Government proposals to help more people in problem debt
Consultation launched aimed at extending debt solutions and helping vulnerable people in financial distress get a fresh start.
- Increasing the financial eligibility criteria will give more people access to debt relief orders and help them get out of problem debt
- Research shows that more people are seeking debt advice and are likely to require financial relief
Proposals have been outlined by the government to increase the financial eligibility criteria for debt relief orders (DROs), helping more people deal with financial difficulties to get a fresh start.
Research shows that the demand for debt advice could increase by up to 60% by the end of 2021 and around 3 million more people than before the pandemic will need support with problem debt by the end of 2021.
The government is publicly consulting on changing the eligibility criteria to enter a DRO to:
- increase the total amount of debt allowable to £30,000 (from £20,000)
- increase the value of assets owned by the individual to £2,000 (from £1,000)
- increase the level of surplus income to £100 (from £50) per month
Business Secretary Kwasi Kwarteng said:
Suffering from financial difficulties places a huge amount of stress on people’s mental health and wellbeing, which is why we are committed to giving more people who are struggling with debt a chance for a fresh start.
Debt Relief Orders are a valuable tool for supporting vulnerable people to get to grips with their problem debts. Our plans to increase the eligibility criteria will mean many thousands more could benefit from this help.
A DRO is a low-cost and easily accessible debt solution that helps vulnerable people. Delivered in partnership with the professional debt advice sector, DROs protect people from creditor action and after 12 months all debt within the order is written off.
Phil Andrew, CEO of StepChange Debt Charity, said:
Lower income households with few assets are among those most deeply affected by debt during the pandemic. Extending eligibility for debt relief orders will help to give more people a chance to avoid the long-term misery of being trapped by debt that they cannot afford to repay over a reasonable period.
The consultation will run for 6 weeks and, subject to the consultation any changes are anticipated to be put in place in Spring 2021.
Notes to editors
- The consultation for increasing the eligibility criteria for DROs is on GOV.UK
- More information about DROs and other debt relief options
- DROs apply to England and Wales only (personal insolvency is devolved to Scotland and Northern Ireland.)
The Money and Pensions Service expects the demand for debt advice to increase by up to 60% by the end of 2021 and this is likely to lead to an increase in the need for debt relief.
Research by StepChange indicates that compared to the 2008-09 recession, households with low-to middle-incomes are entering the present Coronavirus situation more likely to be facing problem debt and struggling to pay for essentials.
In August 2020 Citizens Advice estimated that 6 million UK adults have fallen behind on at least one household bill during the pandemic, with 1 in 5 of those who have fallen behind on their bills unable to afford essentials.