Important changes to Debt Relief Orders

IPA Insolvency Practitioner newsletter, August 2024

David Holland, Chief Inspector

The IPA would like to draw your attention to the impact of significant changes to Debt Relief Orders (DROs) that came into effect on 28 June 2024 in England & Wales, and 8 July 2024 in Northern Ireland. These changes, introduced by the Insolvency (England and Wales) (Amendment) Rules 2024, the Insolvency Proceedings (Monetary Limits) (Amendment) Order 2024 and the Insolvency (Monetary Limits) (Amendment) Order (Northern Ireland) 2024 were announced in the 2024 Spring Budget to provide more substantial support for individuals struggling with debt.

Key changes to DROs:

1. Increased asset value limit for motor vehicles (England & Wales only):
   • The value of a single motor vehicle that can be disregarded from the total value of assets an individual seeking a DRO is permitted to own has increased from £2,000 to £4,000 in England & Wales.
2. Increased savings or asset value limit and monthly surplus income (Northern Ireland only)
   • The savings or asset value limit has increased from £1,000 to £2,000 and the monthly surplus income threshold has increased from £50 to £75 in Northern Ireland. The savings or asset value limit is already £2,000 in England & Wales.
3. Higher debt threshold:
   • The total debt allowable for a DRO has increased from £30,000 to £50,000 (£20,000 to £50,000 in Northern Ireland).
4. Abolishment of the administration fee:
   • Effective from 6 April 2024, the £90 administration fee required to obtain a DRO has been abolished. In Northern Ireland, the fee was abolished in June.

Compliance with ethical standards:

As you incorporate these changes into your practice, it is crucial to adhere to the relevant Code of Ethics requirements. Specifically, ensure that all marketing leading to an appointment, particularly websites and advice letters, accurately reflects the DRO changes and that there is a link to show where a debtor can get free debt advice via Money Helper:

• R360.5: Ensure that marketing or promotional activities do not bring the profession into disrepute. Be honest and truthful without making exaggerated claims about your services or qualifications and avoid disparaging references to the work of others.
• R360.6: Before accepting an insolvency appointment, verify that any advertising or promotional activity related to the appointment is fair, not misleading, free from unsubstantiated or disparaging statements, compliant with relevant advertising codes and guidance, and clearly distinguishable as advertising material.
• R360.7: If your firm obtains work via a third party, ensure that the third party adheres to these ethical guidelines as well.

Impact on ‘Advice to the Debtor’ and procedures under Statement of Insolvency Practice 3.1:

The DRO changes will have a significant impact on how you advise debtors. Particularly under the principles of Statement of Insolvency Practice (SIP) 3.1 which requires:

• Comprehensive information and explanation: You must provide detailed information about all potential debt relief solutions available to the debtor. This includes explaining the advantages and disadvantages of each option to ensure the debtor can make an informed decision about whether a DRO, Individual Voluntary Arrangement (IVA) or other solution is most appropriate.
• Adequate time for decision-making: Ensure that debtors have sufficient time to consider the consequences and alternatives before finalising an IVA proposal or any other debt relief option.
• Tailored advice: Tailor your explanations to the specific circumstances of each debtor. Detailed documentation of the debtor’s circumstances and the tailored explanations is essential to ensure clarity and comprehensibility at every stage of the process.
• Standards of general application: Maintain robust procedures to ensure that the information provided to debtors is clear, accurate and comprehensible. Your advice should cover the advantages and disadvantages of each available option. You should ensure that staff are adequately trained to give advice on your behalf.

The regulatory updates represent a significant shift in the DRO landscape, aiming to offer more robust support to those in financial distress. As insolvency practitioners, your role in guiding debtors through these changes and in adherence to the fundamental principles of the Code of Ethics is crucial. Insolvency practitioners need to be able to evidence compliance in each and every case. Documenting tailored advice will be paramount in ensuring these changes benefit those most in need.

For any questions or further clarification, please contact regulation@ipa.uk.com.