New debt option gives relief to insolvency practitioners

A simplified form of bankruptcy has been welcomed by personal insolvency practitioners this week.

The move comes just under a year after it was reported by Accountancy Age that IP's were having to turn away people with lower levels of debt as the cut in fees would mean they would have to advise at a loss

The Debt Relief Order, which came into effect earlier this week, will allow consumers who have debts of less than £15,000 and no assets to apply for a simplified bankruptcy via Citizens Advice Bureau and not the courts.

Mark Sands, personal insolvency director at KPMG said: 'It is another tool in the armoury of an IP to help a consumer. It allows the right person to be in the right process' said Sands.

'I've already recommended someone to go on one and people are already queuing up to get them' he added.

However the DRO, is set to inflate insolvency statistics to record levels of over 150,000 by the end of 2009 despite historically low base rates.

An enforcement restriction order is due to come out this time next year and will allow those applying to seek court protection from their creditors for a fixed period of time. It can only be applied for if there is a sudden change in a person's financial circumstances but they are likely to recover.

But insolvency trade body R3 cautioned the government to adopt stringent approval standards for DROs in order to prevent their abuse.

Further reading:

Insolvency practitioners shying away from IVAs

Sceptics see debt restriction as a treatment not a cure