Debt Relief Orders and COVID — 19
A long form article which discusses the issues affecting DRO advice during the pandemic and offers some practical solutions.
Latest monthly statistics from the Insolvency Service show that the numbers of debt relief orders (DROs) made in April 2020 compared to April 2019 have fallen by 37%. We know that, after an initial short delay whilst teams were moved to home working, the Insolvency Service was quick to put mechanisms in place to enable DRO applications to continue to be processed, so this does not explain the drop in numbers. Could it be that the temporary pause on most creditor activity means that clients’ needs to seek a debt solution have reduced? If so, this can only be temporary and we can expect that numbers of clients looking for long term debt solutions will be on the rise again soon.
There are a number of practical issues affecting the DRO application process during Covid19 which could be preventing some clients from getting the debt remedy that they need. This article attempts to address some of these.
Is a DRO an option during Covid -19?
Reservations about the usefulness of a DRO during the current crisis include uncertainty around income and expenditure. If a client has a temporary income drop but could potentially have more than £50 per month surplus again once the Coronavirus restrictions are lifted, a DRO may not be a good solution. It may be better for clients in this group to consider taking advantage of payment deferrals and the current restrictions on some creditor enforcement, to wait out the crisis.
Rising debt levels in another issue. For those clients who have agreed payment ‘holidays’ with creditors for example on their payday loan, ‘buy now pay later’ sofa or ‘rent to buy’ TV, their debt repayments will have only been deferred and actual debt balances for these clients will be rising. Applying for a DRO right now may not be the best move. It may be that these clients will also need to wait out the crisis and see how the land lies a few months down the line.
Another factor may be that, for those worst hit by the pandemic, seeking advice to sort out their debt problems will be low on their list of priorities — they are not currently in a position to seek out a DRO or any other remedy.
Having said all that, we expect that there continues to be a significant number of people who had no money to pay their debts before the pandemic hit and who continue to have no money to pay their debts. For these people, a DRO could go some way to alleviate the stress and anxiety of the crisis and we need to try and make sure that they are able to access a DRO if they need one.
Access to credit reports
It is Citizens Advice policy that in order to check the client’s debt levels and try to ensure that no debts are missed from the application, approved intermediaries (AIs) should get all three credit reports where it is practicable to do so.
If you are struggling to get credit reports for your client whilst working from home, an option for Citizens Advice intermediaries will be to refer the case to our DRO Unit in Durham who will be able to process the DRO for your client. The Unit is open for business as usual and has access to electronic reports. MAPS funded independent advice agencies can also refer clients to the Unit.
Another option is to use The Insolvency Panel which allows debt advisers to access free digital credit reports and is available to any FCA-authorised debt advice agency. You may need to check with your Competent Authority.
The Money Advice Liaison Group has also issued some guidance on getting credit reports during coronavirus.
Getting accurate debt balances from HMRC and DWP
Of course not all debts are included in the credit report and contact with creditors to check for debts not included in reports, is as vital as ever. Even without the Coronavirus restrictions, getting accurate and up to date information from the DWP and HMRC has proved difficult in many cases. The Insolvency Service recognises this and has agreed that where it’s not possible for the AI to confirm the balance of an overpayment with HMRC or the DWP it’s acceptable to include a token balance of £1 per overpayment debt. Once the debt is included, any overpayment, where a decision to recover it was made before the DRO but which comes to light afterwards, can be amended to cover the full balance.
There is a risk that the full balance of the overpayment, once confirmed, could take the client’s total debt over £20,000 and the DRO could potentially be revoked. You will need to warn your client of this risk. It is also worth remembering that the decision to revoke a DRO is discretionary and you can make representations on behalf of your client to explain why the DRO should not be revoked in their particular case.
Other creditors will also be more difficult to contact at the moment. The list of creditor email addresses compiled by the Money advice liaison group might be helpful.
Verifying identity, income and expenditure
Again not seeing clients face to face is causing problems for advisers who might be concerned that they are not meeting the FCA requirements relating to verification checks. Citizens Advice have put together guidance on how to meet these requirements during the Coronavirus restrictions.
Fees
Finding the £90 fee to pay for a DRO application is difficult for many clients and the extra pressures on clients budgets in the current crisis will not have helped this. We’ve had reports of clients who were saving up for their DRO fee but when the pandemic hit they’ve had to use the money for other essentials.
