A guide to CAP's o!cial response to the Insolvency Service's call for evidence: Insolvency Proceedings: Debt relief orders and the bankruptcy ...
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A guide to CAP’s official
response to the Insolvency
Service’s call for evidence:
Insolvency Proceedings: Debt relief orders
and the bankruptcy petition limit
October 2014
Lifting people out of debt and poverty2 3
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1What is a DRO?
A Debt Relief Order (DRO) is a form of insolvency that was
introduced in 2009. The aim was to help the poorest and most
vulnerable struggling with unmanageable debt. They are for
those who have low levels of debt but no prospect of paying
them off due to low income and asset levels, and who do not
have the means to enter bankruptcy
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‘Every morning I woke thinking about which creditor would
knock on the door and the letters I would get. I used to think,
‘when this will be over?’. I’d go to sleep in fear every night, I felt
like I should kill myself so that I would be free.”
[Since going through a DRO] I feel a new hope. I feel so much
relief. I can wake thinking everything is over. Thank you CAP,
you gave us a new life and freedom.’10 11
‘I didn’t know which way to turn. I didn’t know help was available’
18How do you go through a DRO?
Applying for a DROsis an administrative procedure.
Applications are submitted online by an intermediary, a
highly trained debt adviser who has been authorised by a
competent authority. There are twelve competent authorities
appointed by the Secretary of State for Business Innovation
and Skills. Christians Against Poverty is one of these authorised
competent authorities and has seven in-house intermediaries.
Intermediaries ensure the information given by the debtor
is accurate and that they meet the eligibility criteria. If an
application is approved, a DRO is granted by the DRO Unit,
part of the Insolvency Service.
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At CAP, we believe in treating creditors and clients fairly.
We believe it is sometimes unrealistic and unreasonable for
debtors to live on the tight, and often impossible, budgets that
would be required to repay their debts. Therefore, these clients
are encouraged to consider insolvency as a more appropriate
path to become debt free. »» Creditors appreciate the integrity of the DRO delivery
model, and are able to trust that all checks are carried out
to ensure those who can pay back their debts do so. For the
credit industry to have even greater confidence in the system
and that their interests are being protected, it is important
competent authorities are audited.
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How much does a DRO cost?
There is a flat-rate fee of £90 to go through a DRO. £80 is to
cover the costs of the Insolvency Service for administrating
the scheme. £10 is allocated to the competent authority to
contribute towards admin costs. Unlike other insolvency
options, advice agencies are not allowed to charge a fee for
preparing a DRO.
6Who is eligible for a DRO?
A debtor must meet 14 eligibility criteria to be granted a DRO.
Five of these are:
1. Owe less than £15,000
2. Have less than £300 worth of assets
3. Have less than £50 a month disposable income
4. Lived or worked in the UK within the last three years
5. Haven’t applied for a DRO within the last six years
2‘When we were first told how much bankruptcy cost it seemed
bizarre, it’s too much. We’d have to save up for years. Family
and friends said they would help as much as possible but £700
each – that’s a lot of money!
Without the help of CAP we wouldn’t have been able to go
bankrupt. It was a quicker release from the stress and the
worry. It would have been hard; the burden was lighter because
the support was amazing! We know CAP would have helped
as much as possible if they hadn’t had a bursary to provide,
but it would have affected our home life, especially with my
partner’s ill health, stress and depression. It was a major relief.
I can answer the phone without worrying. It’s a release, like
being released from prison, released from captivity; the sense
of freedom.’
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CAP works with numerous clients, ineligible for a DRO, who
can’t afford to repay their debts or pay the bankruptcy fee.
These debtors have no assets or funds to be dispersed to
creditors by the Official Receiver or from which the Insolvency
Service could reclaim bankruptcy costs. Our proposal to
increase the debt limit to £30,000 provides debtors in the
most severe financial situations a debt solution without placing
the costs on the credit industry and in fact reducing costs for
the Insolvency Service.What happens after a DRO is granted?
Once a DRO has been granted, there is a 12-month moratorium
or discharge period, after which all included debts are
cancelled. During this period, the Official Receiver must be
notified about any increases in income or any new assets.
There is also a 12-month restriction period, whereby debtors
are unable to borrow more than £500 without notifying
their creditors about their DRO, or act as a company director.
This period allows for the DRO to be revoked by the Official
Receiver if appropriate. A record of the DRO is also marked on
the debtor’s credit file for six years afterwards. During this time
the debtor cannot be granted another DRO.
Revocation is when a DRO is withdrawn after it has
been granted
There are several reasons a revocation may happen, including
an improvement in the debtor’s financial circumstances or if
information comes to light that means the debtor is ineligible
for a DRO. If the Official Receiver revokes the DRO, the debtor
is still liable for any unpaid debts and is no longer insolvent.
