and little spare income after paying your bills and everyday expenses?
You have no realistic prospect of paying your debts so you need a form of insolvency – but a DRO, IVA or bankruptcy?
- if you have recently had debt advice from a good free sector debt adviser you will probably have been told you don’t qualify for a DRO and should instead go bankrupt. Which means saving up £680 in fees…
- Or an IVA firm may have said sign here to make monthly IVA payments for the next 5 years…
The Insolvency Service is proposing the new DRO limits will be live in May, so that’s not long. I think it’s pretty good odds that this will happen and on time. So it’s probably worth waiting until then and going for a DRO, rather than going bankrupt now.
But perhaps try to save up those bankruptcy fees just in case? If you have no assets, bankruptcy is probably a much better option for you than an IVA.
Responding to the consultation
The deadline to respond to the insolvency Service consultation was 26 February 2021.
Jenny Crossley says
It will be fantastic if the DRO limits are lifted as it will make it easier for more people to apply for them, particularly if they have an asset like a car that is valued at over £1000 or are due additional income increase as they will be getting LCWRA element of UC, for example. It reduces the risk of the DRO being revoked or not submitted as the surplus income is slightly too high or their debts are just over £20,000.
Clare says
Does this mean that if we’re currently paying £100 a month to an IVA with debts of £27000 we may be eligible for DRO if changes approved?
Sara (Debt Camel) says
possibly! How far into your IVA are you? And is £100 a month really affordable for you?
Clare says
Hi Sara, thanks for your reply, first time I’ve been brave enough to comment! We’re 15 months in, it’s tighter some months than others. I wish I could say we’re spending less during the pandemic but with children now at home 24/7 we’re actually spending more, especially on utilities.
Sara (Debt Camel) says
You should ask your IVA firm if your payments can be reduced because of this extra expenditure. Even £15 a month would be helpful.
The Insolvency Service is talking about making the DRO changes “in the spring” so you could come back in a few months and see if they have been broaught in and what exactly they are.
Clare says
Many thanks Sara, I will email Stepchange and keep my eye on changes in the spring. Kind regards, Clare.
Dean Russell says
Hi Clare, i assume your IVA will run for 6 years meaning you have around 3-4 years remaining?
I am also assuming that if you are looking at the option of a DRO then you do not have any assets to protect? and most if not all of your creditors are non priority
Under the new rules you are allowed £100 per month disposable income, you will have to maximise what is known as trigger figures if you were to go down the DRO route. The reason being that you can include 2021/22 Council Tax bill in the DRO the same as your water bill. However you have to not pay both and wait until they call in the whole amount, for CT it is when they issue you with a Liability Order.
Also if you are to go down the DRO route you will have to stop the IVA payments and obtain a letter confirming your IVA has been cancelled.
Before you do any on this you will have to do a watertight income and expenditure and maximise the Trigger figures, your local Citizens Advice will be able to help you with this
Stephanie Bryan says
Its a shame there is no provision of help for whom bancruptcy is the only option but cannot afford the high cost.
Sara (Debt Camel) says
Indeed. Why is a DRO not suitable for you – is it the amount of your debts? Or what?
Stephanie Bryan says
I did go down the route of a dro which was granted however it was revoked there is a property abroad(Greece) which I had assumed was in the name of my ex husband only instead it appears he has now transferred into my name. This I know will still be an issue for bankruptcy although the property is probably valued at no more than €20,000.
It is not just myself affected if I wanted to go down the bankcruptcy route, I am sure there are very many who are unable to because of cost although raising the dro level will be a big help to many also which is brilliant.
darren says
have debt of around £16000 and approx nothing left after bills and my iva at £50 a month but have a car i pay £200 a month as i need a reliable car for work and its a high APR with wages of £22000 a year would i be able yo apply for a dro without losing the car ? its value is £8000 with finance balance of £9000
Sara (Debt Camel) says
Talk to National Debtline on 0808 808 4000 about whether you have any better options to this IVA.
Martin says
Forget about DRO. You earn too much. The debts and your monthly debt repayments do not qualify as “bills and everyday expenses”. I am happy to hear that DRO will help a few more, but at the moment it is good only for the unemployed and the most vulnerable.
Sara (Debt Camel) says
This is not true at the moment with the current DRO limits- DROs help pensioners, the low paid and the self emplyed, not just the unemplyed.
And DROs will be able to help even more people from the end of June when the limit changes are in force.
If an IVA firm thinks he can pay £50 a month, that is what they think he has spare, not counting any payments to unsecured debts. The question is the car, which may sometimes be OK in a DRO which is why I suggested he talks to a debt adviser.
Martin says
That is the biggest difference between ‘not-so-fit-for-purpose-DRO” and IVA. IVA will take into account all monthly spending (including current debt repayments, being in overdraft, etc). DRO doesn’t. Weirdly – the only option for people on let’s say 30k pa salary with 20k debt is to stop paying all debts, hide cash in your socks for three months, make yourself deliberately unemployed. Only then you will be considered worthy of DRO.
Sara (Debt Camel) says
This is nonsense.
The IVA calculations on your spare income should not take into account any debts that will be included in your DRO.
