Debt Relief Orders

Debt Relief Orders | December 2023

In the UK, Debt Relief Orders (DROs) are a crucial tool for people who struggle with debt repayment. These are especially helpful for people with low income, few assets, and a debt load that exceeds their ability to pay it back (often referred to as DRO debts).

Understanding Debt Relief Orders

A DRO is a legitimate debt relief option created to assist people with limited extra cash and assets. It’s frequently viewed as a lifeline for people who owe money but cannot pay it off in full because they need more extra cash.

Among other personal debts, a DRO covers qualifying debts such as council tax, utility bills, credit card debt, income tax, and particular benefit overpayments. A DRO does not, however, cover every debt.

Some debts are not included, including unpaid child support, court fines, student loans, and loans from social security funds. Before choosing a DRO, obtaining debt advice from a qualified intermediary or debt adviser is essential.

They can assist you in comprehending the DRO procedure’s intricacies and determining whether it is the best course of action in your particular case.

Eligibility Criteria for DROs

The requirements for receiving a DRO are specific. Your total debts must fall under a certain amount to be eligible. You must have a low income with little extra money after covering your basic living expenses, such as rent and bills.

Your assets’ value—including any savings or real estate—must be less than a certain amount. You must not be a homeowner or a company director or have yet to receive a DRO within the previous six years.

You must also reside, own property, or operate a business in England, Wales, or Northern Ireland to qualify for a DRO. Before requesting a DRO, one must be aware of these requirements.

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Application Process for DROs

There are several steps in the DRO application process. An authorised intermediary can help you determine whether a DRO is the best debt solution for you by providing advice.

The DRO application will include your debt total and a list of all your creditors, which the intermediary will help you complete. A DRO application has a one-time fee that can be paid in instalments.

The official receiver from the Insolvency Service reviews the application after it is submitted. A moratorium period, which typically lasts a year, starts if approved.

Creditors listed in your application are prohibited from pursuing legal action to recoup funds during this time without the court’s permission.

Impact on Credit Score

A DRO may significantly impact your credit score. Your credit report will be affected for six years, making it more difficult to obtain credit. Anything from a mobile phone contract to a mortgage falls under this category.

Getting credit might be difficult even after the DRO period ends. Lenders may inquire about your credit history, and you must disclose any DROs. Before choosing a DRO, it is crucial to consider this long-term effect on your credit score.

Role of Insolvency Practitioner

An insolvency practitioner is essential to the DRO procedure. They walk you through the process and help you determine whether a DRO is the best debt solution for your situation. They are also known as debt advisers.

The DRO application is completed with their assistance, and they submit it on your behalf. Additionally, the insolvency practitioner corresponds with your creditors and the Insolvency Service.

They are crucial in ensuring that the DRO procedure goes as smoothly for you as possible.

Dealing with Debt Collectors

You are protected from debt collectors while under a DRO for the debts listed in your DRO. During the DRO period, they cannot collect additional payments or charge interest on your debts. You can inform a creditor about your DRO if they request payment.

You must still pay towards some debts not covered by your DRO, such as child support and court fines. Additionally, the DRO will not include any additional obligations that you incur after the DRO is approved.

Life After a Debt Relief Order

Although a DRO eases the burden of debt, it has some limitations. You are not permitted to borrow more than £500 during the DRO period without informing the lender of your DRO. You cannot manage a company or serve as a director without a court’s approval.

These limitations are lifted after the DRO period. Your DRO’s debts are eliminated, giving you a clean slate. A DRO, however, stays on your credit report for six years, which might impact your capacity to obtain credit during this time.

"A DRO is a legitimate debt relief option created to assist people with limited extra cash and assets."

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Alternatives to Debt Relief Orders

Although a DRO can significantly reduce your debt, it’s not the only option. An individual voluntary arrangement (IVA), bankruptcy, or debt management plan may be better, depending on your situation.

A formal agreement between you and your creditors to pay back a portion of your debts over a specific period is called an IVA. When people cannot pay their debts, they have the legal status of bankruptcy. A debt management plan is an agreement to pay off all your debts.

Each of these options has advantages and disadvantages. To determine which debt solution is best for you, it is best to seek debt advice from a debt adviser or an insolvency practitioner.

Rent Arrears and Debt Relief Order DRO

In a debt relief order DRO, unpaid rent is a qualifying debt. A DRO might be an appropriate solution if you have trouble paying rent. However, a tenancy agreement frequently specifies that due rent is cause for eviction.

A DRO can temporarily halt your debt repayments but won’t always prevent eviction proceedings. This is a crucial aspect to take into account when considering a DRO.

To fully grasp the potential ramifications of your housing situation, it is always advisable to talk this over with a debt counselling specialist.

Bankruptcy Restrictions and DRO

A bankruptcy restriction order is comparable to a debt relief restriction order. Both place the debtor under specific guidelines and limitations. For instance, you can manage a company or serve as a director with a court’s approval.

These limitations apply for the DRO period, which is ordinarily a year. However, the rules may be widened if your situation changes. The individual insolvency register is where the specifics of your DRO and any debt relief restrictions order are kept.

Lenders may access this public record, which could impact your credit history.

Minimal Assets Process vs. DRO

The minimal assets procedure, which is used in Scotland, is an alternative to a DRO. This type of bankruptcy is for those with little wealth and a low income. Both options relieve those with little left over after covering their essential living expenses but cannot pay off their debts.

Specific requirements must be met for the minimal assets process and the DRO. For instance, your assets’ combined value, including any hire purchase or conditional sale agreements, cannot exceed a certain threshold.

After paying your regular household expenses, your monthly surplus income shouldn’t exceed a certain threshold.

DRO and HM Revenue

A DRO may include debt owed to HM Revenue & Customs, including income tax overpayments and various benefits. However, some gifts may be impacted by a DRO. A DRO can help HM Revenue pay off debt, but knowing how it might affect your benefits is essential.

A one-time fee is required to apply for a DRO. Some people may need help paying this fee. While some charities allow you to pay in instalments, others may offer grants to help with the cost.

After a DRO: Changing Circumstances and New Debts

After your DRO is approved, you must notify the official receiver if your circumstances change, such as an increase in income or an inheritance of money or property. These changes could affect your DRO.

Your DRO won’t cover these debts if you acquire them after your DRO has been approved.

Before requesting a DRO, it is essential to comprehend these regulations.

You risk revoking your DRO or receiving a debt relief restrictions order if you don’t follow these guidelines. Ultimately, you want to improve your financial situation, get out of debt, and move towards a future with less financial risk.

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Meet the author

Jane Parkinson

Jane is one of our primary content writers and specialises in elder care. She has a degree in English language and literature from Manchester University and has been writing and reviewing products for a number of years.

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