15 years of Debt Relief Orders
On the 15th Anniversary of Debt Relief Orders, Meg van Rooyen reflects on the role they've played in helping people in financial difficulty.
Posted April 4, 2024
Debt Relief Orders (DROs) have helped hundreds of thousands of people out of debt. On the 15th anniversary of their introduction, Meg Van Rooyen, Policy Lead at the Money Advice Trust, reflects on the important role DROs have played in helping people in financial difficulty and how recent changes will help more people access them.
In April 2009, Debt Relief Orders (DROs) were introduced to help people with a small level of assets and little surplus income to write off debt they could not afford to pay. Back then, to be eligible for a DRO you had to have debts of £15,000 or less, assets of less than £300, and if you owned a vehicle, it had to be worth less than £1,000.
A lot has changed since then. In those days a typical caller to National Debtline was likely to be struggling with credit-related debts. Whilst more than half (52%) of all National Debtline clients had credit card arrears last year, most also have debts for essential costs, including council tax, energy and housing. Another key difference is that more clients now have deficit budgets, where their income is simply not enough to cover essential spending.
Throughout this time DROs have continued to play an important role in providing a safe route out of debt for thousands of people each year. We supported the development of DROs from the outset and were on the Insolvency Service’s working party that set them up in 2009. The Money Advice Trust was one of the first competent authorities and set up our own referrals’ unit with approved intermediaries in National Debtline and Business Debtline. And through Wiseradviser, we developed the definitive training programme for debt advisers wishing to qualify as approved intermediaries and offer DROs to clients.
Increasing access to DROs
Given the changing circumstances for people in financial difficulty since their introduction, the reforms introduced in the recent budget better reflect the lived reality of people for whom DROs were intended.
Scrapping the £90 fee from 6th April takes away one major barrier to accessing a DRO. And further changes coming in on 28th June, including increasing the maximum level of debt from £30,000 to £50,000 are also welcome. These changes will make DROs more accessible to many people who will have previously fallen outside of the eligibility criteria. If you owned a car that was valued at £2,000 or more, for example, you would not have been eligible. Increasing this level to £4,000 (from 28 June) reflects the rise in second-hand car values and the changes in the debt landscape, particularly given the ongoing challenges caused by this period of sustained high prices.
Ensuring safe routes out of debt
But DROs are only one option if you are in financial difficulty. It is vital that there are a range of options suitable for different situations. And while there are other formal arrangements, including Debt Management Plans and Individual Voluntary Arrangements (IVAs), shortfalls in the current system remain.
The Government recognised that the current options need improving back in August 2023 “…there are shortcomings in how the current regime operates and that it needs reform to reflect changes in the way society operates and attitudes towards personal financial difficulty during the last 40 years”.
A key starting point should be a requirement that access to free, FCA authorised, debt advice is embedded into the insolvency regime before people enter into any debt solution. This would help guard against issues we have seen around people ending up in inappropriate or unsuitable IVAs as well as issues where people may enter bankruptcy when they are eligible for a DRO.
Perhaps more fundamentally, we think the aim of a modern, fair insolvency framework should be to provide a safe route out of debt that supports people to rebuild their lives. This should include an emphasis on a fresh-start ethos, social inclusion and financial and emotional wellbeing.
Recent changes to DROs are welcome and we hope that further reforms are on the way. With the Insolvency Service due to publish its proposals for broader reform of insolvency options this year, our hope is that any reforms will be consumer focused, and like the introduction of DROs all those years ago, provide genuine help to our clients.
National Debtline has a helpful fact sheet on Debt Relief Orders, including detail on the recent changes - nationaldebtline.org/debt-relief-orders.
Anyone worried about their finances can talk to one of our specialist advisers on 0808 808 4000 or via webchat at www.nationaldebtline.org.
Meg is the Money Advice Trust's Policy Lead and has more than 35 years' experience in the debt advice sector. She is on the Quarterly Account editorial board and a range of other forums. View all posts from Meg van Rooyen.
