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Debt Relief Order (DRO)?

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Overview

A debt relief order (DRO) writes off low-level debts for individuals with few assets, excluding Scotland residents. DROs pause repayments and interest for 12 months, and if circumstances remain unchanged, debts are discharged. In Scotland, Minimal Assets Process (MAP) offers a comparable solution with distinct benefits, risks, and fees.

Contents

What is a Debt Relief Order?

What is a Debt Relief Order?,

A Debt Relief Order (DRO) is a debt solution designed for those who have very little income, have assets with a value of less than £2,000, and owe less than £50,000.

A DRO helps people deal with debts that they are unable to repay within a reasonable period of time.

Available only to those living in England, Wales, or Northern Ireland, this solution is an alternative for those who are unable to qualify for an Individual Voluntary Arrangement (IVA) due to their debt level or affordability. For Scottish Residents, a similar solution known as a MAP is available.

Check if you qualify to write off up to 70% of your unsecured debts

How does a DRO Work?

How does a DRO work?,

Individuals have to meet certain criteria to qualify for a DRO; for example, you must have debts of £50,000 or less, and a disposable income of less than £75 after all household bills.

If you own a car it must be valued at less than £4,000 and you must not have been in a DRO in the last six years.

If your DRO is approved, the agreement will be managed by the official receiver. The official receiver is a representative of the Insolvency Service.

It’s their job to administer your DRO, taking on duties including communicating with your creditors and ensuring you do not breach your agreement.

There is no application fee required for a DRO. If approved, you will no longer have to make any payments to the debts included. If your circumstances haven’t improved within 12 months of the DRO being approved, the debts will be written off.

What kinds of debt can be included in a DRO?

What kinds of debt can be included in a DRO?,

There are limitations on the kinds of debts that can be included in a DRO. Generally, unsecured debts eligible for a DRO include:

How do you apply for a DRO?

How do you apply for a DRO?,

Step 1: Contacting a DRO adviser

Individuals cannot apply for a DRO on their own, so the first step needed is to contact a DRO adviser who will submit an application to the official receiver at the Insolvency Service.

They will talk through your situation to check if your eligible and if a DRO is the right solution for you.

Step 2: Sending away your DRO application

If it’s decided that a DRO is the solution that’s best for your circumstances, the adviser will make an application on your behalf.

There is no longer a fee required for a DRO. This means that it costs nothing to apply for a DRO.

Step 3: Debt relief restrictions

If your DRO is approved, your debts will be put on hold for 12 months and you will no longer need to make payments. Your name will be published on the Individual Insolvency Register and the DRO will be noted on your credit file for six years from the date of approval.

During the term of the DRO, you will have to abide by some restrictions. You will not be able to act as a director of a company and if you own a business, you must make anyone that you do business with aware of your DRO.

If the official receiver believes you have broken rules during your arrangement, the official receiver can apply to the courts to have a Debt Relief Restrictions Order brought against you.

A restrictions order means you must comply with the rules set by the official receiver, or you will be committing a criminal offence.

Step 4: Discharge and debt write off

If your circumstances haven’t improved after the 12-month period, the debts included in your DRO will be written off, and you will be discharged from the order.

Your name will then be removed from the insolvency register three months after your discharge.

Advantages & Disadvantages

Advantages & Disadvantages ,

Advantages of a Debt Relief Order (DRO)?

  • If your assets are valued at £2,000 and your car is valued at less than £4,000, they will be protected, and you won’t have to sell them
  • It is relatively affordable, with no application fee required
  • Creditors cannot take any action against you for the debts included in the DRO
  • Your debts will be written off at the end of the DRO term, which is typically 12 months

Disadvantages of a Debt Relief Order (DRO)?

  • You will still need to make payments to your rent and other household bills along with debts that cannot be brought into a DRO such as court fines, student loans and child maintenance/support
  • You cannot apply for a DRO if you have been in another DRO in the last six years
  • Your name will be published on a public register
  • If you are a homeowner, you are unable to apply for a DRO – even if your home is in negative equity
  • You cannot take out any new credit over £500 without making the lender aware that you are subject to a DRO – it is a criminal offence if you do not disclose this

What does a Debt Relief Order do to your credit?

What does a Debt Relief Order do to your credit?,

Under the terms of your Debt Relief Order (DRO), it will be difficult for you to access new credit. If you’re operating under a DRO you must not attempt to access credit of more than £500 without telling the lender – to do so would be a breach of the terms of your relief order.

If you do inform the lender of your DRO, it’s up to the lender to decide whether to grant you credit, however it’s been the experience of many DRO holders that lenders are more reluctant to let them borrow when they’re made aware of the arrangement.

How long does a DRO stay on your credit file?

How long does a DRO stay on your credit file?,

Like many debt solutions, a DRO may temporarily impact your credit score. Even if you successfully complete your Debt Relief Order, the very fact that you have used a debt solution to repay what you owe may flag you as unreliable to future lenders.

As well as impacting your credit score, a Debt Relief Order will be listed on your credit history.

This can make it more difficult for people to do certain things after the agreement has ended, from accessing new credit to opening a bank account.

A DRO will only be listed on your credit file for six years, however. Once that time has passed, you will be free of the debts included in your arrangement, and ready to start rebuilding your credit rating.

Is a Debt Relief Order a good idea?

