October Lifting people out of debt and poverty

Transcription

1 A guide to CAP s official response to the Insolvency Service s call for evidence: Insolvency Proceedings: Debt relief orders and the bankruptcy petition limit October 2014 Lifting people out of debt and poverty

2

3

4

5

6 What is a DRO? A Debt Relief Order (DRO) is a form of insolvency that was introduced in The aim was to help the poorest and most vulnerable struggling with unmanageable debt. They are for those who have low levels of debt but no prospect of paying them off due to low income and asset levels, and who do not have the means to enter bankruptcy 2 3 Every morning I woke thinking about which creditor would knock on the door and the letters I would get. I used to think, when this will be over?. I d go to sleep in fear every night, I felt like I should kill myself so that I would be free. [Since going through a DRO] I feel a new hope. I feel so much relief. I can wake thinking everything is over. Thank you CAP, you gave us a new life and freedom.

7 I didn t know which way to turn. I didn t know help was available

8 How do you go through a DRO? Applying for a DROsis an administrative procedure. Applications are submitted online by an intermediary, a highly trained debt adviser who has been authorised by a competent authority. There are twelve competent authorities appointed by the Secretary of State for Business Innovation and Skills. Christians Against Poverty is one of these authorised competent authorities and has seven in-house intermediaries. Intermediaries ensure the information given by the debtor is accurate and that they meet the eligibility criteria. If an application is approved, a DRO is granted by the DRO Unit, part of the Insolvency Service. At CAP, we believe in treating creditors and clients fairly. We believe it is sometimes unrealistic and unreasonable for debtors to live on the tight, and often impossible, budgets that would be required to repay their debts. Therefore, these clients are encouraged to consider insolvency as a more appropriate path to become debt free.»

9 7 6» Creditors appreciate the integrity of the DRO delivery model, and are able to trust that all checks are carried out to ensure those who can pay back their debts do so. For the credit industry to have even greater confidence in the system and that their interests are being protected, it is important competent authorities are audited. How much does a DRO cost? There is a flat-rate fee of 90 to go through a DRO. 80 is to cover the costs of the Insolvency Service for administrating the scheme. 10 is allocated to the competent authority to contribute towards admin costs. Unlike other insolvency options, advice agencies are not allowed to charge a fee for preparing a DRO.

10 Who is eligible for a DRO? A debtor must meet 14 eligibility criteria to be granted a DRO. Five of these are: 1. Owe less than 15, Have less than 300 worth of assets 3. Have less than 50 a month disposable income 4. Lived or worked in the UK within the last three years 5. Haven t applied for a DRO within the last six years 2

11 When we were first told how much bankruptcy cost it seemed bizarre, it s too much. We d have to save up for years. Family and friends said they would help as much as possible but 700 each that s a lot of money! Without the help of CAP we wouldn t have been able to go bankrupt. It was a quicker release from the stress and the worry. It would have been hard; the burden was lighter because the support was amazing! We know CAP would have helped as much as possible if they hadn t had a bursary to provide, but it would have affected our home life, especially with my partner s ill health, stress and depression. It was a major relief. I can answer the phone without worrying. It s a release, like being released from prison, released from captivity; the sense of freedom.

12 5 CAP works with numerous clients, ineligible for a DRO, who can t afford to repay their debts or pay the bankruptcy fee. These debtors have no assets or funds to be dispersed to creditors by the Official Receiver or from which the Insolvency Service could reclaim bankruptcy costs. Our proposal to increase the debt limit to 30,000 provides debtors in the most severe financial situations a debt solution without placing the costs on the credit industry and in fact reducing costs for the Insolvency Service.

13 What happens after a DRO is granted? Once a DRO has been granted, there is a 12-month moratorium or discharge period, after which all included debts are cancelled. During this period, the Official Receiver must be notified about any increases in income or any new assets. There is also a 12-month restriction period, whereby debtors are unable to borrow more than 500 without notifying their creditors about their DRO, or act as a company director. This period allows for the DRO to be revoked by the Official Receiver if appropriate. A record of the DRO is also marked on the debtor s credit file for six years afterwards. During this time the debtor cannot be granted another DRO Revocation is when a DRO is withdrawn after it has been granted There are several reasons a revocation may happen, including an improvement in the debtor s financial circumstances or if information comes to light that means the debtor is ineligible for a DRO. If the Official Receiver revokes the DRO, the debtor is still liable for any unpaid debts and is no longer insolvent.

