BusinessBusiness RecoveryOnline system may leave IPs in the dark

Online system may leave IPs in the dark

Accountants warn new online system to help cash strapped individuals avoid going bankrupt will be open to abuse by fraudsters

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.

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