I am not saying many people earning 30k a year will fit the DRO criteria, but it is possible.
Anyone without assets to protect who does not qualify for a DRO will almost always be better off going bankrupt than for an IVA.
Issy says
Hi , I’m currently on an IVA , my debts were only £10,000 but I was advised a DRO, when these new rules come into place can I go on a DOR , bern in my IVA nearly 3 years , would ov saved me all the feees I wasn’t told about too !!
Sara (Debt Camel) says
how much are you paying a month to your IVA? Is this a struggle?
Do you have a house? or a car?
roger wallis says
I 100% agree with the new proposals, my issue is that lead generators will use any means possible to still sell IVAs, I have seen fraudulent documents to assist individuals to get IVAs. Whist Insolvency practices are allowed to give commissions this awful practice will carry on against the most vulnerable of people
Harry says
Absolutely. I have had experience in dealing with this. One company wanting to fraudulently say my income was larger than it was so I could go for an IVA and another who refused to accept my reasons for not going with them which were that my benefits were due to go down (and therefore my income overall) within 18 months. This meant that the IVA would have failed, but he was trying every possible tact to say that wouldn’t happen!!
Dean Russell says
I have a complaint with the FOS. The company missold IVA when a DRO was the best option all day long. However they made a mistake they said that client signed the form going through the options, they didnt and the form was so old it was laughable, the form stated the DRO limit was 15K, however the DRO Limited had increased to 20K when client signed, just hope the FOS sees this and refunds the payments
Chris Bone says
Probably goes hand in hand with suggestion 3) above and the increased surplus income, but reducing the moratorium period to say 6 months would be useful, an additional trigger to incentivise people to seek work without thinking they may be snookered for 12 months post DRO approval.
Also to make the process a little more speedy and seamless for intermediaries, abolish the need for financial assessment for applicants on means tested benefits, similar to the principle of no Income Payment Arrangements for bankrupt people in receipt of state benefits.
Dean Russell says
Work should not be an issues unless the claimant lives with parents, if they are renting they will have to pay more in rent, council tax, travel, would they not
Sara (Debt Camel) says
yes people often are OK, but changing it from £50 to £100 makes this less fraught.
Sidhu says
Hello, I currently have debts of around £28500 loans credit cards at the moment am on payment freeze only on benefits disability and pip no other income I rent from a private landlord so have to put money in just about cover basic food and bills really struggling have no car assets etc.
Would I qualify for a DRO and would they ask why I got into so much debt when I knew I had no income?
I am renting with my daughter she lost her job and everything went from bad to worse prior to that I paid regular. Now can’t afford anything am thinking to move to 1 bed on my own.
My question is will my pip be included in my income as I need that due to my health problems with which I get my health essentials on daily basis I have regular women’s issues and need incontinence pads clothes and have to do a lot of washing plus cannot go out on own so need to pay cabs etc I’m worried they’ll take these into acct and say I don’t qualify.
As when I move out on my own and I start getting Severe disability payment SDP will that be included? Please advise
Regards
Sara (Debt Camel) says
This is complicated:
1) your debts are currently over the 20,000 DRO limit. As the article above says, this may be increased to 30,000 in May but that isn’t definite yet.
2) is interest being added to your debts? That could take you over the 30,000 point. Are any of your debts high interest debts?
3) You are planning on moving soon. It may be better to wait until you have moved before applying for a DRO as any form of insolvency can make it hard to get a private tenancy. And your benefits and expenses will be changing.
But in general PIP isn’t a problem for a DRO as although it is counted as income, you are also allowed the same amount as “adult care costs”. So it cancels out.
I suggest you talk to your local Citizens Advice about a DRO, benefits and your housing situation.
Roger D Wallis says
Sara is completely right, if you wait till May you could go above the threshold, I would save what you can and make yourself bankrupt
Dean Russell says
Although I think this is a very good update of a DRO, however there is still one issue that has to be resolved, that is every debt has to be individually included into a DRO and there is too much emphasis on the Intermediary to ensure they have all the debts. It should be the clients responsibility to ensure they have provided all debts to be included. Not all debts are contained in Credit Reports.
Trevor says
My Dad is paying for a car that I use, on higher purchase. The car is worth much more than the current £1000 or the proposed £1500. Although my Mum’s name is on the purchase documents as the owner, I pay the road tax as the registered keeper. Will the car my dad is paying for get taken away if I went for a DRO? (Or bankruptcy?)
Sara (Debt Camel) says
The car is worth much more than the current £1000 or the proposed £1500.
to be clear, the Insolvency Service is not proposing to increase the value of the car allowed at all.
The registered keeper of a car is not always the owner of the car. Here the owner is legally the HP company, it is not your car. So you should not be rejected for a DRO because of this.
As your dad is making the HP payments, that is irrelevant for your DRO.
The DRO adviser will need to consider whether you need a car – if you do, you will be allowed to count the road tax as an allowable expense.
So I suggest talking to a debt adviser about a DRO and they will go through all the criteria and whether you have any better options. Phone National Debtline on 0808 808 4000.
Trevor says
This is much appreciated.
