People in England and Wales, who have small pension funds, may be able to use debt relief orders to deal with their insolvency, Labour says.

The Department for Business is consulting on changes to DROs, which are an alternative to bankruptcy or individual voluntary arrangements.

DROs enable people to get rid of modest debts within a year.

People cannot use them if they have any assets worth more than £300, which can exclude those with pension funds.

DROs were introduced in April 2009.

Business Minister Ian Lucas said: "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."

'Concerned'

FORMS OF INSOLVENCY Bankruptcy: The traditional way of escaping overwhelming debt. Ends after one year, but you are likely to lose all your assets including your house to pay something to the creditors Individual voluntary arrangement (IVA): A deal between you and your creditors, overseen by an insolvency practitioner. Less stigma, less chance of losing your home, but involves paying some of your debts in one go or over a number of years Debt Relief Orders: Introduced in April 2009, these allow consumers with debts of less than £15,000 and minimal assets or surplus income to write off debts without a full-blown bankruptcy

DROs are aimed at people whose debts are less than £15,000 and who have less than £50 surplus income each month after taking into account their tax, national insurance contributions, and usual household expenses.

In the first nine months of their existence they were used by nearly 12,000 people.

The government is consulting on how large someone's pension pot should be before they are excluded from using a DRO.

"We have been very concerned in the past that people who fulfil most of the criteria for a DRO were having their applications rejected because of very small pension funds," said Sue Edwards, head of consumer policy at Citizens Advice.

"In a new survey, we found that 96.3% of the people we spoke to were excluded from the DRO only because of their pension, and 78% of these people had a pension fund of less than £5,000."