UK To Introduce New Debt Relief Orders For Small Time Debtors
During last week’s Queen’s Speech, the British government outlined plans to introduce new legislation in the coming year to help provide debt relief for debtors in England and Wales who were faced with owing a relatively small amount, but who neither have the income nor the assets to repay the outstanding debt and who, at the same time, cannot afford to make themselves bankrupt.
Under the proposed Tribunal Courts and Enforcement Bill, a Debt Relief Order will be issued to those who have debts of £15,000 or less, with assets amounting to £300 or less and with surplus income of £50 per month or less.
The new scheme will allow such debtors the chance to apply for an order by making an application to the official receiver that will result in the debts being discharged after the completion of a one year period from the date on which the Debt Relief Order is issued. Throughout the period of the Debt Relief Order, the debtor will be protected by an automatic stay provision which will protect them from any enforcement action brought by their creditors – in a similar manner to that which is currently applied under current bankruptcy restrictions.
Notwithstanding this, if the debtor’s financial situation improves during the term of the Debt Relief Order, the Debt Relief Order will be terminated and the debtor will be required to repay their creditors under their original debt obligations. Moreover, any debtor found to be abusing the system to avoid repaying their creditors will be faced with the prospect of both civil and criminal penalties.
The introduction of the new out-of-court Debt Relief Order Scheme has been warmly welcomed by Citizens Advice, who have reportedly given credit counseling advice to 824,000 people regarding their credit problems. David Harker, Chief Executive of Citizens Advice, commenting on the new bill said that people with debt with low income “need to be given some hope that they can turn things around with a solution that offers them a fresh start and the new debt relief order offers hope.”
UK lenders, however, may treat the introduction of the new Debt Relief Orders scheme with caution, given the record number of debt right offs that they were faced with in the past year and who may now be faced with the very real prospect of seeing their credit enforcement actions eroded even further.
20th November 2006
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