As ever, a check of trust funds using Turn2Us is a good idea. You can also check this list of trust funds that have been happy to help with bankruptcy and DRO fees in the past, put together from the experiences of trainees on the Wiseradviser Insolvency Options course.
Paying the fee
For those clients who have the fee but can’t get to a post office or payzone outlet, the Insolvency Service DRO Team has set up online payment by BACS:
- Account number:10002456
- Sort Code: 60 70 80
- Bank: RBS
- Account name: INSS DRO
Clients paying in this way need to be sure to include their DRO application number in the payment reference. If they don’t, the DRO team has no way of matching the payment to the application and the money could get lost. The DRO team have also asked AIs to let them know if their client is paying by BACS.
Persons at risk of violence
Any clients who are fleeing from violence can ensure that their new address does not appear on the public insolvency register or other public records by applying to the court for a Person at Risk of Violence Order (PARV). The Insolvency Service issued guidance in 2019 to say that a PARV application must be made before the client applies for their DRO and if this is not done, but the client indicates on their application that they need to have their address details withheld, the DRO application will be stayed for 28 days until the PARV order has been made. The DRO will be declined if a PARV order is not received by the DRO Team within this timeframe and the client will lose their £90 fee.
Applications for PARV orders should fall within the work that the county courts are prioritising at the moment and should be marked Urgent, however the Insolvency Service has agreed that if your client needs a DRO and is having a problem getting the PARV order as a result of the Coronavirus they will make the DRO and follow up the PARV order later.
After the application
You and your client may be concerned that the impact of the pandemic could mean that the DRO will not be as effective a remedy as it was before. There are a number of changes to be aware of:
Notices
The DRO Team will normally send a copy of the order to the client together with a FAQs document, however during the Covid-19 pandemic, the DRO Team will email the client rather than sending a paper copy. If your client doesn’t have an email address, you need to email the DRO Team to let them know, before submitting a DRO application. The relevant email address for this is DRO.preorder@insolvency.gov.uk
Once the order has been made, a notice of the order will usually be emailed to creditors or posted to the 20 % of creditors for whom the Insolvency Service have no email address. During Coronavirus restrictions, it won’t be possible for notices to be posted out. When you complete the application you can see which creditors this applies to as there won’t be an email address for them in the drop down box in the creditor section of the application.
Clients should be warned that these creditors may contact them as they are unaware that a DRO has been made. You can, however, reassure your clients that the DRO will cover these creditors and the amounts owed to them but they’ll need to inform the creditor of the existence of the DRO. Clients can do this by emailing the order that has been sent to them by the DRO Team, or if that’s not possible, they can refer the creditor to the Individual Insolvency Register for evidence of the order. If necessary, these creditors can be referred to the DRO Team. The relevant email address for this is DRO.Unit@insolvency.gov.uk
Changes to income because of Coronavirus
As part of a package of measures that were introduced at the beginning of the pandemic, the Government has increased levels of tax credits and universal credit (UC) personal allowances by £20 per week. The local housing allowance which sets maximum eligible rent for housing benefit and housing costs on UC also went up on 1st April. Clients who already have a DRO and have had an increase in income because of one of these temporary changes do not need to report this to the Insolvency Service and the increase in income will not affect their DRO.
The Insolvency Service DRO Team has also said that anyone else who has a temporary increase in income as a result of the Coronavirus will not need to report this. The duty to report any increase in income not related to the Coronavirus remains.
Clients who are considering a DRO and have started to get the increase will need to show that they have no more than £50 per month surplus income at the date of the application.
Lump sums received because of Coronavirus measures
Some self employed clients can get help to cover income lost as a result of Coronavirus. The first part of the self employed income support scheme allowed those eligible to claim a grant of 80% of 3 months trading profits, the second part provides a grant for those who continue to be affected on or after 14 July set at 70% of 3 months trading profits. Both grants are payable as a lump sum. The Insolvency Service DRO Team has confirmed that anyone who receives a payment under this scheme during the DRO moratorium period won’t need to report it and it won’t affect their DRO.
The DRO team has also said that lump sums of limited capability for work related activity (LCWRA) premiums won’t affect a DRO if there has been a delay in processing a claim or appeal because of Coronavirus.
Any other lump sum or other property received during the moratorium that is not as a result of the Coronavirus will need to be reported and the lump sum protocol will apply.
In all other respects the DRO order process and the effects of an order being made remain the same.
Lorraine Charlton is a Debt Expert in the Expert Advice team. This article was updated on 8 September 2020.
