3:42 pm, June 26, 2024
A leading organisation that delivers debt help and advise for those seeking a debt relief order (DRO) says the increase in value of used cars has proven to be a ‘real stumbling block’ for those seeking this kind of insolvency.
A DRO is one of three recognised types of personal insolvency in England and Wales, with the other two being bankruptcies and individual voluntary agreements (IVAs).
According to gov.co.uk, a DRO allows an individual to deal with debts of less than £50,000 (as of June 28), but in order to do so, they mustn’t have much spare income (usually less than £75 per month) and not own a home.
If accepted, applicants can then stop making payments towards those debts (including interest) for 12 months and ‘will not need to pay the debts or follow restrictions after 12 months,’ the website states.
However, restrictions mean the same individual can’t borrow more than £500 without telling the lender about a DRO, act as the director of a company, manage a business or open a bank account or building society without informing them about the order. The order also stays on credit files for six years.
Later this week, the UK government is set to change legislation for those seeking a DRO so the total they owe can rise from £30,000 to £50,000, while the value of the car they own will increase from just £2,000 to £4,000.
Sebrina McCullough, director of external relations at Money Wellness – an organisation commissioned by the Money and Pensions Service (MaPS) to deliver debt help, as well as being a DRO hub – said: ‘We’ve had to look for alternative ways to support thousands of people over the past couple of years because of the value of their car.
‘We’re not talking top-of-the-range vehicles – your average second-hand runaround easily exceeds £2,000 because resale values have increased so dramatically.’
During the post-pandemic period, used car prices rocketed thanks to increasing demand from consumers spurred on by a lack of supply due to manufacturing issues in the new car market.
Despite cooling off considerably since then, Cap HPI reported that prices of three-year-old cars went up by 0.7% in February this year, making it the fourth largest February increase recorded by Cap HPI since it began crunching the figures in 2012.
In April, a £90 administration fee to enter a DRO was abolished, which led to the numbers of those taking out the orders jumping to record highs in April and May, according to Insolvency Service figures.
‘It was impossible for many people already in debt – some living with a negative income – to find £90 to cover the fee,’ McCullough said.
‘We regularly had to try to help them find grant support and, if this was unsuccessful, ask them to come back when they’d saved up. It’s been great to see the direct impact removing the fee has had on people’s lives.’
