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Debt Relief Order

What is a Debt Relief Order (DRO)?

The DRO procedure was introduced in 2007 as a low-cost alternative to Bankruptcy for individuals who cannot pay their debts but who have otherwise straightforward finances.

It is also known as ‘Little Bankruptcy’, as there are many similarities between the two. There are strict criteria for this option, so not everyone will qualify. If you do qualify, it could be the fastest way to resolve your debt problems.

How it works

To apply for a DRO you first need to speak to an ‘Approved Intermediary’ and pay the application fee of £90, which can be paid in instalments.  Once the application fee has been paid in full, the Approved Intermediary will submit your application to the Insolvency Service who will review your application and may ask additional questions about your financial history.

If a DRO is granted you will not have to make any payments to your creditors and providing this remains the case for 12 months (the moratorium period) the debts will then be written off.

It is important to disclose all of your assets, liabilities and income when you make your application so that your eligibility can be assessed.  You must also tell the Insolvency Service if you have a change of circumstances or receive a windfall during the moratorium period, and the DRO could be revoked.

As we said, there are quite strict criteria to meet to be eligible for a DRO:

  • You must owe £20,000 or less to your eligible creditors
  • You have less than £50 to spend each month, after paying tax, national insurance and normal household expenses
  • You’ve lived or worked in England or Wales in the last 3 years
  • Your car is worth £1,000 or less
  • Your other assets aren’t worth more than £1,000 in total
  • You haven’t had a DRO in the last 6 years
  • You aren’t currently going through Bankruptcy

If any your creditors ask a court to make you bankrupt, you can ask for permission to apply for a DRO instead.

Benefits of a DRO

No monthly repayments

If you’re accepted for a DRO, you won’t have to make any payments to the debts included in the DRO.

Unsecured debt written off

You won’t have to repay the debt included in the DRO as it’s completely written off after the 12 months.

Debt-free in 12 months

When the 12 months that your DRO lasts is over, you’ll be free of all the debts included in your DRO.

Legal protection from creditors

Your creditors aren’t allowed to contact you or chase you for payment during or after the DRO is completed.

Disadvantages of a DRO

There are a few things to bear in mind with a DRO. Have a look at the list below to understand some potential downsides. As with any debt solution, a DROs needs careful consideration and expert advice.

Your disposable income

To qualify, you need to have less than £50 left over at the end of the month after paying all of your essential expenditure (your disposable income).

If your circumstances improve so that your disposable income increases above £50 per month during the moratorium period, you must tell the Official Receiver (an official within the Insolvency Service) and your DRO could be cancelled.

Your home and car

You’ll only qualify if you’re not a homeowner, including being a part owner with someone else.

If you own a car valued at more than £1,000, this will also disqualify you for a DRO if you own it outright.  Or, if you have car finance, the monthly finance payments may not be seen as essential expenditure.

Your other assets

You can’t own anything else valued at more than £1,000 in total, including savings, computers or jewellery.  This doesn’t include ordinary household items or tools of trade, providing they are of ordinary value.

If you receive any assets during the 12-month moratorium period which mean your assets exceed £1,000 you must tell the Official Receiver and your DRO could be revoked (cancelled).

Your credit rating

A DRO stays on your credit rating for six years, and you’ll probably find it hard to get any credit during this time.

You’ll also have an automatic credit limit of £500 while in the DRO, above which you must disclose that you are in a DRO when applying for any further credit.

Your other debts

Certain types of debt are not included. These include student loans, fines that have been issued by a court, child maintenance and overpayments of benefits or tax credits arising from fraudulent claims. For secured debts (such as hire purchase agreement) any arrears are included in the DRO but the whole debt can only be included if you discontinue the repayments.

A DRO does not alter the rights available to a landlord or car finance creditor to repossess your home or vehicle, even where the debt is included in the DRO.

Your public information

If you’re accepted onto a DRO, your details are entered onto a public register, called the Individual Insolvency Register.

Your fee

There’s a £90 fee to apply for a DRO.  This can be paid by instalments, although your application won’t be processed until the fee is paid in full.  Once your application is processed, the fee is non-refundable.

Your employment

During your DRO, you can’t be a director of a limited company without the permission of the Court and it can be difficult to continue business as a Sole Trader, for example due to restrictions on obtaining credit.

Your finances

The Official Receiver can investigate your financial history and conduct during the DRO period, to look for wrongdoing and for any transactions which could be challenged to recover more money for the creditors.  This could mean the DRO is not granted or is cancelled, or the restrictions of a DRO are extended beyond the normal 12 months.

Whilst these outcomes are rare, it is important to co-operate with the Official Receiver because failure to do so could make such an outcome more likely.

We don’t provide services relating to applying for a DRO.  However, when you speak to us, we will make sure you are aware if it is a potential option for you to consider.

Whilst these outcomes are rare, it is important to co-operate with the Official Receiver because failure to do so could make such an outcome more likely.

We don’t provide services relating to applying for a DRO.  However, when you speak to us, we will make sure you are aware if it is a potential option for you to consider.

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