Recommendation: Two new processes: Debt Settlement Arrangement and Debt Relief Order

[Brendan Burgess]

The Debt Enforcement Office would include a small independent unit, the Debt Settlement Office, which would license a panel of Personal Insolvency Trustees, appointed after a public tendering procedure and subject to statutory standards. A Personal Insolvency Trustee would manage a Debt Settlement Arrangement, which would be for debtors who “can pay” at least some of their debt. In a Debt Settlement Arrangement, creditors and a debtor would make a legally binding commitment in which the debtor would repay an agreed amount of personal debt to creditors over a period of up to 5 years. At the end of this, the debt would be deemed to be repaid in full. The Debt Settlement Arrangement process would only be available to a person who acts in good faith and makes full disclosure of all their assets; if they do not, the process will automatically end and the debtor could be prosecuted. If the debtor complies with the Debt Settlement Agreement, at the end of it he or she would be able to make a “fresh start” without having any damage to their personal credit rating.
For debtors whose circumstances are so bad that they have virtually no prospect of paying back any debt (the “can’t pay” debtor or “no assets, no income” situation), the Debt Enforcement Office, with the assistance of the Money Advice and Budgeting Service (MABS), could make a Debt Relief Order. This would be a once-off Order, and would simply recognise the reality of an indebtedness that cannot be repaid within a foreseeable time period. Unless circumstances changed dramatically for the debtor, the effect of this Order is also that the debt is deemed to be discharged.