UK Gov't To Make It Easier To Qualify For Debt Relief

By Irene Madongo
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Law360, London (January 13, 2021, 2:03 PM GMT) -- The government has published plans to broaden the criteria under which people can qualify for debt relief, claiming the move could offer "a fresh start" to consumers struggling with financial problems amid the COVID-19 pandemic.

It has proposed an update to the debt relief order scheme, which gives protection to people who are having difficulties with debt from enforcement action by creditors. All the debt within the order is also written off after 12 months.

The government said on Tuesday that it is considering changing the eligibility criteria for entering into a relief order by increasing the total amount allowable. Under existing arrangements, the applicant must have qualifying debt, or owe, no more than £20,000 ($27,300), but the government wants this to be increased to £30,000.

Ministers also propose to increase the requirement for the value of assets owned by the individual applying for the order. Currently, the savings or items of value that an individual owns should be worth no more than £1,000 if they are to qualify: the government is proposing that this should double to £2,000.

"Debt relief orders are a valuable tool for supporting vulnerable people to get to grips with their problem debts. Our plans to increase the eligibility criteria will mean many thousands more could benefit from this help," Business Secretary Kwasi Kwarteng said.

The level of surplus income of an individual granted an order should also be increased, the government said. The spare income of an individual after all essential expenditure should amount to no more than £100 a month, up from the current £50 or less.

The government laid out the proposals amid concerns that approximately three million more people face problem debt today than before the COVID-19 pandemic, according to research quoted in a joint statement from the government's Insolvency Service and the Department for Business, Energy and Industrial Strategy.

Demand for advice on debt could also rise by up to 60% by the end of this year, the research said.

"Suffering from financial difficulties places a huge amount of stress on people's mental health and wellbeing, which is why we are committed to giving more people who are struggling with debt a chance for a fresh start," Kwarteng said.

Authorities and businesses have put measures in place to help people struggling with debt, especially those hit by the COVID-19 crisis, which has damaged economies.

HM Treasury unveiled plans in June last year to put £38 million of funding into debt advice services to help manage new cases of arrears resulting from the pandemic.

And, toward the end of the year, banks announced that they would extend relief that allows homeowners to defer mortgage payments as part of regulatory efforts to assist people who are struggling financially because of the virus.

--Additional reporting by Joanne Faulkner. Editing by Ed Harris.

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