Martin says
How does overdraft affect disposable income? What if after paying all the bills person is still in red (again using overdraft) does it mean his/her DI is =0?
Sara (Debt Camel) says
Disposable income starts from assuming you don’t have any debts. That includes the overdraft which will be just another debt in your DRO. Then it looks at your income and your expenses – bills and living expenses but no debt repayments as your debts will have gone.
Martin says
So currently, if you earn £101 (£51?) more than your regular bills (phone, rent, council tax, etc) – you do not qualify for the DRO? Looks like I will have to force myself to quit the job to be unemployed for a few months, and to deliberately default on everything …
Sara (Debt Camel) says
Can I suggest you talk to a good adviser? There may be items you have not included in your regular expenses which you are allowed to. Phone National Debtline on 0808 808 4000
Miss Edan says
Any news of the new proposed DRO changes?
Weatherman says
Hi Miss Edan
Not yet! The consultation’s closed, but they’re still considering responses. Given that their suggested starting date was May, I would hope we’ll hear something soon…
AnnaA says
Is there any company that would do a DRO for someone that has moved abroad? the companies I called on the national debt line website list have said they dont do it if I dont plan on moving back to the UK.
Sara (Debt Camel) says
I don’t know of one.
Dean Russell says
If you are moving abroad then why are you worrying about doing a DRO…If you want certainty all your debts are cleared then bankruptcy would be your best option…DROs are only recognised in England and Wales, Bankruptcy is international. Or just ignore the creditors its highly unlikely they will pursue you if you went aboard. You could use the Limitations Act as a defence if you come back after 6 years unless the creditor obtains CCJ during the 6 year period
Frank says
I’m in the same boat…
I want to pay but am abroad and am likely going to lose my job. I’m never planning to return to the U.K.
DRO Queen says
One of the criteria is that you’ve lived or worked in England or Wales in the last 3 years. if you’ve been out longer than that, DRO won’t be an option
Sara (Debt Camel) says
I agree with Dean’s comments above.
dave says
Any news on DRO changes yet
Cheers
Sara (Debt Camel) says
not yet!
Kelly says
Hi Sara I’m in year 2an half of my Iva , I didn’t get an option in the beginning my debts were £10,000 I rent my home , with the new rules concerning DRO , will I be able to cancel the Iva at present I’ve paid about 9500 ?
roger wallis says
Hi Kelly. The simple answer is yes but you must only be able to afford less than £50.00 ! Month and have assets of less than £1000.00.
If that is the case it is obvious your circumstances have changed. If that is the case it maybe wise to ask your insolvency practitioner to propose a paid to date proposal
Sara (Debt Camel) says
Roger,
a) you seem to have missed that new DRO rules are being proposed, which is what Kelly is asking about.
b) in any case, many people have been missold IVAs and would have qualified for a DRO under the current DRO criteria. The fact your IVA thinks you can afford £85 a month does not mean that a DRO adviser will think you have spare income of more than £50…
Sara (Debt Camel) says
Hi Kelly,
paying in 9500 in two and a half years is a lot – it suggests you have been paying over £300 a month. Is that correct?
has your situation now changed so you can afford much less?
Kelly says
Hi Sara , no I’m in my 3 rd year , sorry my mistake , , I’ve paid that much because last year I paid £6500 into the iIVA due to a affordability refund , I did ask at the time if that can be a final settlement, they told me to pay this in first and they would ask the creditors, which did then my IVA said not no will not be possible, which I found strange , anyway Im still paying £100 every month
Weatherman says
Hi Kelly
If the new rules come in as we expect, you could get a DRO as long as your total debts are under £30,000, your disposable income per month is under £100 (as worked out by a specialist adviser called a DRO intermediary, not the IVA firm), you don’t have a vehicle worth more than £1,000, and you don’t have any other assets over £1,000.
You’re able to cancel an IVA and start a DRO – see here (not about the new rules, but still applies): https://debtcamel.co.uk/end-iva-change-to-dro/
Sara (Debt Camel) says
ok, so first talk to National Debtline on 0808 808 4000. explain your situation and ask if you will qualify for a DRO.
If they say you will, now the new rules came into force last month, you could just let your IVA fail by stopping paying it and telling your IVA firm to fail it.
But because you are so far in and have paid such a lot, it would be worth going back to your IVA firm, saying National Debtline say you will qualify for a DRO and ask your IVA form to instead propose to your creditors that your IVA shouls be completed now, on “the basis of the funds paid to date”. Use that phrase. If they agree, you IVA will end, your debts will be written off and you won’t need a DRO.
Kelly says
I try that Sara thanks for the great advice I’ll let you know the outcome ,
Kelly says
Hi Sara , so went to my Iva explained can they ask my creditors to finish the Iva due to funds already paid , whilst I was on to them turns out some of my debts £2995 in total should not be in the Iva so really as it stands I’ve already paid my debts , this they did not tell me I told them , anyway they said it has to be passed to a manager to look into this ? Is this right because I’m confused , not sure what there playing at !
Sara (Debt Camel) says
I suggest you wait and see what they come back with. At this point you really don’t mind WHY they agree your IVA should be completed on the basis of what you have already paid, you just want that as the result.
