Online system may leave IPs in the dark

A new online system may help cash strapped individuals avoid going bankrupt, but accountants have warned the system will be open to abuse by fraudsters lying over exactly what assets they hold.

The internet system allows applications for Debt Relief Orders, which offer individuals with debts of less than £15,000 the ability to write off arrears and gives legal protection from creditors.

Anthony Cork, director at Top 25 firm Wilkins Kennedy, flagged the limited resources and powers available to intermediaries to check applications for DROs, which he believed would make the service highly ‘susceptible to fraud’.

‘Other than asking to see bank statements, what can intermediaries do to check applicants’ claims that they have less than £300 in assets? Intermediaries won’t have powers to gain entry to debtors’ homes to check for laptops and plasma screen TVs,’ he said. ‘Debtors could have property abroad or even assets in other people’s names, but it will be very difficult for intermediaries to conduct thorough checks.’

A tough set of rules introduced by the Insolvency Service is intended to head off problems by setting rigid criteria for access to the system.

To qualify for a DRO debtor’s total unsecured liabilities must not exceed £15,000. The debtor’s total gross assets must also not exceed £300. The debtor’s disposable income, following deduction of normal household expenses, must not exceed £50 per month. The debtor must not be involved in any other formal insolvency procedure, such as a current Individual Voluntary Arrangement, a current Bankruptcy Restrictions Order or a current Debt Relief Restrictions Order.

Once a DRO is granted, creditors will be unable to bring legal action against debtors for repayment of loans and, after 12 months, all debts will be written off. Trustees of normal bankruptcy orders have much stronger statutory powers to investigate individuals compared to those applying for DROs.

DROs will not be available through the court system. Instead the orders will be made by an official receiver and a separate unit for this purpose has been set up at the Official Receiver’s office in Plymouth.

The Insolvency Service has insisted DROs are handled by an authorised intermediary who is a skilled debt adviser, so accountants are likely to be in high demand.