A Debt Relief Order (DRO) is a debt solution for people with little or no assets and less than £20,000 debt if they live in England or Wales, and £15,000 in Northern Ireland.
It freezes your debts for 12 months if you meet the eligibility criteria, after which your debt could be written off, allowing you to have a fresh start.
But how does this work? What happens after the 12 months, and is there anything you need to do?
Understanding Debt Relief Orders
A Debt Relief Order (DRO) is a form of insolvency designed to help individuals in the UK who have a relatively low level of debt and few assets. It’s a legal process that allows individuals with debts of less than £20,000, who don’t own their home and have £50 or less spare each month after household expenses, to have their debts written off.
Once a DRO is approved, it provides an individual with respite from their creditors, as they are not allowed to take any recovery action during the DRO period, typically 12 months.
If the individual’s financial situation hasn’t improved by the end of this period, the debts included in the DRO are generally written off.
However, it’s important to understand that a DRO is a serious undertaking with far-reaching implications. It impacts your credit score and your ability to get credit in the future.
Moreover, it may also affect your employment, especially in roles within finance and certain professions.
Your Debt Written Off
If you successfully complete a DRO, and your circumstances do not change, the debts listed in your DRO are written off.
There is no official letter or documentation that notifies you when this happens, so make sure you know when your DRO started and when it is expected to end.
If you aren’t sure what these dates are, you can check your entry in the Insolvency Register to find out. There you should find the end date of your DRO period.
It is a good idea to print off a copy because your entry will eventually be removed and you might need proof that you have been in a DRO and that it was completed.
The deadline for printing off a copy is 3 months after your DRO has ended.
You should use this as evidence for any creditors who don’t accept that you no longer have an active debt with them because it was written off as part of a DRO.
Don’t worry if you missed the deadline to get proof of your DRO, you can refer any creditors to the Insolvency Service’s DRO Team who should be able to confirm the existence of your DRO.
Related Posts
Having Your DRO Revoked
Generally, the DRO lasts 12 months. But your DRO can be revoked before that if your circumstances change. A change in your circumstances might include:
- An increase in your income which increases your surplus income to over £50 a month
- A decrease in your expenditure which increases your surplus income to over £50 a month
- Gaining an asset which is worth more than the DRO allows, such as through an inheritance
- Moving home, particularly to Scotland where the DRO is not an available
Your DRO may also be revoked if you fail to comply with the restrictions and rules put in place by the Official Receiver. This might include:
- Lying on your application
- Giving away assets before applying, or selling at less than their value, to become eligible
- Showing preferential treatment to a lender, such as a family member or friend
- Withholding information about an improvement in your circumstances
- Taking on debts before your DRO that you were fully aware you could not, and would not, repay
- Failing to disclose that you have a DRO to someone you do business with, a potential lender, or any other entity that the DRO specifies must be made aware
- Working as a company director, in some public office roles, and running a business under a different name
- Not complying with the requests of an Official Receiver
The penalty for breaking many of these rules and restrictions can be severe. You may be subject to a Debt Relief Restriction Order – a court-ordered debt solution which restricts you for a further 15 years. Further failure to comply with a DRRO may result in a fine and even prison.
Your Future after a DRO
Now that most, if not all, of your debts have been written off, you are ready to start fresh. This is an exciting time for many people, so here is some advice about how best to become financially responsible and secure.
Keep on Budgeting
Living with a DRO often helps people learn how to budget because they need to live within their surplus income. But, it doesn’t stop here.
Keep developing those budgeting skills and improve your financial education with helpful online tools.
These are skills that are helpful whether you are in debt, or just want to make their money go a bit further.
Make Some Financial Goals
There is nothing to stop you from setting some financial goals while you are in your DRO, but if you haven’t started yet, now is a great opportunity.
We advise that your first financial goal should be a financial emergency fund. What happens if your boiler breaks?
What happens if you lose your job? Would you become dependent on credit again? Set aside as much of your surplus income as you can every month until you have a healthy cushion, should something awful happen. After you have this security, other great savings goals might be a nice holiday, a new computer, a car, or even a house!
How a Debt Relief Order Affects Your Credit Score
A Debt Relief Order (DRO) can provide significant relief if you’re struggling with unmanageable debts, but it’s important to be aware that it will have a substantial impact on your credit score. From the date of approval, a DRO will remain on your credit file for six years.
This means that any future lenders will be able to see that you’ve had a DRO, which can make it more difficult to secure credit during this period.
It’s also worth noting that the public register of DROs is accessible to everyone, which means this information isn’t just available to credit reference agencies.
Furthermore, even after the six-year period, some lenders may ask if you’ve ever had a DRO. Therefore, while a DRO can be a helpful tool in managing and writing off unmanageable debt, it does have long-term implications for your credit score and ability to borrow.
Life After a DRO: Rebuilding Your Finances
Emerging from a Debt Relief Order (DRO) can be a breath of fresh air, with the majority of your debts likely having been written off. However, it also marks the beginning of a journey to rebuild your financial health.
Firstly, it’s important to understand that a DRO remains on your credit file for six years from the date it was approved. This could make obtaining further credit challenging during this period. However, this can also be viewed as an opportunity to break away from borrowing and focus on managing your finances responsibly.
Start by creating a realistic budget that covers all your essential living costs, including rent or mortgage, utilities, food, and transport. Stick to it, ensuring you’re living within your means. This step is crucial in preventing future debt accumulation.
Saving is also a vital part of financial rebuilding. Try to put away a small amount each month, even if it seems insignificant. Over time, these savings will build up and can act as a safety net for future unexpected expenses, reducing the need to borrow.
Rebuilding credit is likely to be a slow process, but it’s not impossible. Once you’re back on your feet financially, you might consider using a credit-building card to improve your credit score. These cards usually have a low limit and high interest rate, so it’s essential to pay off the balance in full every month.
