The procedure for Debt Relief Orders ("DRO") is unchanged, possibly because it is a comparatively new process having only come into force in 2009. However there has been some shuffling of rules numbers, in an effort to regularise and make the structure more logical.
To be granted a DRO, the debtor:
- must currently be, or have been, ordinarily resident or carried on business in England and Wales in the last three years;
- must not be able to pay their debts (which must be for a liquidated sum that is not excluded, see below);
- must have debts not exceeding £20,000;
- must have assets not exceeding £1,000 (some assets may be excluded, see below);
- must have surplus (disposable) income not exceeding £50 per month (after taking into account reasonable domestic requirements of the debtor and their family); and
- must not be subject to ongoing formal insolvency proceedings, or have been the subject of another DRO within the previous six years.
In addition, the debtor must not have entered into any transactions at an undervalue, or given a preference to a creditor (although this is likely to come out in an investigation rather than the application). These requirements are all contained in schedule 4ZA IA 1986.
As a reminder, the following debts are excluded from the Debt Relief Order procedure:
- liabilities under maintenance orders under the Child Support Act or from an order under family proceedings;
- student loans;
- liabilities arising from a criminal act; and
- repayment of a crisis or rebudgeting loan under the Social Fund.
(rule 9.2 IR 2016)
For the purposes of the asset requirements, the following assets are excluded:
- a single domestic motor vehicle, provided the value is less than £1,000 or that it has been specially adapted because of a physical impairment;
- tools and equipment as necessary for the debtor's business or employment;
- basic domestic items (e.g. bedding);
- property held on trust;
- pension rights; and
- various tenancies.
For further detail, please see rule 9.9 IR 2016.
The application requires information to prove the eligibility criteria above, with the detailed contents in rule 9.3 IR 2016. The application is made to the official receiver who has the power to make the DRO if the debtor is eligible.
The application must be made electronically through an approved intermediary (for example, the Citizens Advice Bureau). The intermediary is allowed to assist the debtor, but must also inform them of the conditions of a DRO and the consequences of false statements (rule 9.5 IR 2016).
Verification checks will be made on this information in accordance with rule 9.6 IR 2016. This includes using databases, but will also involve questionnaires for the debtor.
If, following verification, the debtor is not eligible, they will be informed in writing. If a DRO is made, the order will be sent to the debtor and notice given to all creditors and the approved intermediary. As soon as the DRO is made, a one year moratorium comes into effect (along the same lines as the bankruptcy moratorium, s251H IA 1986). At the end of the moratorium, the debtor will be discharged from any debts that are not excluded (s251I IA 1986).
Creditors may challenge a DRO under rule 9.15 IR 2016, and the official receiver has the power to revoke, amend or extend the DRO as required. If the debtor dies whilst the subject of a DRO, the DRO will be revoked (rule 9.20 IR 2016).