If you’re having money trouble but you’re debt level is relatively low, you may be able to apply for a DRO, or Debt Relief Order, which can help you write off your debts.
In this guide, we’ll explore the Debt Relief Order in more detail, covering what it is, who is suitable for a Debt Relief Order, and how DROs can be a useful tool for people who are struggling to repay the money they owe.
Who qualifies for a DRO?
To qualify for a Debt Relief Order, you need to have debts of less than £30,000, and less than £75 left in disposable income each month.A Debt Relief Order is a debt solution that helps people deal with their debts if they don’t have enough money to repay them, and they also don’t own their own home or any other assets valuable to sell in order to raise funds.
As a formal insolvency procedure, a DRO enables the individual to stop making payments towards their debts and also offers creditor protection, meaning the people you owe money to can’t enforce payment once the DRO has been put in place.
Debt Relief Orders work by giving people in debt more time to try to repay what they owe, without living in fear of creditor pressure.
If you obtain a DRO, your debt will be frozen for one year, during which time you won’t have to make any further payments. This removes the immediate threat of legal action, and gives you a chance to improve your financial circumstances.
If that one-year period passes and your circumstances haven’t improved to the point where you could make a meaningful contribution towards your debts, your debts will be written off entirely.
If you obtain a DRO, your debt will be frozen for one year, during which time you won’t have to make any further payments.
There are certain debts that will make you a good candidate for a DRO, called ‘qualifying debts’. Examples of qualifying debts include:
There are certain debts you can’t use a DRO to pay off, like student loans, magistrates’ court fines, and child maintenance arrears. A professional debt adviser may be able to help you with excluded debts.
You might be a good candidate for a Debt Relief Order if:
In most cases, you won’t be able to apply for a DRO if you are currently, or have in the past, entered into another formal insolvency procedure, whether that’s bankruptcy, an Individual Insolvency Arrangement (IVA), or a previous DRO (within the last six years).
It was literally the best decision of my life, and it has actually changed my life, cheesy as that sounds, it has changed my life.
Paige , IVA Customer
There is a formal Debt Relief Order application process that you’ll need to adhere to in order to give yourself the best chance of success.
A DRO can only be applied for through an approved individual known as an intermediary. You can find one via free advice organisations, like the Money Advice Service, Government bodies, or private debt management companies.
You’re adviser will firstly decide whether you’re a suitable candidate for a DRO. If you are, they will help you fill out your application, which will include details of your income and expenses, your total debt and total assets, as well as your savings.
Once you have filled out the application form, they will send it on to the Insolvency Service. There is a £90 application fee that has to be paid in cash, either at a Post Office or Payzone outlet. This money won’t be returned, even if your DRO application is subsequently rejected.
Once your application is sent away, the official receiver will make a decision on whether or not to approve you. At this stage, they will either:
It’s important that you cooperate fully with the official receiver. If they feel you have been dishonest about details of your debts, or whose to blame for them, they can ask the court to make debt relief restrictions undertaking against you, which will mean you’ll be placed under financial restrictions.
If you’re DRO is approved, you won’t have to make any payments towards the debts included in the arrangement for a period of one year. You will be expected to keep up payments for normal household expenses, however.
A Debt Relief Order will be in place for 12 months, during which time your debts will be frozen and creditors will be unable to pursue you for payment. If your circumstances change during this time, it can affect your DRO.
If you come into a lump sum of money, for example via an inheritance or lottery win, you may be expected to pay some or all of it towards your debts.
Similarly, a wage increase, starting a better paid job, or receiving extra benefits may mean you no longer meet the criteria for a DRO. If your circumstances change, make sure you reach out to the Insolvency Service. They’ll review your situation and advise you on next steps.
Provided your circumstances haven’t changed during that time, your DRO will end after 12 months. All the debts included in the arrangement will be written off.
That means you will no longer have any legal obligation to repay the debts you previously carried. In certain cases, creditors may continue chasing you for payments even after your DRO has ended. That’s why it’s useful to share proof of your DRO with creditors once the arrangement comes to an end.
After six years your details of your DRO will be wiped from your credit report
If you own your own home, the chances are you won’t qualify for a DRO. To be eligible, you can’t hold assets valued at over £2,000.
The same is true of other assets you own outright, whether that’s artwork, jewellery, or your car. If you’re paying for your car via hire purchase or conditional sale agreements, on the other hand, it won’t be included as an asset. This is because it’s not technically yours until you’ve made all your payments.
Your credit record, or credit reference file, looks back over the previous six years of your credit history. Because DROs are a matter of public record, credit reference agencies will include that information on your credit report, so your DRO will be listed for a period of six years.
This is likely to lower your credit score, and for that six-year period you may find it more difficult to do certain things, from opening a new bank account with a high street bank, to being accepted for a loan.
After six years, however, your details of your DRO will be wiped from your credit report. This allows you to begin the process of rebuilding your credit score over time.
Legally binding agreement
Protects you from legal action
Gives you time to deal with debts
Usually over with in 12 months
Unaffordable debts are cleared
Entered into public register
Unsuitable for homeowners
DRO restrictions can last over 2 years
Restricts your borrowing to £500
Will impact credit rating
It’s never nice knowing that you owe money to creditors. The situation becomes even more unpleasant when they put pressure on you to repay, especially if you don’t have the money.
That’s why so many of our clients turn to us for debt advice. At Your Debt Expert, our team of advisers specialise in helping people like you find solutions that protect them from creditors, deal with their debt, and allow them to rebuild their credit file with confidence.
For confidential debt advice and a roadmap out of debt, talk to one of our friendly advisers today on 0800 082 8086.
Advice and support is also available at Money Helper.
*A debt write off amount of between 25% and 75% is realistic, however, the debt write off amount for each customer differs depending on their individual financial circumstances and is subject to the approval of their creditors. The example provided has been achieved by 10% of our IVA customers in the last 12 months.
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David Rankin, Katy Walker and Tracy Whittaker are authorised in the UK to act as Insolvency Practitioners by the Insolvency Practitioners Association.
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This website is in no way approved by the Government. The product (IVA) we administer through the group and process with our Insolvency Practitioners is covered under the following legislation: The Insolvency Act of 1986 (amended by the Insolvency Act 2000 and the Enterprise Act 2002) introduced a new procedure whereby a debtor could come to an arrangement with their creditors to pay their debts in full or in part over time as an alternative to bankruptcy. Our advisors will go through all your debt options including IVA (Individual Voluntary Arrangement) opportunities which are available for people living in England, Wales and Northern Ireland. Help can only be offered following an initial fact-finding process. An Individual Voluntary Arrangement (‘IVA’) is subject to the customer meeting qualifying criteria and gaining creditor acceptance. Initial advice is free and there is no obligation to proceed into an arrangement. Arrangement fees will be clearly explained to you in writing by your advisor.