Individuals unable to pay their debts have an additional form of debt relief available to them following the introduction of the Debt Relief Order (DRO) on 6 April 2009. DROs are available to those who cannot pay their debts or access other remedies, such as bankruptcy, perhaps because they cannot afford to.
DROs will be suitable for people
- with relatively low liabilities – total liabilities must not exceed £15,000;
- with limited disposable income – not exceeding £50 per month, excluding normal household expenses;
- with few assets - total gross assets must not exceed £300
- who are not subject to any other formal solvency procedure – such as bankruptcy, Individual Voluntary Arrangement;
- who are domiciled in England & Wales, or resident or carried on business here in the last three years
and who are unable to pay off their debts in a reasonable time.
The application for a DRO is made to the Official Receiver (OR) online through an approved intermediary for a fee of £90. If made, a DRO means the debtor will be protected from enforcement action by the creditors who are included in the application for the DRO unless such creditors obtain leave of the court to pursue their debts, free from the debts included in the DRO at the end of the DRO – generally 12 months, and required to provide information to and co-operate with the OR.
The debtor's credit rating will be affected and their name placed on the Individual Insolvency Register which can be searched by anyone.
The restrictions imposed upon the debtor under a DRO will include: not being able to obtain credit in excess of £500 without disclosing that they are subject to a DRO; not being involved with the management of a company nor acting as a director without the court's consent; and not being able to obtain more than one DRO in a six year period.
Creditors can object to the OR if they consider that the debtor does not meet the stated criteria. The OR can review and revoke the DRO if appropriate leaving creditors able to pursue their debts. Both civil and criminal sanctions can be imposed if the debtor fails to provide a full and accurate account of their financial affairs.
Creditors whose debts are not included in the DRO can continue to pursue their debts including commencing bankruptcy proceedings.
The making of a DRO will not affect lenders' rights under HP agreements to recover vehicles. Vehicles financed under such agreements are not and cannot be declared an asset of the debtor as the title to the vehicle remains with the lender until all payments have been made.
The outstanding debt under the agreement will, however, count towards the £15,000 total liability maximum. Once included in the DRO, no further payments by the debtor are permitted and the outstanding amount under the agreement will be written off at the conclusion of the DRO.
This makes it even more important for a finance company to recover possession of their vehicle. However, if the outstanding balance is not included in the DRO, action to recover the balance can still be taken. The DRO is likely to be set aside though if the OR is notified of the omission and the inclusion of the outstanding balance would increase the debtor's liabilities above the £15,000 threshold.
This article was published in the April issue of Motor Finance