In this article we’ll explore the DRO process, including why a DRO can be beneficial to people who owe money to multiple creditors, how long the DRO process takes, and what happens after your debt repayments come to an end.
What is a Debt Relief Order (DRO)?
The Debt Relief Order is a fairly quick, but restrictive, way for people to repay debts like rent arrears or unpaid income tax that they wouldn’t otherwise be able to repay.
The scheme freeze your debts, including interest, fees, and payments, for 12 months to give you breathing space to improve your financial situation. If you manage to improve your financial situation in that time, you may be asked to repay your debts, either through a lump sum or a series of monthly payments.
If you cannot improve your financial situation in that time, the debts are written off with government legislation.
For some, the DRO process is relatively straightforward as an authorised debt adviser works with you to process your application. But for many, discussing your finances is stressful and it can be very helpful to know what to expect before signing up for Debt Relief Orders or any other debt solution.
The Official Process
The official DRO process should take 10 working days so be prepared to wait for around two weeks to hear back about your application. During these 10 days your application is assessed by the Official Receiver. This is an authorised officer of the bankruptcy court who works for the Insolvency Service.
There is a lot of preparation that you have to do before you hand in the application, however, and so the DRO often takes longer than two weeks to sort out.
You must work an approved insolvency adviser, which means you cannot apply for the DRO on your own. Your adviser might be from an organisation like StepChange debt charity or Citizens Advice, or from a debt management company like Carrington Dean.
Together, you and your adviser create an initial assessment of your situation, which collates all your debts, , your income, and your expenditure. You will also need to provide proof of all these details.
This step can be made quicker if you collect as much documentation as you can in advance. This might include:
- Wage slips
- Lease Agreement
- Utility bills
- Car Valuation or Hire-Purchase Agreement
- Recent documentation showing your debt amounts
- Council tax documentation
- Evidence of any settle debts, in case they are disputed
- Evidence of your benefit entitlement
- Other financial documentation pertinent to your situation
Once you have prepared and your DRO is approved, it lasts for 12 months. This gives you 12 months without the unsecured debt payments so that you might be able to better budget with your surplus income and you don’t have to fall further into debt, or even aim to improve your financial situation, so that you become able to pay those debts.
If your circumstances haven’t changed in those 12 months, the debt listed in your DRO is written off, allowing you a fresh start.
A massive thank you
“I’d like to say a massive thank you to Carrington Dean for helping me. It feels like I have control of my life again.”
The Steps To a DRO
To make things nice and easy to understand, here is a four-step description of what you can expect if you think applying for a DRO is the best route for you.
Contact an Insolvency Service-approved DRO adviser
As you cannot apply for a DRO on your own, you must first discuss your situation with a qualified professional. They will assess your situation to see if you are likely to be eligible for the DRO. This is important because the DRO has some of the strictest criteria of any debt solution. You can only get a DRO if:
- You are resident of England, Wales or Northern Ireland
- Your debts are less than £50,000
- You do not own your home or have a mortgage
- Your car is worth less than £4,000
- Your other assets are also worth less than £2,000
- You cannot pay your minimum payments and have a disposable income of less than £75 per month
- You do not have any other insolvency agreement
If your advisor agrees that you are likely to meet those criteria, you can begin the next step together
DRO Application
This is where you might need documentation as your application is likely to require details about your income, expenditure and debts. Your adviser will help you to gather this information together and will turn it into an application.
There is no application fee required for a DRO.
Court approval
Your Official Receiver then has 10 working days to process your application. Don’t forget to take any bank holidays into account. If the Bankruptcy Court agrees that you are eligible, your DRO is approved and your debts a frozen. This means:
- You don’t have to make payments to the debts included in the DRO
- Their interest and fees are also frozen
- Your creditors can no longer contact you or take legal action against you.
If your circumstances remain the same and you cooperate fully with your Official Receiver, your DRO should remain in place for 12 months.
End of DRO
After 12 months, your circumstances are reassessed and if there is no change, the DRO is viewed as proof that you cannot be expected to pay off your debts in a reasonable amount of time. Therefore, your debts are written off. Remember, only the unsecured debts that can be included in the DRO can be written off, and your DRO will remain on your credit report for six years.
How does a DRO affect my credit rating?
It is important to note that your DRO is listed on your credit file for 6 years from its approval, which can impact your credit score.
Your credit score, or credit rating, is a score given to you by an independent credit reference agency. Your score is based on your financial behaviour – the more reliable you seem to credit reference agencies, the higher your score will be.
Having a DRO listed on your credit record will send a signal to lenders that you have had trouble repaying credit in the past. Your credit rating is likely to go down as a result of your DRO, even if you have now had your unaffordable debts written off.
During the six years your Debt Relief Order (DRO) is listed on your credit reference file, you may find yourself under certain restrictions. Opening a bank account may be difficult in certain circumstances, and it could be harder for you to be accepted for a mortgage.
Where can I get debt advice and more information on Debt Relief Orders?
When you’re already struggling to manage your normal household expenses, repaying costly debts to multiple creditors can seem impossible. But you shouldn’t have to live in fear of your debts.
Carrington Dean has helped over 45,000 Scots regain financial control. We offer free advice on your options, and debt help you can rely on.
For more information on Debt Relief Orders, or to discuss the options available to you, talk to one of our friendly advisers today on 0800 043 1320.