Kelly says
Hi Sara , is it true that if I terminate my Iva the creditors will add interest and fees on from the date I entered the IVA ?
Sara (Debt Camel) says
it’s possible, but if you are switching to a DRO, it doesn’t really matter what they do.
Kelly says
Hi Sara well I had to ring my IVA as they still hadn’t got back to me 5 days later , anyway they said my paperwork has a lot of bits to it ? I had to send proof that some of the balances on my debts were cleared , then they will do some calculations and see if the creditors will except the funds paid to date , I’ve asked several times now how much there fees are and they will not give me a figure , even tho it’s in black and white on my paperwork, they said there other costs too ? As it stands I’ve paid £9775 into it and by my calculations the debt was £7292 that’s after all the rest has been paid off , she also said her manager said well if I can afford the £100 every month then I should carry on for the remainder 2 years , which I don’t want to .
Sara (Debt Camel) says
So, see what they come back with.
“she also said her manager said well if I can afford the £100 every month then I should carry on for the remainder 2 years , which I don’t want to ”
I am sure that would be very convenient for them.
But National Debtline say you would qualify for a DRO and 2 years is very long time to be paying money every month when you don’t have to…
So as you are so far through it is a good diea to ask your creditors to agree to complete the IVA now on the basis of the the funds you have paid so far BECAUSE you would not qualify for a DRO.
You can insist of your creditors being asked to vote on this – your IVA firm can’t say No. Although obviously it would be nicer if they agree with the proposal.
Kelky says
Hi Sara , I’m not getting anyway really with my IVA , it’s like there dragging there heels , they are now saying because I can afford it , they need to look into my income etc , before they can approach my creditors, I feel like there dragging there heels a bit , I keep asking them how much I owe to my creditors and they keep avoiding the question , is this normal procedure when you ask for a offer to creditors fora end of Iva due to payments made to date ?
Sara (Debt Camel) says
Have you stopped paying the IVA? You can say to them that whether or not they think you can afford to pay the IVA is irrelevant, National Debtline says you qualify for a DRO, so you will not be carrying on paying the IVA. Your IVA firm can choose between having your IVA fail and you getting a DRO or doing the right thing for their customer which is to propose to your creditors that your IVA is completed on the basis of the funds paid to date.
You can talk this through with National Debtline to get confirmation that this is a good thing for you to be telling your IVA firm.
Kelly says
No not yet payment due end of month, they were supposed to be figures together , but when I ask them anything they start going on about irreverent things , I wanted to know my debt balance as I had told them about 5 creditors that I no longer owe balances to so was curious what my debt was now , think that’s a perfectly normal question to ask .
Kelky says
Hi Sara , so I’ve stopped paying my Iva , they are ignoring my emails now and then yesterday I received a random email asking for evidence to do a yearly review , don’t know what there playing at , anyway I’ve cancelled my Iva , what will happen to all the money I’ve paid into this Iva over last 3 years ? , as I’m going for the DRO as clearly they won’t ask my creditors for ending my Iva through funds paid to date as they won’t answer emails I’ve sent .
Sara (Debt Camel) says
Which IVA firm is this? Do you know the name of the IP responsible for your IVA – it will have been on the original documentation you were sent.
Kelly says
Hi Sara It’s James Gibson and the Iva firm is Financial Support Systems
Sara (Debt Camel) says
right well send your IVA firm a complaint by email to info@financialsupportsystems.co.uk with COMPLAINT as the title. Copy it to Jim.gibson@financialsupportsystems.co.uk and to contactus@icaew.com who are your IP’s regulator.
Your complaint is that they are failing to respond to your emails. Repeat what you have told them before that whether or not they think you can afford to pay the IVA is irrelevant, National Debtline says you qualify for a DRO, so you will not be carrying on paying the IVA. Your IVA firm can choose between having your IVA fail and you getting a DRO or doing the right thing for their customer which is to propose to your creditors that your IVA is completed on the basis of the funds paid to date.
Kelly says
Hi again Sara , so my Iva got in touch basically saying I’m in a legal binding contact with them and they Carnt just ask my creditors to end it due to funds paid to date , there’s a process ?
Anyway there not being very helpful so I’ve cancelled my payments and told them I’m not paying and to fail my Iva , I’ll just have to see what happens , can you tell me what happens to all the funds I’ve paid to date as they are not given anything away ,?
Sara (Debt Camel) says
Tell them you want them to propose a variation to the creditors that your IVA should be completed on the basis of the funds paid to date.
But it is probably good to just accept this IVA will fail and get on with a DRO. Stupid decision by the IVA firm.
You aren’t going to get back any of the money you have paid.
Kelly says
Hi Sara , will the money I have paid not go to creditors ?
Sara (Debt Camel) says
Some of your payments will have gone to the creditors. Most will have gone to the IVA fees.
Dave says
Does anybody know when the changes will come in to effect cheers
Sara (Debt Camel) says
No! We are all waiting for the Insolvency Service to make an announcement about this.