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There have been several cases in which CAP’s intermediaries
have failed to establish the full outstanding balance on tax credit
overpayments owed to the HMRC before submitting DROs. In
some cases this is because a lower balance has been given to
the client when they contacted the HMRC, in others the HMRC
has begun chasing a debt from several years earlier. CAP has
been unable to establish whether this is due to different types
or years of debts being dealt with separately and by different
departments, but there seems to be a lack of coordination.
Occasionally, this extra debt put the client above the debt limit
and their DRO is revoked. However, in one instance the DRO
Unit decided not to revoke the client’s DRO when the difficulties
were explained. Whilst the DRO Unit’s discretion in these
circumstances is invaluable, CAP believes it is essential that
further appreciation is shown to the difficulties in establishing
the total debt a client has by writing off additional debt.24
What is a Creditor Petition Level?
This is the minimum amount a creditor can be owed before
they can request for someone to be made bankrupt. Creditors
use a bankruptcy petition as a last resort to acquire any funds
or assets a debtor may have. If this is granted, the Official
Receiver for the court allocates any remaining resources to the
creditor, after the court costs have been recovered. The current
creditor petition level is £750, and has remained unchanged
since 1986.We believe it is in the interests of both debtors and creditors that debts are repaid where possible. Where clients are unaware of free debt advice before one of their creditors petitions for their bankruptcy, we are concerned that this might not be the most appropriate course of action for either party. If the repayment term is not unrealistic, it is important debtors are given the chance to repay debts through the support of a debt management organisation. This is in the interests of creditors, increasing their chance of recovering the full balance owed to them and saving them court costs. We are pleased that many creditors proactively give information about free debt advice to their customers who are struggling financially and would encourage more creditors to do the same
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‘[Before CAP] I was using the food bank weekly. The constant
debt letters added to [my] ill health. I felt a complete failure.’
‘I was heavily in debt and had no quality of life. I lived
constantly in fear of the postman. My temperament was always
negative and impacted on my children. I would avoid meals,
social events and people. I just felt ashamed. My self esteem
was nil.
[After CAP got involved] I felt light, had butterflies and just
wanted to cry with happiness. I felt like a heavy shadow had
been lifted. It took about a week until the full impact of what
was being done for me was realised by me. The workers of CAP
and my befriender were awesome and have helped me more
than words can express.’21
‘[I] feel a lot more in control of things, [CAP’s help] has eased
my anxiety and helped me get back on track’77% £50,935
was raised by our
77% of clients joining Insolvency Grants
CAP in 2013 were Officer helping 108
receiving benefits. individuals with
42% of all clients lived
solely on benefits.
grants for their
bankruptcy fees. 108
42%
of debt has been written off for CAP
clients through insolvency since 2002.
£16,850 0
Minimum The average total
acceptable living debt of those
standard starting with CAP in
2013 was £12,477.
£12,840
Average CAP
client income
£12,447
Low income was
The average income for our clients in the primary 21%
reason for
2013 was £12,840. Joseph Rowntree
Foundation’s report A minimum income
standard for the UK in 2013, highlights
that single people needed to earn at least
£16,850 a year before tax in 2013 for a
minimum acceptable living standard.
debt in 201376% 23%
of clients described our service as
‘life transforming’ or ‘a great help’.
76% of clients said debt negatively
affected their relationship. Of these, 23%
said it caused total relationship breakdown
70%
64% 15%
26%
70% of CAP clients sacrificed meals before 64% of clients were fearful of losing their
our service, with 26% doing so regularly. homes; 15% were threatened with eviction.
67% 42% 14% 67% 53%
of clients visited ...with 42% of couldn’t feed of clients with couldn’t clothe
their GP due to all clients their children children couldn’t their children
the negative prescribed properly. adequately adequately
effects of debt... medication. provide for them.
70% of clients waited over a year before
33% = £10 seeking help. 32% waited over three years
33% lived on £10 70%
a week or less
for food. 32%
The average CAP client
£18 had £18 per week for 36% of clients seriously considered
food per person before or attempted suicide because of debt
our service. before CAP’s service.1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
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Disclaimer: Although care is taken to ensure that this information is
accurate and correct at the time of writing, Christians Against Poverty
cannot accept any responsibility for mistakes or omissions. Christians
Against Poverty excludes to the extent lawfully permitted all liability for
loss or damage arising from reliance upon this information.
Copyright © 2014 Christians Against Poverty. All rights reserved. This
material may not be reproduced for any purpose without first obtaining
written permission from Christians Against Poverty.
find us on Twitter: @CAPuk
capdebthelp.org
Registered Office: Jubilee Mill, North Street, Bradford, BD1 4EW
Registered Charity No. 1097217 Charity Registered in Scotland No. SCO38776
Company Limited by Guarantee, Registered in England and Wales No. 4655175
CAP is authorised and regulated by the Financial Conduct Authority. Registration number 413528
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