The Insolvency Service has put a new measure in place to help vulnerable people in problem debt. From June 19 2021, the total debt allowable in a Debt Relief Order increases from £20,000 to £30,000.
This measure needed to be put into place because debt levels have been increasing since 2015. As noted by the government, the safety net will not dramatically increase without further changes in other areas. Additional new measures will also:
Increase any “surplus income” from £50 to £75 per month. This is any money that you have after paying your bills and everyday expenses.
Increase the value of general assets that you can own, from £1,000 to £2,000.
Increase the value of a car that you can own, from £1,000 to £2,000, which is in-line with the increase in general assets (mentioned above).
The government foresees that up to 15,500 more individuals could be eligible for a DRO because of the changes made to assets.
This is a 58% increase on the amount of people who obtained one in 2019/20. The majority of the increase in demand for a DRO is expected to come from first-time debt relievers, however, approximately 10% of forecasted numbers are expected to be from those who would have ordinarily gone down the bankruptcy route.
Ultimately, the government has anticipated the catastrophic effects that could come into play at the end of the furlough scheme. Many will lose their jobs and creditors will be much more demanding with unpaid payments. But it’s also a move that is designed to give more flexibility for individuals in problem debt. Bankruptcy can be expensive while IVAs can be complicated.
The changes were necessary because of a struggle to make payments to creditors in bankruptcy or an IVA. These struggles came about as a result of the pandemic, where financial situations have slumped in the poorer areas of the United Kingdom.
Without a doubt, these changes are welcome. They are designed to give more options to people who are struggling in problem debt. The parameters for people who should have been qualifying for a DRO needed to be revised in light of the pandemic, with many people slipping through the net into an IVA or bankruptcy solution. These solutions weren’t appropriate because clients could not make realistic payments back to their creditors.
Financial problems have boomed since the start of the coronavirus pandemic and that has forced the hand. These are the first substantial changes to a DRO since 2015.
Increasing the maximum debt from £20,000 to £30,000
If somebody has no spare income or expendable assets then they now have a better chance of falling into this category. Debt levels have risen dramatically over the years and, therefore, this suggestion makes a lot of sense.
Increasing asset value from £1000 to £2000
Many clients can misinterpret the value of their own assets. For example, a product bought a long time ago for over £1000 might actually be worth less than that threshold in this current moment. This change will smooth over that ambiguity.
It will also be beneficial to anybody who receives a small windfall. Before the change, if someone gained a cash injection of over £1000 then they would see their DRO application revoked.
There is also an increase on car value, but only to £1000. Many people in DROs traditionally work in low-income jobs and they need a reliable vehicle to get them to their places of work. Cars for upto £1000 should be functional enough to perform that task, without the prospect of them dropping to bits mid-journey!
Surplus income increase from £50 to £75
£50 multiplied by twelve equates to £600. That’s probably the cost of a cheap night out in London! In all seriousness, it’s not a lot of money across a whole annual year. Other options like Debt Management plans (DMPs), Individual Voluntary Arrangements (IVAs), and bankruptcies do not really cut the mustard for people with such low amounts of disposable income.
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*A follow-up call will be required to confirm details outlined in your enquiry, at which point we will be able to discuss which solutions you qualify for.