Insolvency Made Clear: A Guide for Debtors

Insolvency Law Made Clear – A Guide For Debtors
debtor has total assets of less than £1,000, unsecured debts of less than £20,000
and a disposable surplus monthly income (after household expenses and taxes)
of less than £50 per month. 1 There are complications with the definition of these
terms, but if the debtor’s financial position is in this range, then a DRO may be
an option. A DRO does not involve a Trustee in Bankruptcy selling the estate of
the debtor, like an IVA. However, unlike an IVA, a debtor subject to a DRO will
not be expected to contribute to repaying the debts. This is because the debtor’s
estate is of such little value that it would not be worthwhile doing so.
A DRO application must contain a list of liquidated debts, sometimes called a
schedule of debts. A DRO removes all debts in that schedule. Not all debts can
be included in a schedule to the DRO application: unliquidated debts and the
debts in Box 1 on page 7 above cannot be included. A DRO creates restrictions
similar to a bankruptcy order, which last a year. For example, debtors subject
to a DRO cannot borrow more than £500 without disclosing the existence
of the DRO, and similar criminal offences apply to a debtor who makes a gift
with an intention to defraud creditors. The DRO does not affect the right of a
secured creditor to enforce their security, for example, if the creditor has a logbook
loan, they may still be able to repossess the car.
If a debtor makes a DRO and accidentally fails to include a debt, it falls outside
of the DRO and a creditor will be able to enforce it.
There are typically more DROs made than bankruptcy orders. There were
almost 27,500 DROs made in 2019. The debtor is required to submit a paper
application to the Official Receiver via one of six approved bodies. These are
Citizens Advice; StepChange; MoneyPlus; Institution of Money Advisers;
National Debtline; and Payplan. A DRO currently costs £90, but some providers
allow this to be paid in instalments and some charities provide grants to help
applicants.
1
The precise conditions for a DRO are that: a) the debtor is domiciled in England and Wales on the
application date, or at any time during the three years before applying the debtor was ordinarily resident
or had a place of residence or carried on business in England and Wales; b) the debtor is not an
undischarged bankrupt, subject to an interim order or an IVA, or subject to a bankruptcy restrictions
order or a debt relief restrictions order; c) a bankruptcy application has not been made, or has been
made but was not successful; d) a creditor’s petition has not been presented before the determination
date, or it had been presented but proceedings had been finally disposed of, or the presenter of the petition
has consented to the making of an application for a DRO; e) has not had the benefit of a DRO
in the six years before the determination of their application; f) has not given a preference or entered
into a transaction at an undervalue within two years ending with the application date.
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