The government has announced plans to make it easier for people in financial difficulty write off their debts in Debt Relief Orders (DROs).

The Department for Business, Innovation and Skills has proposed changing the eligibility criteria for a DRO so that people with small pension pots can apply for the low cost debt relief solution.

DROs were introduced last April as a low-cost alternative to bankruptcy with debts less than £15,000, assets of less than £300 rising to £1,000 if they had a car, and less than £50 surplus income a month.

But insolvency practioners had complained that the process excluded individuals if they had built a small pension pot over £300.

In a recent survey by Citizens Advice Bureau (CAB) figures showed that 96.3 per cent of people were excluded from DROs because of their pension, and 78 per cent of these people had a pension fund of less than £5,000.

Steven Jackson of BeatMyDebt believes that the criteria for DROs is too tight. "A large number of people are falling through the cracks because the value of their assets or surplus income is too great" he said. "If your surplus is £75 a month you are not eligable but it will then take you 7 months to save up for bankruptcy and this is likely to be more in April when charges increase".

Low cost alternative to bankruptcy 

Ian Lucas, business minister, said: "Debt Relief Orders help people who would otherwise be trapped in poverty to get back on their feet. Following representations from independent money advisers, I’m proposing a common sense change to ensure that vulnerable people with a very small pension pot are treated fairly."

He said the government will consult on the proposed changes shortly.

But the government has also proposed changes to the annual fee structure to ensure more cash is recovered earlier in the process so that the cost of the regime is shared by the debtor and creditors.

The department will be increasing a debtors deposit on a bankruptcy petition from £360 to £450, and raising a creditor’s deposit on a bankruptcy petition from 6 April this year. And the government will be hiking the administration fee for a company’s winding up order from £2,610 to £2,235.

Lucas said: "We have always made it clear that we expect those petitioning for bankruptcy to pay their fair share of the cost and that the taxpayer should not be responsible for the cost of bankruptcy."

But Sue Edwards, Citizens Advice Bureau Head of Consumer Policy, warned that she was concerned that the 25 per cent increase in the amount people must pay as a deposit to go bankrupt will prevent more people from seeking the right debt solution.

She said: "We already see many CAB clients unable to afford to go bankrupt even though it is the best option for them. This increase will only exclude more people."