Landlords and Debt Relief Orders

Debt Relief Orders (DROs) are a new form of insolvency about which tenants are being advised by local CABs and authorised debt advisers. At first glance, social landlords may mistakenly believe that DROs may hinder their ability to recover rent arrears, however, the impact of DROs in this way, is somewhat limited.

What Is A Debt Relief Order?

A Debt Relief Order (DRO) is a form of insolvency which is an alternative to bankruptcy. They came into force in April 2009.

Who may apply for a DRO?

DROs are available to people who have very little surplus income (no more than £50 per month) and very few assets. Any assets owned by the debtor must be valued at no more than £300.

If the debtor owns a car, its value must be less than £1,000.

The level of debt owed must also be relatively low (no more than £15,000 in total).

The Insolvency Service website at www.insolvency.gov.uk/alternativestobankruptcy.htmprovides details about who may apply for a DRO.

What is the effect of a DRO?

Once a DRO has been made, there will be a moratorium period  usually lasting for a period of 12 months during which creditors cannot take enforcement action against the debtor without leave of the Court.

In addition, the debtor is prohibited from making payments towards any debts covered by the DRO.

Once the moratorium period has ended, any debts included in the DRO will be discharged.

Which debts can be included in a DRO?

Most debts can be included in a DRO including money judgments contained in an outright possession order or suspended possession order. Creditors, including landlords owed rent arrears, can raise objections to a debt being included in a DRO. The very limited grounds on which objections can be made are on the Insolvency Service website and can be accessed through the link above.

What is the effect of DRO's On Possession Orders?

The Insolvency Service does not seem to consider that DRO's have any effect on the validity or enforcement of possession orders.
Correspondence received from the Insolvency Service states that the principle in Harlow District Council –v- Norman John Hall [2006] EWCA Civ 156 applies to DROs.

Norman Hall was the secure tenant of a property owned by Harlow District Council.

By February 2004 Mr Hall fell into arrears with his rent and this led to a suspended possession order being made against him in February 2005.

A day after the suspended possession order was made a bankruptcy order was made against him.

After being made bankrupt, Mr Hall made an application to the Court seeking a discharge of the suspended possession order.

His application was dismissed.

Mr Hall then appealed to the Court of Appeal, who dismissed his appeal.

The Court of Appeal stated that a possession order was not a remedy for enforcing an outstanding debt for rent arrears, but was something that the landlord must obtain in order to recover possession of the tenant's property. A bankruptcy order did not therefore stop a landlord enforcing a possession order.

When DROs first came into force, it was not known if they would be treated in the same way as a bankruptcy order.

Recent indications from the Insolvency Service suggesting that they would be, are therefore helpful.

Landlords should note however, that any other methods of enforcement e.g. by way of an attachment of earnings order or a warrant of execution would not be permitted against a debtor who was the subject of a DRO, without leave of the Court. This is because these types of enforcement are used to enforce payment of the debt itself. The enforcement of a possession order essentially seeks to recover possession of the property.