Debt Relief Order (DRO)
A Debt Relief Order – or DRO for short – is a type of formal insolvency which is suitable for those with low income, low assets and a debt level which is less than £20,000.
What is a Debt Relief Order (DRO)?
A Debt Relief Order – or DRO for short – is a type of formal insolvency which is suitable for those with low income, low assets and a debt level which is less than £20,000. It is an alternative to an Individual Voluntary Arrangement (IVA) which is suitable for those who do not qualify because of their debt level or affordability. The DRO solution is only available to residents of England, Wales and Northern Ireland and it has very strict eligibility criteria. For residents of Scotland, a similar solution known as MAP is available. The application for a DRO costs £90 and if approved, you no longer have to make any payments towards any debts included in the DRO. If your financial circumstances have not improved within 12 months of the DRO being approved, then your debts will be written off.
Who is Eligible for a Debt Relief Order?
The qualifying criteria for a DRO are very strict as this solution was created with the most financially vulnerable in mind. To be able to apply, each of the following statements must apply to you:
- You can’t have any more than £20,000 of unsecured debt.
- You must have a low income with less than £50 disposable income available after household bills and essential living expenses are paid for.
- If you own a car, it must be valued at less than £1,000.
- Not including the car, you must not own any other assets worth over £300.
- You must be a resident of England, Wales or Northern Ireland and have worked there within the last 3 years.
- You cannot have been in any other form of insolvency solution in the last 6 years.
What happens when a Debt Relief Order is approved?
If your application for a DRO is accepted by the Insolvency Service, then you will normally be subject to the order for 12 months starting from the approval date. Your name will be published on a public register known as the Individual Insolvency Register. A note of the DRO will also appear on your credit file for 6 years from the approval date. You will no longer have to pay anything toward any of the debts included in the DRO, but other financial commitments such as rent, household bills and council tax will need to be maintained.
During this 12 month period following approval, your creditors can no longer take any action against you to recover any of the debts included in the debt relief order. Unless your financial situation improves in this period, your DRO will come to an end after 12 months. Any debts included in the debt relief order will be written off and you will be discharged from the order. Your name will be removed from the insolvency register 3 months after you are discharged.
There are some strict restrictions that you must abide by during the term of the DRO. Such as:
- You must inform any potential lenders of the DRO if you are seeking further credit over £500.
- You cannot act as a director of a company without seeking permission from the courts.
- If you own a business, you must make anyone that you do business with aware of the debt relief order.
- Your debt could be written off in 12 months if your situation doesn’t improve.
- Your assets and car could be protected as long as they fall under the maximum value criteria.
- It stops creditors from taking action against you.
- The application costs £90 and this can be paid in 6 monthly instalments if required.
- You will still have to maintain payments to rent and other household bills
- You can’t include secured debts, court fines or council tax arrears.
- If you have been made insolvent in the last 6 years, a DRO will not be available to you.
- Your name will be published on a public register.
- This option is not available to you if you are a homeowner – even if you have negative equity.
- You cannot take out new credit over £500 without making the lender aware of your DRO. It is a criminal offence not to disclose this.