Naeem says
Hi sarah i lost my job 8 months ago due to covid but after losing my job i had to get furniture for my house and was finding my debt has grown drastically i havent used any credit for near enough 5 months now but its all getting to much am i likely to be accepted for the dro as my debt has grown drastically in the space of months
Sara (Debt Camel) says
I think you should talk to a debt adviser about your situation – phone National Debtline on 0808 808 4000.
If you get a DRO it’s possible you may get a Debt Relief Restricted Order (DRRO) – that may not sound nice but for many people this doesn’t much matter in practice. See https://debtcamel.co.uk/bankruptcy-restriction-order-bro/.
Celia says
Any news of the new proposed DRO changes yet?
Sara (Debt Camel) says
It is now expected that the Insolvency Service will announce what the changes will be after the May elections and the regulations to bring them into force will go live end June-ish.
Jules says
An increase in car value would be amazing if it happens. Due to living in London I have had to scrap my car today due to it not meeting the new emissions regulations coming in October. It is impossible to find a car less than £1000 that does! I have enquired about a DRO today for my 13 year old debts and have been told I am eligible, really pleased I came across this information before going ahead. I have so many questions for you, is there a place to ask or can I only join a thread? Thanks.
Sara (Debt Camel) says
just post the questions here.
Jules says
Thanks Sara, sorry I am adding questions all over the place! If the car limit on a DRO remains at £1000 (and as it is impossible to find one for that price that would meet the emissions regulations due to be enforced within the M25) I wondered about the possibility of leasing a car on a DRO? 2nd option is a good friend and her husband offered to buy me a small runaround (she knows I am struggling financially and have had to scrap my car today) but I had to explain 1. it can’t be of greater value than £1000 2. It is way too generous of them! Are there restrictions around me using a car that they own of greater value than £1000 ie. they could remain the owner and me be the registered keeper or is that too shady?
Also as I have never investigated my own credit rating is it worth seeing what info is held about me? Do you recommend Experian? How will that info help me? Thanks for replying and apologies for the bombardment of questions! This is 13 years worth of questions coming out!
Sara (Debt Camel) says
It will be fine if you drive a new Mercedes that belongs to someone else – it isn’t your asset, it won’t effect your DR).
I am not sure how knowing what your credit rating is now can help at all. Later, when your DRO has finished, it will be good to try to rebuild your credit rating. But while you have impossible amounts of debt that isnt possible, so the debts have to go first.
Jules says
Perfect, thanks for all your advice.
So would you say leasing a car shouldn’t be an issue either then?
Will leave you alone now!
Sara (Debt Camel) says
Leasing a car usually requires a very good credit record… also can you afford the monthly payments?
Jules says
Morning Sara
Only considering it as an option as costs of leasing for £100pcm would probably be more economical for me than public transport/cabs cost…. my son’s school is not local and he is involved in various sports fixtures that involve travel.
Reading all your advice on here I think my first step is to request CCA’s from my 3 creditors – given their age, 2007 and having been repeatedly sold – to assess if a reduced f&f settlement may be a better option for me. Worst case scenario If the CCA’s are produced I can go ahead with the DRO.
Last question! One of my debts, Capital One, I pay £1 pm standing order (approx £1500 original debt) but I have no correspondence from them at my current address- lived here 10 years so probably going to my old address and never got updated. I presume my regular payments are acknowledgement of my debt, just to be sure though, it won’t be detrimental to me by initiating contact with them?
Thank you for all your advice, your website is an absolute nugget of information, you have given me the confidence to take steps to confront my debts that have been a heavy weight on my shoulders for the last 13 years.
Sara (Debt Camel) says
I think my first step is to request CCA’s from my 3 creditors – given their age, 2007 and having been repeatedly sold – to assess if a reduced f&f settlement may be a better option for me.
if the CCAs can’t be produced you can simply stop paying. No need to try to negotiate a low F&F. Many debt collectors won’t do this, even though you might think they should.
Worst case scenario If the CCA’s are produced I can go ahead with the DRO.
yes, if the debts can be dealt with without a DRO that is better as a DRO harms your credit record, whereas unenforceable debts you stop paying that are no longer on your credit record don’t. If the CCA route looks promising, you need to check your credit records with all three credit reference agencies to make sure the debts no longer show. See https://debtcamel.co.uk/best-way-to-check-credit-score/ for how.
I presume my regular payments are acknowledgement of my debt, just to be sure though, it won’t be detrimental to me by initiating contact with them?
Yes, as you have been paying these debts they will never be statute barred.
And as your fall back is a DRO, does it really matter if your contact your creditors?
Also you are contacting the current creditor for the CCA – not the original creditor. you do not want Capital One to produce the CCA, you want whoever they sold the debts to.
Jules says
Got it! Thank you for all your advice…am on to it! X
Dave says
Afternoon any news on the changes yet
Cheers
Sara (Debt Camel) says
yes! See https://www.gov.uk/government/news/new-measures-to-help-vulnerable-people-in-problem-debt. To go live end June. I am just about to update the article above with the news.
