Debt Relief Order
Discover how a Debt Relief Order could write off unafforable debts
What is a Debt Relief Order?
A Debt Relief Order (DRO) is a formal insolvency process that can help you deal with your debts if you owe less than £20,000, don’t own your home and have little spare income. DRO’s are suitable for people who have low income and very few assets.
Once a DRO is agreed you would make no further payments towards your debts and all of your would be written off after 12 month (providing your circumstances haven’t changed).
An application must be made to the Official Receiver’s office through an authorised intermediary. The Official Receiver’s fee is £90, which you would need to pay to apply for a DRO (this can be paid in full or in installments). Intermediaries are not allowed to charge you a fee for submitting your DRO application.
Please bear in mind the fee is non-refundable, so if your application is turned down you will not get the money back. It is important to seek advice and ensure you are eligible for a DRO before you pay the fee.
- You must have lived or worked in England and Wales within the last three years
- You must be unable to afford current repayments and charges
- You must owe less than £20,000 in unsecured debts
- You must include ALL your debts
- You must have a disposable income of no more than £50 per month
- You must not be currently involved in another formal insolvency procedure
- You cannot be a homeowner
- Your vehicle must be worth no more than £1,000 (unless it is a registered disability vehicle)
- Your savings or things of value that you own, are worth no more than £1,000 (only non-essential items that can easily be sold are taken into account)
- You cannot have been subject to another DRO in the previous six years
You cannot apply for a DRO if your creditors have applied to make you bankrupt but the hearing hasn’t yet taken place, unless your creditors agree that you can apply.
Advantages of a DRO
- DROs are a low cost alternative to bankruptcy costing £90
- All of your qualifying debts are included in your DRO
- Your debts will be written off in full at the end of the DRO
- Your creditors can’t take any action over the money you owe
- You won’t need to pay anything towards your debts for 12 months and after that, presuming your circumstances have not changed, your debts will be written off
Disadvantages of a DRO
- The strict criteria as above can be difficult to meet
- If you have a favorable change in circumstances during the 12-month period your DRO may be revoked and all your debts, plus accruing interest, will become recoverable again
- Homeowners are excluded from applying for a DRO, even if there is negative equity in the property
- A one-off fee of £90 has to be paid to the Official Receiver
- A DRO remains on public records for 15 months and will stay on your credit record for six years
- You may only apply for a DRO once every six years
- You may also be subject to a Debt Relief Restrictions Order. This can extend the period of restriction for up to 15 years for debtors who are deemed dishonest or culpable to the extent of their financial difficulties. An example of this is hiding assets or continuing to borrow knowing you have no chance of making repayments
- Certain debts cannot be included in a DRO, such as child support and maintenance; student loans; social fund loads; magistrate court fines; and confiscation orders
- You cannot borrow more than £500 without telling the lender about your DRO
- You cannot act as a director of a company
- You cannot create, manage or promote a company with the court’s permission
- You cannot manage a business without telling those you do business with about your DRO
Already had DRO advice?
If you have already sought debt advice and decided that a DRO is the most appropriate debt solution for you, please contact the Money Advice Service.