Government to review debt relief rules
The Department for Business, Innovation and Skills has announced that it will consult on possible changes to the rules concerning a recently-introduced mechanism that provides debt relief to the over-indebted. The Debt Relief Order (DRO) was introduced in April 2009 and is designed to write off unaffordable levels of debt for those who are unlikely to ever be able to afford to repay their debt as they have few assets and very low amounts of spare cash.
Under the rules, the DRO is only available to people who have assets worth less than £300. The rationale behind the procedure is that it provides debt relief for individuals who could never realistically afford to repay their creditors, but for whom bankruptcy is unnecessarily burdensome and expensive.
Debt advisors have raised concerns that the rules are putting the DRO out of reach of a significant proportion of debtors who, whilst having few valuable assets, do have small amounts of pension savings. Although pension funds are usually excluded from bankruptcy, the term "assets" was not clearly defined in the DRO rules and it has been suggested that this wide definition is having unintended consequences by barring many from using the procedure.
The consultation on the rules is sensible. The DRO has become popular since its creation nearly a year ago and there is clearly a need for easily accessible and affordable debt relief for those who are over-indebted and who have no prospect of ever escaping their creditors.
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