Changes to debt relief orders already making a real difference to the financially vulnerable and will be boosted by further changes

Removal of the £90 debt relief order (DRO) administration fee in April has already had a significant impact on the number of financially vulnerable people applying for support.

We saw a 50% increase in applications in April and 33% in May after the prohibitive fee was scrapped.

This supports figures from the Insolvency Service for England & Wales showing a record number of DRO applications in April and May, with 3,716 people applying for one last month alone.

The jump comes ahead of further changes this Friday, which means even more heavily indebted people will be eligible for DRO support. 

From 28 June, the amount of debt a person can have to be eligible for a DRO will increase from £30,000 to £50,000. And the value of a car someone can own will double from £2,000 to £4,000.

Before these two changes, anyone with debts greater than £30,000 may have been faced with having to apply for bankruptcy at a cost of £680.

We believe car value is the greatest barrier people face, with used-car values increasing dramatically over the past three years.

Sebrina McCullough, Director of External Relations at Money Wellness, said: “The rise in car values has proven to be a real stumbling block for those seeking a DRO. We’ve had to look for alternative ways to support thousands of people over the past couple of years because of the value of their car.  And we’re not talking top-of-the-range vehicles, your average second-hand run-around easily exceeds £2,000 because resale values have increased so dramatically.

“We believe these final two changes will result in a 15-20% increase in the number of people who are eligible for a debt relief order.”

A DRO is a solution to help deal with personal debts. They last for 12 months and during that time, your debts are frozen, and creditors and debt collectors can’t contact you. If your financial situation doesn’t improve within those 12 months, your debts are written off.

DROs stay on your credit file for six years. They are also added to the Individual Insolvency Register and removed three months after the DRO ends.

 McCullough added: “Getting rid of the application fee removed a huge stumbling block for thousands of people. It was impossible for many people already in debt – some living with a negative income – to find £90 to cover the fee. We regularly had to try and help them find grant support and, if this was unsuccessful, ask them to come back when they’d saved up. It’s not what you need when you’re already at your wit's end and you need help immediately.

“It’s been great to see the direct impact removing the fee has had on people’s lives.

“Options like debt relief orders can help to ease financial and emotional pressure, and people can start to live again.”

Following the changes, we’re now calling for the government to look at reducing or removing the bankruptcy fee and other associated costs, such as the person at risk of violence (PARV) charge, to provide further support to those struggling with debt.  

“Debt is a complex issue; it is very rarely the consequence of reckless spending behaviour. More often it is the result of life shocks like an unexpected job loss, injury, or family death that affects income coming into the home. The cost-of-living crisis has also devastated millions of families' finances and we’re seeing that in the level and breadth of debt they have with mortgage or rent, utility, council, and credit arrears. With so many bills so much more and still rising, falling into debt can feel like an impossible hole to escape. But seeking free, impartial support as early as possible can be a real help.”