Debt Relief Orders
Although the negative effects of uncontrollable debts are shared by everyone experiencing financial difficulty, the routes out of debt are not all the same.
If you are caught in debt but your circumstances mean you have few assets and unaffordable debt, then a Debt Relief Order (DRO) may be the best path for you to follow.
DROs are available to those with debts below £30,000, with less disposable income to pay their debts with and limited assets. If you do not own your own home, you will be eligible to use this recovery solution.
It is highly recommended that you consult with a professional advisor before moving forward with this solution, which is where our dedicated team of highly-trained experts come in: ready to provide you with impartial and honest advice, towards an informed decision.
What is a Debt Relief Order?
A DRO is a method of debt recovery which allows debt to be written off, but as a form of insolvency it is a significant step to take. If the order is approved, your debts will be frozen for 12 months and, if your financial situation or ability to pay does not improve during that time, your debt will be written off at its conclusion.
Criteria for a DRO
DROs are available to those with qualifying debts of £30,000 or less, who do not own their own home or have other significant assets (all assets must be less than £2,000).
These orders are only available to residents of England, Wales, or Northern Ireland.
Your disposable income (i.e., your earnings or benefits after tax and after paying normal household expenses) must be £75.00 or less per month.
You cannot have had a DRO in the last 6 years or if you are already involved in bankruptcy or other formal insolvency procedures (but note, that if a creditor has petitioned for your bankruptcy, as long as you qualify for a DRO, you can ask the creditor for permission to apply for a DRO instead).
Qualifying debts can include:
- Credit cards, overdrafts, and loans.
- Arrears with rent, utility bills, telephone bills, council tax and income tax.
- Benefits overpayments.
- Hire purchase or conditional sale agreements.
- Buy now – pay later agreements.
- Bills for services like vets or solicitors.
- Debts you owe to friends and family.
- Business debts.
But the following debts are NOT included (and must still be paid by you):
- Child support and maintenance.
- Any money owed under family proceedings.
- Student loans.
- Budgeting and crisis loans from the Social Fund.
- Debts secured against an asset you own.
- Fines from drug offences.
- Damages (e.g., compensation for death and injury) or fines a magistrate’s court (or other court) has ordered you to pay.
- Unpaid TV license fees.
- Debts incurred AFTER the DRO is granted.
What does a Debt Relief Order entail?
How to Apply
You make an application, that costs £90.00, via an approved intermediary. This fee is payable, in advance, whether the Official Receiver approves or denies your application.
If granted by the Official Receiver, your DRO is publicised on the Individual Insolvency Register.
During a DRO
During a DRO agreement, your repayments to creditors stop (unless the payments are for a secured debt or a non-qualifying debt – see above).
All qualifying debts, interest, penalties, and charges are frozen for 12 months, allowing you some relief from financial stress, as it prevents the total amount of debt from rising further.
Restrictions During a DRO
During the DRO period (usually 1 year) you cannot:
- Borrow more than £500 without telling the lender about your DRO – whether you’re borrowing on your own or with someone else.
- Act as a director of a company.
- Create, manage, or promote a company without the court’s permission.
- Manage a business with a different name without telling anyone you do business with about your DRO.
- Apply for an overdraft without telling your bank or building society about your DRO.
- Write cheques that are likely to bounce.
If you break any of the above restrictions, you are breaking the law, and this can lead to you being prosecuted for the criminal offences.
You are not permitted to have another DRO in the 6-years starting on the day your DRO is approved.
Obligations During a DRO
If you receive any money or assets during the DRO period (usually 1 year) or if your income increases, you must advise the Official Receiver.
If it transpires that you can afford to make re-payments during the DRO, your DRO may be revoked.
Extending the Period of the Restrictions
The period of the restrictions can be extended for between 2 & 15 years, if the Official Receiver finds that you have been dishonest about your DRO or you are to blame for your financial position.
The End of the DRO
At the end of the DRO period (usually 1 year) you are released from the qualifying debts (unless they were obtained by fraud). This means the debts are written off.
3 months after the end of the DRO, it is removed from the Individual Insolvency Register.
Advantages of a Debt Relief Order
A DRO holds many benefits for those suffering financial difficulty, with limited resources to navigate their way out of debt.
These benefits include:
It is secure
A DRO will protect you from legal action by creditors or enforcement agencies, and prevent you from ending up in court.
It is affordable
The application fee is only £90, which may be paid either in a single amount or as part of a 6-month instalment plan, making it one of the most affordable debt solutions.
It protects assets
If you meet certain criteria, your assets will be protected, meaning, for example, that you may not have to sell your car.
It is comprehensive
At the conclusion of the DRO, all debts included in the order will be written off.
Disadvantages of a Debt Relief Order
However, a DRO should still not be entered into lightly, as there are also many downsides associated with it.
One of our experienced advisors will make sure you are aware of any such disadvantages, which include:
Homeowners are ineligible
Even if your home is in negative equity, you are not permitted to obtain a DRO if you own your own home.
Your financial situation will be made public
By being granted a DRO, your name will appear in a public Individual Insolvency Register.
It could affect your work
A DRO could have an effect on your job depending on the industry and role you work in, also having the potential to impact your income and assets.
Is a Debt Relief Order the solution for me?
These orders are a custom solution for those with specific financial circumstances. If you fall into this category, it is likely that a DRO will be a suitable and successful option for you.
This solution is an affordable alternative to other debt recovery models and provided you are resident in England, Wales or Northern Ireland and owe less than £30,000 with assets of less than £2000 you will be eligible to use it.
Disposable income of less than £75 per month, after living costs, utilities and other expenditure is required. If this applies to you, our team is on hand to give you all the information you need.
How do I apply?
One of our panel of trusted advisors will determine whether you are eligible for a DRO, and, if so, guide you through the application process and wait for it to be accepted.
This advisor will act as your approved intermediary during the 12-month ‘freeze’ period, remaining continuously involved in the process.
If this sounds like the solution to your debt worries, speak with a member of our team today, to see if you qualify.