Is a Debt Relief Order a good idea?,

Taking the decision to get a DRO is a big step. Every debt solution places restrictions on your life and means living to a strict budget in order to pay your debt down. Whether it’s a good idea depends on who you are and what your finances look like.

If you’re struggling with debt you can’t afford, however, and you don’t have the income or assets you need to pay it back, a Debt Relief Order may be an option worth exploring.

But you should never agree to a debt solution without taking debt advice first.

For advice from an expert debt adviser, talk to Carrington Dean today. Our team of debt experts can give you the information you need to come to an informed decision.

Frequently Asked Questions

A DRO is, in essence, a low-cost alternative to bankruptcy. The main advantage of this debt solution is that it freezes all interest and charges on your unsecured debts, which allows you to stop making payments to them for a one-year period.

The other main advantage of using a DRO is that if your circumstances do not improve by the end of the period, the debts are written off. Creditors are also unable to contact you of the DRO is granted, removing what can be a huge source of stress from daily life.

On the other hand, this solution is not without its pitfalls. Like all debt solutions, it is not a “quick fix”, and if your circumstances do improve with the one-year period, your DRO may be revoked.

If this happens, your creditors will be able to contact you again and you will need to find an alternative solution for your debts. There is also a very strict set of criteria to be eligible for a DRO and if you are granted one, you will be subject to certain credit and occupational restrictions.

Finally, DROs are recorded on the Insolvency Register, which is a publicly accessible and available for anyone to search on.

In order to be eligible for a DRO, there is a strict criteria that needs to be met. You must:

  • Have a debt level of £50,000 or less
  • Not be a homeowner
  • Have £75 or less disposable income
  • Own assets with a value of less than £2,000 (excluding an essential vehicle, which can be worth up to £4,000)
  • Not been in another DRO within the last six years
  • Have lived in England or Wales at some time in the last three years

Generally, most types of unsecured debts can be included in a DRO, including credit card, personal/bank loans and overdrafts.

Certain unsecured debts, such as child maintenance/support, student loans and court fines related to criminal activities, cannot be included. All secured debts, and hire purchase are also unable to be included.

For the purpose of a DRO, anything valuable that you own is considered an asset. This includes certain vehicles, savings, stocks and antique items.

Any equity you have in a property is also considered an asset, however you will not be able to apply for a DRO if you are a homeowner.

When applying for a DRO, the total value of your assets must not exceed £2,000; however, items deemed to be essential such as most furniture, work equipment and clothing do not count towards your asset value.

If your circumstances have not changed by the end of your DRO, all debts included are written off; meaning they will never have to be repaid. However, any debts that weren’t covered by the DRO will still need to be paid.

In short, yes. Your DRO is recorded on your credit file and will remain there for six years, which can indicate to credit reference agencies and potential lenders that you have had trouble with debt in the past.

As such, they will be less likely to offer your credit. Fortunately, there is plenty you can do to rebuild your credit score once your DRO has ended.

If your circumstances are to change during the course of your DRO, such as changes to your income, receiving an inheritance/windfall or moving home, it is vitally important that you notify your official receiver as soon as possible.

If you do not notify them, your order may be revoked. As such, if you are unsure whether you need to report something, it’s always best to contact them and double check.

Unfortunately, once your DRO is in place you are not able to add any new debts to the arrangement.

As you can only apply for a DRO once every six years, if you find yourself struggling with new debts that you have accrued, you will need to seek an alternative option.

Being employed does not prevent you from applying for a DRO as you are not expected to make any payments during the order.

As such, your employment status does not affect the outcome of your application.

Yes, there are certain restrictions you will have to stick to whilst in a DRO. You will not be able to establish, manage or act as a director for a company without court permission and you will not be able to apply for credit higher than £500 without informing the lender of your DRO.

There are also restrictions to consider when applying for a DRO. For example, you cannot simply give away assets in order to meet the eligibility criteria; this can result in being denied the DRO or even jail time.

This solution is only right for a small number of people, so make sure you speak to a qualified adviser before applying for a DRO.

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Important information

All advice is provided by UK Debt Expert Limited. Advisors will discuss all possible debt solutions available depending on where you live in the UK. Advice is tailored to individual circumstances and can only be offered following an initial fact-finding process. Third party fees may apply. Free and impartial information also available at moneyhelper.org.uk. If you choose to enter a solution that offers the opportunity to write off a percentage of unsecured debts included, the percentage may vary. The example provided has been achieved by 10% of Trust Deed customers in the last 12 months.

About

Carrington Dean is a debt help company based in Scotland and is part of the UK Debt Expert group

Company details

Carrington Dean Group Limited is authorised and registered by the Financial Conduct Authority (FCA), registration number 674395. Registered in Scotland with company number SC225672 at Regent House, 5th Floor, 76 Renfield Street, Glasgow, G2 1NQ. Information Commissioner’s Office number ZA351745.

Samantha Warburton is authorised in the UK to act as Insolvency Practitioners by the Insolvency Practitioners Association IP Number: 12430

Solution providers

Debt Arrangement Scheme (DAS):
Carrington Dean Group Limited
Company number: SC225672
Registered address: Regent House, 5th Floor, 76 Renfield Street, Glasgow, G2 1NQ
FCA number: 674395
ICO number: ZA351745

 

Trust Deed & Individual Voluntary Arrangement (IVA):
UK Debt Expert Limited
Company number: SC382881
Registered address: 4 West Regent Street, Glasgow, G2 1RW
FCA number: 688071
ICO number: ZB590053

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