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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.

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In this guide

Advantages & Disadvantages

Frequently asked questions about

Who is Eligible for a Debt Relief Order?

What happens when a Debt Relief Order is approved?

Advantages & Disadvantages

Advantages


  • Your debt will be written off at the end of the DRO term, which is typically 12 months.
  • As long as your assets are valued at less than £300 and your car is valued at less than £1000, they will be protected and you will not have to sell them.
  • You can make a financial fresh start after only 1 year.
  • Creditors can’t take any action against you on debts included in the DRO.
  • It is a relatively affordable solution at £90 for the application and this can even be paid in instalments up to 6 months.

Disadvantages


  • You will still have to pay rent and other household bills and certain other debts such as court fines and student loans can’t be included.
  • A DRO will not be available to you if you have been in any other insolvency arrangement in the last 6 years.
  • 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.

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.

Frequently asked questions about

A DRO is essentially a low-cost alternative to bankruptcy. The main advantage of using a DRO is that it freezes all interest and charges on your unsecured debts, allowing you to stop making payments towards them for the space of 12 months. If your financial circumstances have not improved by the end of this period, the debts will be written off – this is the other main advantage of choosing a DRO to tackle your debts. Finally, if the DRO is granted, your creditors will no longer be able to contact you, removing what can be a huge source of stress from daily life.

Like any debt solution though, a DRO is not a “quick fix”, and there are some disadvantages to bear in mind. Firstly, if your financial circumstances improve over the course of the DRO, it may be revoked. If this happens, your creditors will be able to contact you once again, and you will need to find an alternative debt solution. Additionally, the eligibility criteria for being granted a DRO are fairly strict. If you are granted one, you will also be subject to certain credit and occupational restrictions. Finally, DROs are recorded on the publically accessible Insolvency Register, a database which anyone can search.

To be eligible for a DRO you must meet the following criteria:

  • You must have debts of £20,000 or less
  • You must not be a homeowner
  • You must have £50 or less surplus income each month
  • Your assets cannot exceed the value of £1,000 (excluding an essential motor vehicle, which can be worth up to £1,000)
  • You must not have not been granted a DRO within the past six years
  • You must not be undertaking any other insolvency solution
  • You must have lived in England or Wales at some time in the last three years

Most types of unsecured debt can be included in a DRO. This could be credit card debt, payday loans, personal loans, council tax debt, utility bill arrears, and overdrafts. There are only a few types of unsecured debt which cannot be included. These are child maintenance or support payments, confiscation orders, student loans, and court fines related to criminal activity.

For the purposes of a DRO application, anything you own which is valuable counts as an asset. This will include certain vehicles, savings, stocks, and antique items. Any equity you have in a property may also count as an asset, and people who have a mortgage will not be considered for a DRO. To be eligible, the total value of your assets must not exceed £1,000, with the exception of an essential motor vehicle worth up to £1,000. However, essential items, such as most furniture, work equipment, and clothing, will not be counted towards your total asset value.

At the end of the DRO, assuming your circumstances have not changed, all debts included in the order will be written off. This means they will never have to be repaid. Any debts you have which were not covered by the DRO will still need to be repaid, however.

Yes, your credit score will probably be affected by a DRO. A record of the DRO will be placed on your credit file, and will remain there for six years. This can indicate to credit reference agencies, and potential lenders, that you have had trouble with debt in the past, so they will probably be less likely to offer you credit. Fortunately, there is plenty you can do to rebuild your credit score once the DRO has ended.

If anything changes over the course of your DRO, you should tell your Official Receiver as soon as possible. This might include a change to your income, receiving an inheritance or other windfall, and moving home. If you do not tell your Official Receiver about changes to your circumstances, your DRO could be revoked. If you are unsure whether you need to report something, it is best to get in touch with them and check.

No. Once your DRO is in place, you will not be able to add any new debts you accrue to the arrangement. Since you can only apply for a DRO once every six years, you will have to find alternative solution if you find yourself struggling with new debt.

Yes. Being unemployed does not prevent you from applying for a DRO. Since during the DRO you will not be expected to make any monthly payments towards your debts, whether or not you are employed will not influence the outcome of your application.

Yes, certain restrictions are in place for a person using a DRO. You will not be able to establish, manage, or act as director for a company without court permission. You will also be unable to apply for more than £500 worth of credit, without informing the lender of your DRO.

There are also a few restrictions to bear in mind when considering your DRO application. You cannot simply give away assets in order to meet the eligibility criteria, for example – if you act dishonestly in this instance, consequences can range from being denied the DRO to jail time. This solution is right for only a small number of people – make sure you speak to a qualified advisor about your unique circumstances before applying for a DRO.

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