Debt Relief Orders: A good Idea On Paper
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Debt Relief Orders, the Governments new way to help people on low-incomes clear their debts, have this week been criticised by a leading creditor organisation.
For those who have not heard of them, the Debt Relief Orders are available to people who do not own a home, have less than £300 in assets and an income of no more than £50 a month. The government says the orders will offer hope to people in debt and keep them from using loan sharks.
However, the Civil Court Users Association says the help for debtors is at the expense of creditors.
Debt Relief Orders can be applied for after the 6th April if the debts owed are no more than £15,000 and there is no foreseeable way the money can be repaid. Instead of going through a court, debtors apply to the Insolvency Service through an intermediary like Citizens Advice.
A Debt Relief Order costs £90, which can be paid in instalments rather than the hundreds of pounds it costs to go bankrupt. Citizens Advice estimates around a third of clients they advise on debts each year could be eligible, around 50,000 people.
If the order is granted, the debts are discharged after a year.
A statement from Citizens Advice has welcomed their introduction. “[The Debt Relief Orders] offer people on very low incomes, who cannot pay their debts off within their lifetime, light at the end of the tunnel.”
So far so good you may be thinking. However, some creditors are worried that the Debt Relief Orders are too cheap and too easy to apply for, considering the serious situation many people with debts find themselves in.
The Vice-President of the Civil Court Users Association has stated that there is concern that the government is continually assisting debtors at the expense of creditors.
The Insolvency Service said that intermediaries will be expected to make basic checks and anyone found to be dishonest can have their order revoked.
Pat McFadden, the government minister responsible for the Insolvency Service, believes that there are sufficient measures to safeguard creditors’ interests and the orders are needed to stop people in debt resorting to desperate means.
This is an interesting situation. Regular readers of this blog will know that I have very little tolerance for large companies extorting their customers rather than providing standard goods and services at a reasonable price.
This scheme, however, seems to have gone too far in the other direction and I find myself agreeing with the VP of the Civil Court Users Association. People who get themselves into debt need help but do not deserve charity. If it is made too easy for those in debt to escape after a single year that will have the effect of driving more people into debt rather than keeping them from Loan sharks.