Vicky says
With this new DRO changes this will definitely help, my question is what do they look at in making a decision whether someone is eligible? Also how far back do they look into like do they go back 1-2 years or longer? Just couple of years ago made a decision to get money of credit cards and all was going well just since the pandemic have no income, so the debts from that still stands so am worried I won’t qualify, they might say why did you take money out what did you use it on etc, but can they decline?
Regards
Sara (Debt Camel) says
This page gives an overview of DROs: https://debtcamel.co.uk/debt-options/dro/.
A lot of people are in your situation – managing their debts fine until Covid-19 hit. The Insolvency Service won’t blame you for this at all. And you certainly won’t be refused a DRO because of it.
Vicky says
It’s just I’ve been on benefits for many years and my record was good but I started taking money from the credit cards as money transfer and as before hoping to pay it off, my daughter who lives with me managed rent bills etc I managed all my bits, but she lost her job last year and I started to get into debt not being able to paying back the cards loans etc so I am worried when i apply they are going to say why did you take out money from credit cards when you were on benefits ( I used to pay all my monthly cards loans from my benefits before Covid as daughter paid for everything else food rent. bills) when I enquired about bankruptcy they said the person who makes you bankrupt would say why did you take out the money, where did it go and that might go against me. With the DRO I’m worried if I apply what would they ask and how far back would they go. At the moment I’m on token payments but need help for the long run. Please advise
Regards
Sara (Debt Camel) says
I am worried when i apply they are going to say why did you take out money from credit cards when you were on benefits
If you were making all the payments pre covid-19, then your household income dropped, then this is not your fault. Anyway, a DRO is not that sort of investigative process. You aren’t asked in detail why you borrowed more than a year ago. If you took out a £2000 loan last month, you would be asked what happened to it.
when I enquired about bankruptcy
who did you ask?
It is right that You may be asked some questions about money you borrowed, but I don’t think in this situation there is likely to be a problem at all. Read https://debtcamel.co.uk/bankruptcy-restriction-order-bro/ as some of the cases there sound similar to yours.
Jules says
This is great news! The increase in car value has made a DRO possible for me now should the CCA route fail to work. Thank you for this information.
Abdul says
Hello, everyone.
Great news indeed!
I wonder, though, if debt collection agencies will rush to get bankruptcy applications in against those in debt before the start of the newer generous DRO conditions..
Sara (Debt Camel) says
If someone will qualify for a DRO under the new criteria, then there would be no return to their creditors in bankruptcy – any IPA payments made would be very low and would only go to the Insolvency Services costs. So any creditor would be mad to try to make them bankrupt.
Chris Bone says
It costs a lot for a creditor petition in bankruptcy, much more than the standard debtor petition fee of £680. It is almost unheard of for standard non priority creditors and debt collectors to petition for a bankruptcy, in many cases if it happened they would be doing the debtor a favour, saving fees.
In practice it tends to be organisations such as HMRC for unpaid taxes, VAT etc, where they have researched there are property assets and in many cases IP’s are appointed to “delve” into further possible assets, and the debtor is likely to be outside of DRO criteria anyway. So I don’t envisage any surge or significant change in creditor petitions for bankruptcy.
Mike says
Hi, I am hopping to do a DRO as soon as this new limit comes into play, I have been and still am on a DMP but this is going nowhere as payments end 2044 and also some of the companys are still charging me interest., I was advised to go bankrupt before starting the DMP but I thought I could get back into work and pay back my debts.
My question is when applying for the DRO and IF it is found that my debts are over £30,000, would the DRO then be turned down and a waiting period put in place for when I can reapply for another DRO or is it a case of get the debts under or on £30,000 and can try again straight away.
My debt file is showing owed DMP £33,000 and Checkmyfile shows£29,280 I assume this DMP higher amount is intrest?
Sara (Debt Camel) says
When did the DMP start? Which creditors are charging interest still?
Mike says
Hi, June 2020 and not sure who is charging interest because some of the debts are now called PRA group and Debt Managers Ltd.
Just added up the amounts and comes to £32,557.
Sara (Debt Camel) says
You need to find out who is still charging interest so you can complain and get it stopped. See https://debtcamel.co.uk/creditor-wont-freeze-interest/.
How large are your DMP payments each month?
If you are out of work, do you have other debts not in your DMP? Arrears on bills? Universal Credit Advance payment or other DWP deductions?
You cannot apply for a DRO if your debts are over the limit. The adviser setting up the DRO will check this and will not put forward the application.
Dave says
Hi do you know if the car will change in bankcruptcy to 2k also
Cheers
Sara (Debt Camel) says
I don’t think this has been decided.
How much is your car worth?
Dave says
1850 I wanted to apply for a dro my debts are 41k but 18k of that is a joint loan with my partner.
But i was told i could not leave the loan out of a dro so i dont think i meet the criteria.
Sara (Debt Camel) says
That is correct – you won’t qualify for a DRO.
Any chance your partner could buy the car from you and still let you drive it? You could use the money to pay the bankruptcy fee.
Dave says
Sadly not we share all are money together.
