Debt Relief Scheme proposals to amend the limits for eligibility in Northern Ireland

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1 Debt Relief Scheme proposals to amend the limits for eligibility in Northern Ireland CAP s official response to the Department of Enterprise, Trade and Investment s consultation September 2015 Lifting people out of debt and poverty

2 Christians Against Poverty (CAP) welcomes the Department of Enterprise, Trade and Investment s proposals to raise the threshold levels of eligibility to the Debt Relief Scheme in Northern Ireland. We hope that the insights gained from our 19 years experience helping those struggling with unmanageable debt and in particular as a Competent Authority, processing 4,879 Debt Relief Orders (DROs) in the UK to date will add value to the review process. To become debt free, 47% of CAP clients require some form of insolvency. Many are not only unable to repay their debts, but also cannot afford bankruptcy fees. By providing a low cost insolvency option, DROs offer debt relief to those previously excluded from other procedures and provide a debt solution to two thirds of CAP clients on an insolvency route. At CAP, we have seen the significant impact the introduction of DROs in 2011 has had on the lives of our poorest clients, who can now access a timely, low cost and less stressful insolvency option. DROs have been a lifeline for many of our clients and the delivery system works exceptionally well. CAP supports the proposals to increase the thresholds in line with England and Wales, as we have already seen many clients benefit from the changes made in England and Wales since October For instance, the first CAP client who was previously ineligible for a DRO who applied under the new England and Wales eligibility criteria in October 2015, had just over 18,000 worth of qualifying debt, which built up when her relationship broke down and she lost her job whilst pregnant. If she had been unable to access a DRO, it would have taken her nine and half years on a severely restricted budget to pay back her debt, or three years to save for the bankruptcy fee. However, we believe Northern Ireland has the opportunity to go further than England and Wales and extend DROs to even more debtors who are too poor to go bankrupt and in desperate need of an affordable insolvency option. In light of this, CAP recommends that the DRO debt limit is raised to 30,000 and incorporates an inflationary index. This would offer a debt solution to 69% of our clients currently outside of the Northern Ireland DRO eligibility criteria, but who are too poor to go bankrupt. As well as changes to the debt and asset thresholds, CAP also suggested several other improvements during the Insolvency Service s consultation in 2014 about insolvency proceedings, which we believe would benefit the integrity and effectiveness of Northern Ireland s debt relief system as well. These included issuing clearer guidance as to what is included in the existing asset limit and the type of valuation that should be used. We also recommend making eligible additional debts that are taken out before the DRO application was made but come to light within the discharge period, to be included retrospectively in the DRO as long as the eligibility conditions of the original application are not violated. Thank you for your continued commitment and drive to ensure all can access an appropriate debt solution. We hope our response will help inform the consultation process, and would be pleased to discuss anything highlighted in this document in more detail if helpful. Matt Barlow UK Chief Executive Christians Against Poverty Jubilee Mill, North Street, Bradford, BD1 4EW info@capuk.org capuk.org 2

3 Do you want us to keep your response confidential? No. Q1: Do you agree that the total amount of debt, other than liquidated debts and excluded debts, which a debtor can have to be eligible to apply for a DRO under the Northern Ireland debt relief scheme should be increased to the same amount as will apply in England and Wales from 1 October 2015, that is 20,000? CAP supports the proposal for the total amount of qualifying debt that a debtor can owe to be eligible to apply for a DRO in Northern Ireland to be raised at least in line with England and Wales, but would advocate a higher amount. Q2: If you do not agree that the limit should be increased to 20,000, what limit do you think should apply? CAP recommends that the limit should be increased to 30,000. Q3: If you think that a different limit should apply in Northern Ireland, what are you reasons? It is clear that the current debt limit of 15,000 is too low, and many debtors in Northern Ireland would benefit from the higher limit of 20,000 introduced in England and Wales in October While there are grounds for introducing the same level as in England and Wales (e.g. to make it simpler for organisations working across the whole of the UK), in CAP s opinion this is insufficient for DROs to succeed in providing debt relief to those currently excluded from existing procedures. Northern Ireland has an opportunity to go further than England and Wales, and to provide the low cost insolvency option that is desperately needed by many who are still too poor to go bankrupt in the rest of the UK. Research conducted for the England and Wales insolvency proceedings consultation in 2014 found that while DROs had been a lifeline for many, there was also a large group of CAP clients in need of a low cost insolvency option who were ineligible. This research showed 35% of bankruptcy clients were too poor to go bankrupt, requiring financial assistance for at least part of the fee. With an average repayment term of 618 years, it was clear that these debtors needed a more affordable debt solution. Furthermore, 78% of these clients in need of financial assistance were ineligible for a DRO solely due to their total debt level. These are debtors who meet the DRO asset criteria and therefore the bankruptcy costs cannot be recouped through their assets. As DROs are cost neutral, increasing the debt level threshold to 30,000 would reduce costs incurred by the Department of Enterprise, Trade and Investment for processing bankruptcies where there are no funds to cover the trustee fees and no dividend for creditors. 94% of CAP clients receiving a bankruptcy bursary had a total debt balance exceeding 15,000, with a mean level of debt of 31,270. An increase to 30,000 would mean 69% of those too poor to go bankrupt would be able to go through a DRO, whereas an increase to 20,000 would not go far enough, only helping 34% of those who can not afford bankruptcy. Christians Against Poverty Jubilee Mill, North Street, Bradford, BD1 4EW info@capuk.org capuk.org 3

