New Legislation - Debt Relief Orders

Debt Relief Orders were introduced in April. To whom exactly they are going to be a relief remains to be seen.

The intention of the legislation was to allow people with no assets and a low income access to debt relief - Consumer Affairs Minister Gareth Thomas clearly stated that the new debt solution was aimed at people on low incomes and with little money - and (as the length of Debt Relief Order is typically 12 months, but can be extended) time to pay off their debts.

In reality, however - which is where the rest of us live - the legislation means that anyone who has debts of less of £15,000, assets of less than £300, and a disposable income of less than £50 a month is entitled to to apply for a Debt Relief Order without having to enter full bankruptcy, and (if the Order is successfully completed) can be free of their debts after a 12 month period - which I think you'll agree is not quite the same thing at all.

Debt Relief Orders can be applied for on-line. An approved intermediary completes the application on behalf of the applicant, and on receipt of the application and a fee of £90 (which is about a fifth of the fee for a regular Bankruptcy Order) an Official Receiver will make the Order, which will thereafter protect the debtor from any enforcement action by his or her creditors. There is no Court involvement whatsoever in this process.

The legislation states that once an Order is in place, the debtor should make arrangements to pay creditors should their financial situation improve - but who is to monitor those changes in situation? It seems to me that monitoring a debtor's circumstances and notifying the Official Receiver of any change will fall to the creditor.

I have yet to work out a foolproof ( or any other!) method of successfully monitoring a debtor's true circumstances, and I would be delighted to hear from anyone who has. (Do try to think everyone; Accountants KMPG expect up to 50,000 people to take advantage of these Orders this year, so there could be a pot of gold at the end of rainbow for anybody who comes up with a fail-safe 'MonitDebt' system).

Anyway - and coming back to the real world - it would (a) be wise to try and identify customers who might potentially apply for a Debt Relief Order and give such accounts special attention - the debts could, after all, become uncollectable very quickly, and consequently standard collection methods would almost certainly fail - and (b) monitor any customer who has obtained such an Order as best you can and notify the Official Receiver of any change in that customers' circumstances as quickly as you can.

I am not - as you have probably worked out for yourself - thrilled with this (doubtless well-intentioned) legislation. I am sure that it will be a relief to those people described by Gareth Thomas as 'already struggling' and who need to be 'in control of their finances and treated fairly'. I am also quite certain that it will be abused.