Big changes to DRO qualification for consumers struggling with debt

The Chancellor’s Budget held few surprises, given that many of the main changes had already been briefed to the media beforehand.  Added to that, there were no groundbreaking changes that could raise the heart rate of your everyday consumer.

The main change that could help consumers in debt was the change to Debt Relief Orders (DROs). 

A Debt Relief Order is an extremely viable alternative to bankruptcy and sometimes even an IVA for individuals who have low or no assets and little or no spare income to be able to make any repayments on their outstanding debts. 

DROs were first introduced in 2009 and were intended to provide a simpler and cheaper alternative to bankruptcy.

The main changes for England and Wales include:

Removing the £90 administration fee from 6 April 2024
Raising the maximum debt value threshold from £30,000 to £50,000 
Increasing the maximum value of a motor vehicle that the individual can retain from £2,000 to £4,000
Many of those applying for a DRO need a fresh start free from personal debt and cannot afford the bankruptcy fee, let alone the one-off DRO fee of £90. 

When DROs were introduced the total allowable debt was £15,000 but this has increased over time to £20,000 in 2015, then to £30,000 in 2021 and now to £50,000.

Debtors with liabilities over this amount would generally have to go bankrupt or enter IVAs. However, this could just exacerbate their problems if they were unable to afford the £680 bankruptcy fee or monthly contributions into an IVA. There is no realistic reason why somebody with £45,000 of unmanageable personal debt should have to go down the route of bankruptcy/IVA when they have few or no assets to realise and no spare income to make additional monthly payments. 

Having a motor vehicle is sometimes essential for many DRO applicants so they can get to their place of work or ferry their children around, as public transport options cannot always meet these needs. 

There are ‘luxury’ cars, but one worth £2,000 or less is not a luxury and more likely to be unreliable and expensive to run in terms of repairs and general upkeep –  increasing the maximum value to £4,000 makes sense.

Year   Number of DROs issued

2019   27,467

2020   20,473

2021   20,136

2022   24,221

2023   31,717                    

Source: The Insolvency Service

You can see from these figures that DRO numbers have increased over the last couple of years since Covid. In 2023 the number of DROs was even higher than pre-Covid and the most granted in over five years. The total in 2023 surpassed the pre-Covid total by over 4,000 and was also up nearly 30% up on 2022. I would expect a further large increase in these numbers now that the thresholds have changed.

If you, anyone you know or any of your clients wish to discuss any of the above in further detail, feel free to email me at neil.cronshaw@btguk.com for a confidential discussion.