It’s frustrating tbh as i would be going bankrupt for only 23k and wife would still have the 18k loan
And she doesn’t want to do insolvency
jimbob says
just granted a dro. Debts 6.3k. Sudden death of my mum leaving money approx 3.5k. What the heck happens now
Sara (Debt Camel) says
Sorry to hear about your mum – can I check that the 3.5k would be what you inherit? After the cost of her funeral and any debts she owes? Is there any other family inheriting as well?
jimbob says
Yes. 3.5k after costs. No other family. Thanks for your comment for my mum
My mum had council appointee for finances. Waiting for letter of explanation when money will be distributed
jimbob says
Do not know how long for the council to process my mums financial affairs. And if the date matters in relation to new dro rules coming up
Sara (Debt Camel) says
It doesn’t really matter how long the council take – the relevant date is the date your mum died and not when you actually receive any money.
I don’t think the new DRO rules are likely to help you as you will obviously be getting much more than the new £2k asset level.
You do have some options in a DRO about an inheritance, see https://debtcamel.co.uk/inherit-dmp-dro-iva-bankruptcy/. You could “disclaim” it and it would then be distributed among the other people inheriting.
I suggest you talk NOW to the adviser who set up your DRO about your options. In the end it may be better to get the inheritance, spend some of it on some much needed items for your home (I am sure you need something!) and then use some of the money to pay your bankruptcy fees. But as I say, go back to your DRO adviser and talk through the possibilities.
jimbob says
Thanks for your reply. Is there rules on essential spending. Live with my dad with my mental health. During an episode years ago i caused damage. We have window blinds falling apart not replaced. Fridge freezer 25 years old though still working well. And been told if person my mum lived with has to move flat needs gutting. Would this be an acceptable expense to pay from inheritance before new debt solution
Sara (Debt Camel) says
if person my mum lived with has to move flat needs gutting.
sorry, can you explain?
do you live in this flat?
jimbob says
Sorry. My mum lived with someone who may not be able to stay there. My mums sister has been told if he does not clean it up they will hold her responsible for it. She lives in Bournemouth. Also if you can are you able to advise me when i need to inform insolvency service
My mum and dad divorced long time ago. I live with my dad. Mum lived with her boyfriend
Sara (Debt Camel) says
My mums sister has been told if he does not clean it up they will hold her responsible for it.
Who is “they”?
And what does this have to do with your mum’s sister?
jimbob says
Sorry i am such a pain. For a number of years my mums finances have been controlled by local council. Paid all her bills and brought money to her weekly. After death we (dad and i) wondered if funeral costs would be covered. Received info from council clarifying it would. To relieve pressure from me my auntie (mums sister} was given the go ahead to make funeral arrangements by council. Send the bill to my mums council appointee and they will pay it from mums estate. After this my mums sister was contacted by local council. The council told her it is an obligation to leave council flat in acceptable condition for next tenants. For some reason they have put this obligation on my mums sister 300 miles away. So this is why i am asking the question. Can i pay for someone to do this work using money from my mums estate as a essential expenditure.
Sara (Debt Camel) says
Sorry you need someone to look at this in detail. Talk to the debt adviser who set up your DRO now, don’t wait.
jimbob says
Hopefully a more straight forward question if you can advise. Do i let the OR know about inheritance when i know the amount or when it is deposited in my account
Sara (Debt Camel) says
When you know the amount.
But I really suggest you talk to the debt advisor who set up your DRO immediately about your options.
jimbob says
Been a great help. Maybe an unanswerable question. But does anyone know upon DRO revocation how soon you start getting re-hassled by the creditors
Sara (Debt Camel) says
that depends on your creditors. what sort of debts went into your DRO?
jimbob says
3 credit cards. A store card and Currys a/c
Sara (Debt Camel) says
When did you default on these and have they been sold to a debt collector?
jimbob says
My mum passed away within a few days of my dro being granted. Creditors will be only be just receiving notice of dro
jimbob says
Never really defaulted till this month. Kept paying minimum and redrawing difference so debts stayed same. Had enough of it and got dro.
Sara (Debt Camel) says
ok, then it will probably be a couple of months at least before you are contacted.
Sean says
Hi just a quick question i am considering bankruptcy as i have no assets and heavy in debt.
Me and my partner dont work and we get quite alot off universal credit due to my daughter who has autism. I calculated we have 350 surplus income. Would i have to pay this in a ipa.
I have read that when your sole income is benefits you do not receive an ipa.
Thanks
Sara (Debt Camel) says
How large are your debts? If they are under £30,000 a Debt Relief Order may be more appropriate for you.
Anyone thinking about bankruptcy should take debt advice, even if they are sure that it is their only or best option. I suggest you talk to National Debtline on 0808 808 4000.
But to answer your question, if your only income is benefits, you will not have to pay an IPA in bankruptcy – when you complete the application form you list the benefits you get as Income but can list “child disability costs” for the disability part of this in the Expenses section.
Sean says
Hello i have spoken to them last week as well as another charity they both suggested bankruptcy. My debts are 39500.
All a-bit daunting bankruptcy its the future mostly am worried about how it will effect me later in life
Right now i don’t think it would make any difference at all towards my life as we do not work at present.
Sara (Debt Camel) says
ok, then that’s fine – there is nothing wrong with bankruptcy, it is a good option for many people and not as scary/stressful as the idea of trying to avoid it when your debts are way too large.
