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Creditors still chasing debts covered by Debt Relief Orders

25 Chwefror 2015

Creditors are causing ‘additional financial distress’ by continuing to collect debts despite the individual having a Debt Relief Order (DRO), reveals Citizens Advice.

A new report, Cutting our losses, published today by the national charity highlights how creditors aren’t acknowledging that debts are cancelled or frozen in a DRO.

In some cases landlords have threatened possession action for non-payment despite the debt being in a DRO.

Citizens Advice helped with 127,000 issues around DROs in 2014.

A survey of 232 Citizens Advice advisers who have helped people with DROs, conducted between August and September 2014, reveals:

  • 85% report clients being chased for payments despite the debts being listed in the DRO.
  • 1 in 4 said clients were still being asked to top up their energy meter to in order to pay fuel debts.  
  • Almost a third had helped clients where overpayment of tax credit or benefit was still being sought.
  • 1 in 4 had witnessed a client’s bank account being closed as a result of a DRO even though the client did not have any debts to that bank.

DROs were introduced as an alternative for people on low incomes and without assets who do not have money to apply for bankruptcy but have no way of ever paying back the full debt.  The DRO cancels most debts and postpones others such as magistrate court fines and in some cases rent.

Four in five Citizens Advice advisors also find it difficult to get information from creditors about an individual’s debts which they needed to help clients apply for a DRO.  

Mobile phone companies, national and local government departments, mail order companies, payday lenders and some banks were cited by Citizens Advice advisers as creditors difficult to get information from.

Gillian Guy, chief executive of Citizens Advice, said:

“A Debt Relief Order is a last resort for people in serious money worries.  It offers people a chance to get back on their feet and move towards a financially secure future.  Poor practices from creditors have meant that not everyone is feeling the full benefits of this debt remedy.

“People are still being chased for debts despite having a DRO. Delays to providing information or continuing to collecting debts that are in a DRO are causing additional financial distress to those in debt.

“Some creditors are doing a really good job in supporting people with DROs by setting up special teams to help with insolvency queries and communicating every step of the way. But there is still a long way for some firms to go and we encourage them to learn from other companies’ successes.”

Citizens Advice is calling on creditors to take five steps to help make DROs work better:

  1. Stop collecting debts that are covered with a Debt Relief Order.
  2. Ensure your staff and the third parties you work with understand DROs and the issues that affect our customers seeking or living with a DRO.
  3. Provide accurate data that your customers and their advisers need to help them process a DRO application promptly.
  4. Keep customers informed throughout the DRO process.
  5. Continue to work with customers who have a DRO to help them protect their bank account, their home and their essential services.

Analysis of Citizens Advice data on people who take out a debt relief order reveals:

  • Half of people have priority debts such as rent, council tax, and fuel included in their DRO.
  • People taking out a DRO have an on average ten debts.
  • They are more likely to have an income of less than £1,500 a month.

Notes to editors:

  1. The Citizens Advice service comprises a network of local bureaux, all of which are independent charities, the Citizens Advice consumer service and national charity Citizens Advice. Together we help people resolve their money, legal and other problems by providing information and advice and by influencing policymakers. For more see the Citizens Advice website.
  2. The advice provided by the Citizens Advice service is free, independent, confidential, and impartial, and available to everyone regardless of race, gender, disability, sexual orientation, religion, age or nationality.
  3. To find your local bureau in England and Wales, visit citizensadvice.org.uk. You can also get advice online at adviceguide.org.uk
  4. You can get consumer advice from the Citizens Advice consumer service on 03454 04 05 06 or 03454 04 05 05 for Welsh language speakers
  5. Citizens Advice Bureaux in England and Wales advised 2.3 million clients on 5.4 million problems from October 2013 to September 2014. For full 2013/2014  service statistics see our quarterly publication Advice trends
  6. Citizens Advice service staff are supported by more than 21,000 trained volunteers, working at over 3,000 service outlets across England and Wales.