ESCAPE SMALL DEBTS BUT GREED & DISHONESTY WILL COST YOU
In January 2023 there were 612 individual bankruptcies registered in England & Wales, a worrying 5% increase from January 2022. By contrast, there were only 1'741 Debt Relief Orders made, representing a 7% drop against the year before.
With UK inflation standing at 10.1%, the average UK Household debt reaching £65'914 increasing numbers of self-employed and SME traders suffering the consequence of bad debt, this article will look at DROs, a debtors eligibility, how creditors may challenge a DRO and the just but unforgiving consequences of supplying dishonest information.
WHAT IS A DRO?
Debt Relief Orders (DROs) are 1 of the 3 principal formal individual insolvency procedures in England & Wales. The other 2 are Individual Voluntary Arrangements (IVAs) and Bankruptcy. Each procedure is distinct from the others in terms of the amount of debt relief and the restrictions placed upon the debtor. However, DROs differ the most significantly as they do not require assets or income for distribution among creditors.
A DRO if granted provides the debtor with an automatic moratorium meaning no creditor owed a specified qualifying debt has a remedy for that debt. Equally, a creditor is prevented from taking any action or instituting other legal proceedings (including filing a bankruptcy petition) against the debtor for their debt without permission of the court. Furthermore, the debtor is provided with protection from county court bailiffs, High Court Enforcement Officers and other debt collectors.
At the end of the DRO moratorium which usually lasts 1 year, the debtor has no further obligation to pay the specified qualifying debts (including all related interest, penalties and other sums which became payable) and is essentially freed from them.
WHOM CAN BE ELLIGIBLE FOR A DRO?
A debtor is eligible to apply for a DRO providing:
They are unable to pay their unsecured debts.
Their assets are £2000 or less.
Their debts are £30’000 or less.
Their disposable monthly income is £75.00 or less once tax national insurance and reasonable household expenses have been deducted.
They are and have been domiciled in England & Wales in the last 3 years or carried on business their.
They are not subject to any other formal insolvency procedure (or pending insolvency proceedings) at the time of the application.
They have not had the benefit of a DRO in the six years before the determination of their application.
They have no other debt management arrangements in place, such as a County Court administration order.
Excluded from these assessments are the essential household items and necessities for work such as an individual's (and their family's) bedding and furniture, tools or other equipment, a domestic car not exceeding in value of £2000, property held on trust for others and the debtors rights under pension arrangements.
WHAT DEBTS CAN BE CONVERED BY A DRO?
Debts that can be covered by a DRO must be for a liquidated unsecured sum that are payable by the debtor at the time of the DRO application or at some time in the future. Otherwise the debts must be recorded in the DRO and cannot be excluded by statute.
The excluded debts are prescribed by r.9.2 Insolvency Rules 2016 (IR 2016) but broadly comprise of:
Any fine imposed for an offence including TV license arrears.
Any obligation arising from criminal confiscation orders.
Any obligation imposed under the Child Support Act 1992 (including an obligation to pay a lump sum or to pay costs or maintenance) arising under an order made in family proceedings and any maintenance obligation.
The tenacious student loan.
Any debt for a liability to pay damages for negligence, nuisance or breach of duty or damages for death or personal injury under Part 1 of the Consumer Credit Act 1987.
Any crisis loan or budgeting loan advanced to the debtor under section 138(1)(b) of the Social Security Contributions and Benefits Act 1992. This includes loans from the DWP Social Fund.
Tenant's should note that the landlord's right to apply for an order for possession of property is not, in principle a debt remedy as it is not a means of recovering unpaid.
ADVANTAGES & DISADVANTAGES OF A DRO
Unlike with IVAs and bankruptcy, the advantages of a DRO are almost entirely one-sided to the debtor as if granted, there is no 'estate' created from out of which creditors receive 'distributions' or payments. Instead the debtor can enjoy the benefit of:
Protection from the stigma and restrictions of bankruptcy.
Continuing to act a company director or other officer.
Protection from county court bailiffs, High Court Enforcement Officers and debt collectors.
12 months during which no debt payments have to be made and thereafter, they are written off.
The negative aspects of a DRO are that as a formal insolvency procedure, a DRO will be recorded on the Insolvency Register and so the debtor's credit rating will be almost terminally affected for many years to come. Further, should the debtor come into possession of any property or other asset, they must notify the Official Receiver who will consider what should be done with it.
CHALLENGING A DRO
Creditors with a specified qualifying debt wishing to challenge the DRO must within 30 days of being notified of the DRO, object to the Official Receiver. This objection must be in writing and must contain the prescribed content set out in r.9.15(2) IR 2016. These grounds are that:
The DRO contains an error or omission.
The debtor is bankrupt or has made a proposal for an IVA.
The Official Receiver was wrong in deciding that the debtor had standing to apply for a DRO or,
The Official Receiver was wrong in deciding that they could exercise their discretion to make an order despite the debtor's failures to meet conditions for standing to apply.
Upon receipt of the challenge, the Official Receiver will consider the facts and evidence presented then either amend/correct the DRO or revoke it. However, should a creditor be dissatisfied with the Official Receiver's decision then their recourse is through the courts. In both cases, should either the Official Receiver or the court be satisfied that the debtor has given dishonest information, then the debtor will likely be found to have committed an offence.
OFFENCES RELIANT ON A DRO
There are a number of offences which may be committed by a debtor in connection with a DRO. These are when either the Official Receiver or the court find that the debtor has:
Made False representations and/or omissions.
Concealed or falsified documents.
Engaged in fraudulent disposing of property.
Has engaged in fraudulent dealing with property obtained on credit.
Obtaining credit or engaged in business during a DRO.
Proceedings for an offence may only be instituted by the Secretary of State or by, or with the consent of, the Director of Public Prosecutions. Thereafter, if found guilty of an offence, a debtor is liable to imprisonment or a fine or both.
HOW WE CAN HELP
Unlike most law firms, our standard retainer includes a commitment to clients supporting them past judgement and through enforcement. This means that our dedication to you does not cease until you have safely received your court ordered damages/compensation into your bank account, together with the costs of the litigation.
Prior to commencing any litigation, we undertake a detailed search of your opponents assets in order to ensure the cost of litigation never outweighs its benefits. Thereafter, we maintain a watchful vigil over these resources so you can be secure that you will receive your due judgment.
Consequently, Gavin Renwick has successfully dealt with fraudulent debtors whom have supplied false information to county court bailiffs, High Court Enforcement Officers and/or made false representations in the Insolvency Courts in a bid to frustrate enforcement, hinder judgement and inflict further financial pressure on their creditors. In every case, whether by attempting to hide assets in faux-companies, sham-divorces or fake addresses we have secured our clients financial interests and the debtors due.
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