Overworked insolvency practitioners had thought that the new legal mechanism
for handling personal bankruptcy debt relief orders (DROs) would ease their
workload in these difficult times.
But it turns out that few DROs have been granted by the Official Receiver
between 50 and 70, practitioners believe leaving vast volumes of small debts
remaining to be resolved and prompting fears that the new system will fail to
DROs are aimed at people with debts of no more than £15,000 and with assets
of less than £300. Last year it was revealed some IPs were turning away
individual voluntary arrangements (or repayments plans in place of formal
bankruptcy) of less than £20,000 due to a cap in fees introduced by the
DROs had been seen as the way forward for dealing with the huge number of
small debts that have emerged in the recession. But the news so few have been
approved means IPs will have to work on reduced fess or refuse help to debtors.
Mark Sands, personal insolvency director at KPMG, expected the number of
insolvencies to increase dramatically with DROs. But now he has changed his
He says: ‘Our prediction of 150,000 insolvencies by the end of 2009 is likely
to be woefully undershot until the system and policies can meet the needs of the
Indeed the Insolvency Service anticipated such high demand for DROs that it
set aside a special ‘airport hangar-sized space’ in which to process the
But why are DROs not happening? One explanation is that creditors are not as
aggressive as they once were and are giving people more time and more generous
payment plans for their debts.
However, experts believe the deeper answer lays in pensions. In order to
apply for a DRO an individual must have assets of less than £300. But pensions
are included as assets.
An Insolvency Service spokesman said: ‘If an individual has assets of value
such as a pension they can access this could take them over the threshold.’
Oddly, pension assets are ignored for the purposes of formal bankruptcies and
Begbies Traynor personal insolvency partner Joanne Wright believes this
inconsistency is simply a ‘real oversight’ that the Insolvency Service needs to
She says: ‘They need to sort it out now. This is when people are struggling.
It’s now that they need it.’
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