I assume you are renting? Private or social?
Sean says
Private rent the only stumbling block would be my car its valued 1500 on parkers guide but if need be my parents will pay the 500 so i can keep. I really thought i could get an ipa cos there is quite a-bit of surplus. I think if i do decide to bite the bullet there is no better time as me or my partner do not work atm. I have read up on bru/bro and am almost certain i would get one but a do not think it would effect to much
Need a serious think , like sed before am thinking of the future, probably overthinking tbh
Sara (Debt Camel) says
So with private rent you could have a problem if you need to move as it will be hard to get a private tenancy without a guarantor.
You may be ok with a car worth £1500, it’s touch and go.
Sean says
Afternoon thank you for your great advice.
I know private rent would be hard of moving but were i am i can see ma self living were i am for the next 6 years
As its a new build and built for rent so its pretty secure.
Sara (Debt Camel) says
So you have two separate debt advisers who have seen your full position and recommend bankruptcy – I think you can feel pretty confident it is the best option for you.
If you are thinking very long term then it is possible to get a mortgage when bankruptcy is off your credit record in 6 years time. You always have to declare it if you are asked if you have ever been insolvent (as you would with an IVA, it is no easier with an IVA) but there are high street lenders that will give a mortgage at an OK rate.
I think you are probably overthinking this – it’s good to consider a lot of potential problems, but not if they paralyse you from moving forward. Your current position is not sustainable.
Katie Ford says
Hi
in the consultation the insolvency service mentioned (footnote) that there may be an increase in fee have they said anything further as we draw nearer to 29th June go live ?
Sara (Debt Camel) says
do you mean this bit
“Additional fee income from DROs. The increased demand for DROs may result in a small increase in fee income.”
that doesn’t mean they are putting the fees up, just they will make more money from the current fees if more people have DROs.
Katie says
yes but was sure if they would raise the £90 or just because there would be a lot more £90s, thank you for you reply.
paul doherty says
Hi
My mother is a 77 year old state pensioner and can not afford her DMP unfortunately she owns her house and this prevents a DRO being applied for is this likely to change
Sara (Debt Camel) says
So far as I know it is not being considered.
How much is she paying a month?
How large are the debts in her DMP?
How long ago did the DMP start and what sort of debts are these, credit cards, loans or what?
Paul says
£89 but she can’t actually afford anything only gets £134 per week debts are Barclays partner finance x 5 Vodafone £2500 she’s got no chance of ever paying them and the ombudsman has been useless in affordability of lending
Sara (Debt Camel) says
She should go back to StepChange and say if she can’t afford £89 a month.
Also have you asked if she is getting Pension Credit? because if her state pension is £134 and she is single, Pension Credit should top it up to £177 a week. Getting Pension Credit will also mean she doesn’t have to pay Council Tax.
Sara (Debt Camel) says
how long ago did the DMP start? which DMP firm is it?
Paul says
About 10 months ago with stepchange
Gus says
Don’t you think if the customer has got £75 a month of disposable income, they should be paying this towards the creditors rather than being able to pay off all of their debt?
Sara (Debt Camel) says
£75 a month that is £900 a year. It would take them 11 years to clear 10,000 of debt if all interest stopped. 22 years to clear 20,000 of debt… no, that looks like insolvency is sensible unless the debts are very low.
Gus says
But surely it’s not about the length of time it takes to pay the debt, but if you can afford to pay it, it’s paid back, no matter how much you can afford?
Something is better than nothing. Unless you’re advocating that debtors shouldn’t have to pay creditors back. The worry with a DRO is that it could encourage people not to pay their debt back, and a good pillar of debt advice is to advise people to pay back what they can afford rather than nothing at all?
Sara (Debt Camel) says
No, it is absolutely about the time it may take to pay back. Insolvency is provided as an option where it is not possible to repay debts in a reasonable length of time, a clean start. Better for the person in debt, better for their kids who do not grow up in poverty, better for the economy.
Gus says
I agree it’s better for the debtor and the family who don’t have to then grow up in poverty.
My point and concern is around paying back what we borrow, no matter the length of time. It should always be affordable – nobody should be in the position where they have to choose between paying off a loan or putting food on the table, but increasing the DRO to £75 DI could cause more problems than it could fix, leading to creditors tightening who they lend to, and the people who need to borrow in desperate times will be refused access.
Sara (Debt Camel) says
But it is also better for the economy. The debtor that is paying back £75 a month for 15 or 20 years is not saving for their retirement, they are unable to help their children when they go to uni, they can’t afford holidays, or to pay for school trips or to replace white goods that fail. This benefits no-one.
A certain proportion of loans will default – that is a fact of life for lenders – their model has to be able to accommodate them. And no lender could sensibly base their operation on being paid back a tiny amount for 20 years after a default – it will cost the lender more to administer and collect than they would gain. Lenders can minimise default rates by conducting better affordability tests.
The government needs to be looking at a better safetynet provision for hard times – watch default rates and insolvency shoot up if this government reduces Universal Credit by £20 a week in October.