Debt Relief Orders: Important Changes Announced in 2024 Spring Budget

Amidst this year’s Spring Budget – featuring National Insurance cuts, changes to public spending, and an optimistic forecast of growth and inflation – one important announcement fell to the wayside: a series of key changes to Debt Relief Orders.

Demand for debt support is at an unfortunate all-time high, thanks to the ongoing pressures of the cost of living crisis.

However, many are unable to access this support; some cannot afford the application fees, while others do not meet the strict criteria currently laid out in the legislation.

Thankfully, the changes announced in yesterday’s Spring Budget should make insolvency solutions more attainable to thousands of people struggling with unaffordable debt.

But what are these changes? And how will they help those struggling with problem debts?

What Changes Were Announced to Debt Relief Orders in the 2024 Spring Budget?

The proposed changes (for England and Wales) are in Section 3.41 of the Spring Budget Report.

Here, we see three huge changes to the way Debt Relief Orders operate:

The £90 application fee will be abolished from 6 April 2024
The maximum debt threshold will be increased from £30,000 to £50,000
The maximum permitted motor vehicle value will be doubled from £2,000 to £4,000 from 28 June 2024

The proposed changes aim to reduce the barriers obstructing debtors from getting the help they need.

Removing the Application Fee

Debt Relief Orders were created to allow vulnerable people lacking disposable income and valuable assets a cheaper, easier route into personal insolvency than bankruptcy.

Normally, when applying for bankruptcy, debtors have to fork out a £680 administrative fee—a hefty sum for someone struggling with poor finances.

Debt Relief Orders sought to make insolvency proceedings more accessible, charging just £90. However, this can still be a big ask for someone operating with minimal spare income, particularly when you consider the eligibility criteria.

A DRO currently requires you to have no more than £75 a month in disposable income, meaning it’s currently impossible to pay the sum upfront in a single month. Instead, debtors must save, a very challenging prospect when contending with unexpected expenses and demanding creditors.

Thankfully, this £90 DRO application fee is due to be scrapped entirely by 6 April 2024.

Removing the application fee will enable thousands of would-be applicants to get instant access to the aid, helping many struggling people regain control of their finances.

Raising the Maximum Debt

When Debt Relief Orders were originally introduced, the maximum debt cap for applicants was set at £15,000. This increased to £20,000 in 2015 and then £30,000 in 2021.

Now, this maximum debt cap is rising once again—applicants will now be eligible to apply for a DRO with debts totalling up to £50,000. This is the largest increase to the DRO debt cap yet.

More people than ever before will now be able to apply for a DRO.

Many individuals struggling with debt do not have disposable income or valuable assets but are still unable to enter into insolvency due to their debt spiralling beyond the current £30,000 cap, making them ineligible for a DRO.

Increasing the Permitted Value of a Vehicle

While Debt Relief Orders were created to cater to those without assets, they do allow debtors to retain a vehicle of modest value.

This “modest value” was previously capped at £2000; this meant any vehicles over this value would need to be surrendered as part of the DRO.

Now, this cap has been doubled to £4000. This is a boon to many would-be applicants.

For many, vehicle ownership is essential to a working life. However, cars under £2000 are often too unreliable, meaning workers have to purchase more expensive vehicles.

Applicants are then presented with a tricky decision: sacrifice the car they need to continue working or attempt to keep up with IVA payments they cannot realistically afford.

Raising the permitted value makes a DRO a realistic option for those who require a car for work but do not have the income to opt for other, more costly insolvency procedures.

What Does this Mean Going Forward?

Debt Relief Orders will now become more accessible for many people, enabling individuals to write off historic debts and start anew.

That being said, DROs still won’t be an option for everybody.

For example, your disposable income must still be less than £75 a month, and you must not have any significant assets.

The changes will allow the procedure to work more effectively as it was originally intended; as an insolvency solution catered to those with low income and little assets.

Speak to an Expert

If you’re struggling with unaffordable personal debts, it’s crucial that you speak to an insolvency practitioner as soon as possible.

Our team of experts can assess your situation and guide you to the solution that will best suit your needs and future.