Take Up Of New Debt Relief Orders Disappoints

Overworked Insolvency Practitioners have reported that there is a low take-up of the new Debt Relief Orders (DRO) which came into force in April this year. The problem may be that DRO’s only apply to a tiny percentage of debtors – principally those with no income and no assets to work with. Many people with debt issues are hard-working homeowners who do have an income but which is being eaten up with servicing high debt levels.

The low levels of DRO’s being issued is also prompting concerns that vast numbers of small debts are being left unresolved and there is a serious concern the new DRO scheme will not actually provide any substantive help to debtors.

DRO’s are aimed at those with debts of more than £15,000 but with less than £300 of assets – in other words, very restrictive margins which the vast majority of those with debt issues are not going to fall within. The clients the DRO scheme is aimed at are also unlikely to provide a source of fees for insolvency practitioners who have been hit with fee caps imposed by the Insolvency Office last year. The result of this fee restriction has been a trend to moving away from Insolvency Voluntary Arrangements (IVA’s) to full-blown bankruptcy where debts are less than £20,000 – an own goal by the Insolvency Service!

It is also noted that creditors are becoming less aggressive than a year ago – there is a dawning realization amongst creditors that the money is simply not in the budget as it once was. Squeezing blood out of a stone may be debt collectors chosen profession but applying scare tactics has also been back-firing on creditors as growing awareness of the rights and legal solutions available for getting rid of debt increases. Driving a debtor to bankruptcy is likely to produce nothing for a creditor who fails to negotiate a realistic settlement with their customer and in many instances, accepting reduced payments either through an IVA or negotiated settlement is usually much more preferable for everyone concerned.