4 CAP also suggests that the maximum debt amount should be inflation indexed, to ensure the eligibility conditions remain at an appropriate level over time. This would prevent the need for frequent reviews. Q4: Do you agree that the total value of the property which a debtor can have to be eligible to apply for a DRO under the Northern Ireland debt relief scheme should be increased to the same amount as will apply in England and Wales from 1 October 2015, that is 1,000? Yes. Q5: If you do not agree that the limit should be increased to 1,000, what limit do you think should apply? Not applicable. Q6: If you think that a different limit should apply in Northern Ireland, what are your reasons? Not applicable. Christians Against Poverty Jubilee Mill, North Street, Bradford, BD1 4EW info@capuk.org capuk.org 4

5 Regulatory impact assessment for Competent Authorities Q7: Do you foresee that the proposed increases in debt and asset levels for eligibility for the Debt Relief Scheme will result in other costs for your authority e.g. for training staff or making changes to your IT systems? CAP does not perceive any additional costs due to changes in the debt and asset levels for eligibility. Furthermore, CAP is prepared to absorb any reasonable additional costs that are incurred as a result if the changes ensure that DROs remain as inexpensive as possible. Q8: If you believe that there will be other costs, please provide an estimate of what there will be and state whether they will be one-off or recurring costs? Not applicable. Q9: Do you agree with the estimated cost of between 200 and 300 for administrating a DRO application? If not please provide your estimate of the cost. Due to sourcing of insolvency bursaries and CAP s face-to-face model, it is estimated that the cost to CAP of administrating a DRO application costs more than the estimate of other debt management organisations. However, CAP has not produced its own estimate of costs. Christians Against Poverty Jubilee Mill, North Street, Bradford, BD1 4EW info@capuk.org capuk.org 5

6 Requests for further information This response has been written by Rachel Gregory, External Relations Analyst for Christians Against Poverty (CAP), with contributions from: Mark Cowley, Insolvency Advice and Applications Team Manager Dan Furlong, National Grants Manager To discuss any queries and to request further information, please contact: Rachel Gregory External Relations Analyst Christians Against Poverty (CAP) helps thousands of individuals and families struggling with unmanageable debt each year. Through our network of 290 CAP Debt Centres based in local churches, CAP offers a free face-to-face debt management service, with advice and ongoing support provided from head office. In 2014, CAP worked with 12,295 households, with 2,534 of these clients becoming debt free in the year. In addition to this, CAP is the largest provider of face-to-face adult financial education in the UK. There are currently 850 churches providing the CAP Money Course, a three week money management course, equipping over 12,000 people each year to budget, save and spend wisely. CAP has also recently expanded to tackle more causes of poverty. To this end, CAP now operates 145 CAP Job Clubs and is piloting 31 CAP Release Groups to tackle both unemployment and dependencies respectively. Christians Against Poverty Jubilee Mill, North Street, Bradford, BD1 4EW info@capuk.org capuk.org 6

7 Disclaimer: Although care is taken to ensure that this information is accurate and correct at the time of writing, Christians Against Poverty cannot accept any responsibility for mistakes or omissions. Christians Against Poverty excludes to the extent lawfully permitted all liability for loss or damage arising from reliance upon this information. Copyright 2014 Christians Against Poverty. All rights reserved. This material may not be reproduced for any purpose without first obtaining written permission from Christians Against Poverty. capdebthelp.org find us on Registered Office: Jubilee Mill, North Street, Bradford, BD1 4EW Registered Charity No Charity Registered in Scotland No. SCO38776 Company Limited by Guarantee, Registered in England and Wales No CAP is authorised and regulated by the Financial Conduct Authority. Registration number Lifting people out of debt and poverty Christians Against Poverty Jubilee Mill, North Street, Bradford, BD1 4EW capuk.org 7