Concerns are being raised by Midlands insolvency practitioners over the introduction of the Government’s new Debt Relief Order (DRO), a low-cost, out of court insolvency vehicle launched this week, which aims to help debt-ridden individuals on low incomes and with very limited assets.
According to insolvency trade body R3’s Midlands region, there are doubts over whether the resources will be available locally to deal with the large number of individuals who are expected to seek a DRO.
R3 Midlands Chairman James Martin, a partner at the Birmingham office of Begbies Traynor, said: “We believe the introduction of the DRO is a positive step towards combating poverty, releasing those who are trapped in impossible debt, but it does open the gates to an unknown quantity of debtors. Estimates so far have suggested 50,000 people will be given DROs in the first year alone, which will mean that personal insolvency statistics will rise by around 40 per cent overall.”
Individuals who meet the strict criteria for a DRO will deal directly with an approved intermediary organisation, such as the Citizens Advice Bureau. Help will be given to complete the relevant online application to clear up to £15,000 of unsecured debt. The responsibility of approval and regulation will lie with the Government’s Insolvency Service, whereas bankruptcy orders are made by the courts.
“Demand for DROs will be spurred on by the fact that the £90 cost is not as prohibitive for those who can take advantage of the new legislation. Previously, if these people had taken the bankruptcy route - which very few would have due to the relatively high charges - they would have faced costs in the region of £500. DROs are therefore going to put a large administrative and time burden on local intermediaries and regulators.”
“As with any debt solution, it is crucial that those entering a DRO comprehend all the options and implications. A DRO is not an easy way out of debt and it has the same financial restrictions as bankruptcy. This needs to be understood.”