14

15 25 There have been several cases in which CAP s intermediaries have failed to establish the full outstanding balance on tax credit overpayments owed to the HMRC before submitting DROs. In some cases this is because a lower balance has been given to the client when they contacted the HMRC, in others the HMRC has begun chasing a debt from several years earlier. CAP has been unable to establish whether this is due to different types or years of debts being dealt with separately and by different departments, but there seems to be a lack of coordination. Occasionally, this extra debt put the client above the debt limit and their DRO is revoked. However, in one instance the DRO Unit decided not to revoke the client s DRO when the difficulties were explained. Whilst the DRO Unit s discretion in these circumstances is invaluable, CAP believes it is essential that further appreciation is shown to the difficulties in establishing the total debt a client has by writing off additional debt.

16 24 What is a Creditor Petition Level? This is the minimum amount a creditor can be owed before they can request for someone to be made bankrupt. Creditors use a bankruptcy petition as a last resort to acquire any funds or assets a debtor may have. If this is granted, the Official Receiver for the court allocates any remaining resources to the creditor, after the court costs have been recovered. The current creditor petition level is 750, and has remained unchanged since 1986.

17 We believe it is in the interests of both debtors and creditors that debts are repaid where possible. Where clients are unaware of free debt advice before one of their creditors petitions for their bankruptcy, we are concerned that this might not be the most appropriate course of action for either party. If the repayment term is not unrealistic, it is important debtors are given the chance to repay debts through the support of a debt management organisation. This is in the interests of creditors, increasing their chance of recovering the full balance owed to them and saving them court costs. We are pleased that many creditors proactively give information about free debt advice to their customers who are struggling financially and would encourage more creditors to do the same

18 23 [Before CAP] I was using the food bank weekly. The constant debt letters added to [my] ill health. I felt a complete failure. I was heavily in debt and had no quality of life. I lived constantly in fear of the postman. My temperament was always negative and impacted on my children. I would avoid meals, social events and people. I just felt ashamed. My self esteem was nil. [After CAP got involved] I felt light, had butterflies and just wanted to cry with happiness. I felt like a heavy shadow had been lifted. It took about a week until the full impact of what was being done for me was realised by me. The workers of CAP and my befriender were awesome and have helped me more than words can express.

19 21 [I] feel a lot more in control of things, [CAP s help] has eased my anxiety and helped me get back on track

20 77% 42% 77% of clients joining CAP in 2013 were receiving benefits. 42% of all clients lived solely on benefits. 50,935 was raised by our Insolvency Grants Officer helping 108 individuals with grants for their bankruptcy fees. 108 of debt has been written off for CAP clients through insolvency since ,850 0 Minimum acceptable living standard 12,840 Average CAP client income The average total debt of those starting with CAP in 2013 was 12, ,447 The average income for our clients in 2013 was 12,840. Joseph Rowntree Foundation s report A minimum income standard for the UK in 2013, highlights that single people needed to earn at least 16,850 a year before tax in 2013 for a minimum acceptable living standard. Low income was the primary 21% reason for debt in 2013

21 76% 23% 76% of clients said debt negatively affected their relationship. Of these, 23% said it caused total relationship breakdown 70% 26% 70% of CAP clients sacrificed meals before our service, with 26% doing so regularly. of clients described our service as life transforming or a great help. 64% 15% 64% of clients were fearful of losing their homes; 15% were threatened with eviction. 67% 42% 14% 67% 53% of clients visited their GP due to the negative effects of debt......with 42% of all clients prescribed medication. couldn t feed their children properly. of clients with children couldn t adequately provide for them. couldn t clothe their children adequately 18 33% = 10 33% lived on 10 a week or less for food. The average CAP client had 18 per week for food per person before our service. 70% of clients waited over a year before seeking help. 32% waited over three years 36% 70% 32% of clients seriously considered or attempted suicide because of debt before CAP s service.

22

23 1

24

25 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