Bankruptcy: helping the helpless?

For a long time now, it has been a common perception that bankruptcy
proceedings are a better option for individuals who find themselves in a
position where they cannot repay their debts.

But what is not commonly known or understood is that to avail of this
protective measure, the same individual has to stump up £495 to pay for a court
fee and deposit payable to the Official Receiver.

For the socially excluded, such as single parent families or persons whose
only income is derived from state benefits or pensions, this can deny them from
this option, leaving them to the mercy of unscrupulous loan sharks or
never-ending repayment plans.

To address this anomaly, the Department of Constitutional Affairs has
introduced the tribunals, court and enforcements bill, which intends to
introduce a new style method of debt relief for people in England and Wales who
owe a relatively modest amount, have no assets to repay what they owe and cannot
afford to declare themselves bankrupt.

This procedure is to be known as a debt relief order and legislation is
currently in the process of being introduced, but no firm date has been set for
its introduction.

Those who have debts of £15,000 or less, assets of less than £300 and surplus
income of less than £50 per month can apply for a DRO that will lead to the
debts being discharged after just one year.

During this period, the people party to the order will be protected from
enforcement action from their creditors and subject to similar restrictions to
those currently instigated under more formal bankruptcy proceedings. To apply
for a DRO, the debtor will apply to the receiver via an approved intermediary ­
currently anticipated to be the Citizens Advice Bureau, debt management
companies and insolvency practitioners ­ to see how this may operate in

DROs will be more suited to those with consumer debt rather than businesses,
but soletraders will not be excluded.

There is no firm timeline for the introduction of DROs, which many consumer
groups believe ought to be implemented at the earliest time parliament can push
for full legislative passage. In contrast, there are alternative views that this
is yet another step to making bankruptcy or debt avoidance easier.

Clearly, used for the right reasons they will bring much needed relief to
those who need it the most, but as it is not yet clear how the calculation of
assets and disposable income is to be assessed there is clearly much work yet to
be done at the coalface.

Melanie Giles is an insolvency practitioner at Jones

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