Millions of people struggling with debts will be able to request cancellation of their payments starting this week as an extension of the current rules takes effect.
Debt Relief Orders (DROs) can be used to tackle a range of debts up to Â£ 30,000 from Tuesday 30 June.
This means people will have more options if they drown in arrears – including on bills such as council tax.
People in debt with Â£ 75 or less left over each month after covering bills and daily expenses will be able to get a DRO – previously the amount was set at Â£ 50.
A scrutineer means that you don’t have to pay off your debts for an agreed period, usually a year, and creditors can’t take action against you.
Previously, the limit for applying for a debt relief order was Â£ 20,000 and anyone with debts over that amount had to opt for a more complicated Individual Voluntary Arrangement (IVA) or go bankrupt.
It is estimated that around 13,000 people per year will now be eligible for a scrutineer, although support once costs Â£ 90 to access it.
The change in the scrutineer’s rules follows a consultation with the insolvency department earlier this year. It also includes a doubling of the limit on the value of assets held to be eligible.
Those with savings or assets worth Â£ 2,000 or less are now eligible for a scrutineer – it was previously Â£ 1,000.
There is also an increase in the âexcess incomeâ limit to be eligible for a DRO.
A DRO is simpler and cheaper than other debt options.
Debt Counselor Sara Williams, who writes the DebtCamel blog, said: âIf you qualify for a DRO, it’s still a better option for you than an IVA – you don’t have to make monthly payments in. a DRO, compared to paying for five or six years in an IVA.
“So a DRO is cheaper and everything is much faster than an IVA – and it’s also less risky. Only about 1% of DROs fail, but over a quarter of IVAs do.”
Lorraine Charlton, a debt expert at Citizens Advice, said the measures were desperately needed with so many struggling families after a year of job cuts.
âFrom tomorrow, if you can’t pay debts up to Â£ 30,000, don’t own your own house, and don’t own assets worth more than Â£ 2,000, a debt counselor could help you get debt relief. Order. To be eligible, you must have very little excess income after paying your essential expenses each month.
âA debt relief order usually lasts for one year and you won’t have to make payments on most debts during that time. If your situation has not improved by the end of the debt relief order, most of your debts will be written off.
âWith many more people likely to be struggling with unmanageable debt as a result of the pandemic, this is a welcome change.
What Debt Can You Write Off With A Debt Relief Order?
Overdue utility, telephone, housing tax and income tax bills
Overpayments of benefits
Buy now – pay for agreements later
Invoices for services like vets or lawyers
Loans to friends and family
First instance court fines and forfeiture orders related to criminal activity
Alimony and maintenance of children
Who Can Get a Debt Relief Order?
To get a Debt Relief Order (DRO), you must belong to one of the following categories:
You owe less than Â£ 30,000
You don’t have any savings or own assets worth more than Â£ 2,000
You don’t have a vehicle worth more than Â£ 2,000
You have no additional income each month after the essential Â£ 75
You will also be eligible for the following cases:
You don’t own your own home
You have lived or worked in England and Wales for the past three years
What debts can I use a debt relief order for?
What Are the Long Term Complications of a Debt Relief Order?
A DRO means your debts are written off and your creditors can’t ask for payment – but there’s a long amount of fine print involved.
A DRO typically lasts for one year, and at the end of the DRO period, your debt is âpaid offâ and any money you haven’t paid back is canceled.
A DRO will stay on your credit report for six years, which means you may have trouble taking out a loan or buying a house, for example, years after the DRO ends.
Private landlords and rental agents can also check to see if you have an DRO during a credit check, which means it could affect your housing situation later.
Your bank may also freeze your account if you have a DRO, or prevent you from opening one.
During the DRO period, you will also have certain restrictions.
You will not be able to borrow more than Â£ 500 without informing the lender of the DRO, and you cannot set up a limited liability company or become a company director.
Your name and address will appear in the Insolvency Service’s Individual Insolvency Register, which anyone can consult free of charge, during the scrutineer’s period and for three months thereafter.
How do I apply for a debt relief order?
To get a Teller, you will need to apply through a Teller who submits the request to the Insolvency Department. Citizens Advice can put you in touch with the right person.
An official receiver from the Insolvency Department will review your request. You will need to pay a fee of Â£ 90.
Your request can be accepted, deferred until there is more information, or denied.
If you are denied, you will be told why and you can appeal the decision.
If you are accepted, you will not have to pay the debts and the creditors will not be able to do anything against you, with two exceptions: the landlords if you are behind on rent and the bailiffs who took your property.
Other invoices not included in the DRO will have to be paid as usual.
If you are looking for shorter-term assistance, you may be able to benefit from a 60-day âbreathing spaceâ instead.
This protects you from lawsuits and bailiffs for up to two months.
A charity such as Citizens Advice or National Debtline can help you find the best support for you.