A Debt Relief Order (DRO) is a legal solution for people with unpayable debts. It stops creditors in their tracks and can wipe out debts after 1 year.
This guide covers what a DRO is, who qualifies, and how to apply.
What is a Debt Relief Order (DRO)?
A Debt Relief Order (DRO) is a legal process to help people who are overwhelmed by unpayable personal debts.
It’s a way to manage those debts by stopping creditors from taking action against you and potentially writing off debts after a certain period. A DRO is a lifeline for those with financial burdens.
A DRO can only be issued under the Insolvency Act 1986, Schedule 4ZA.
However, deciding if a DRO is the right debt solution for you requires careful thought and professional advice. A debt adviser can help determine if a DRO is right for you and what it means.
Specialist debt services have tailored resources and support so you can make an informed decision for your individual circumstances.
DRO Eligibility
To qualify for a debt relief order (DRO) you must meet the debt relief order criteria.
You must:
You must have debts of £50,000 or less; if your debts are over this during the application, you will be disqualified.
Have assets of £2,000 or less.
Have a vehicle worth £4,000 or less.
Household items like cutlery, crockery and beds are excluded from this asset calculation.
Your regular income also matters. Pension payments and other regular income sources are considered when deciding whether you qualify for a DRO.
You must also have lived or worked in England or Wales in the last 3 years to apply for a DRO. A debt adviser can help you work through these criteria to ensure you meet all the requirements.
You will be disqualified from a DRO if you are currently bankrupt, have an interim order, or have an Individual Voluntary Arrangement (IVA). Previous bankruptcy restrictions order or a rejected IVA does not mean a DRO application will be refused.
A debt relief restrictions order (DRRO) can be applied if you breach the DRO terms or act dishonestly, and it will restrict your financial activities for a period of time.
You must provide full financial disclosure, as preferential payments to certain creditors can affect your eligibility.
Residence Test
To apply for a Debt Relief Order (DRO), you must meet the residence test, which means you must have lived in England or Wales for at least 3 years before the application date.
This is to ensure you have a genuine connection to the UK and are not trying to avoid your debt by applying for a DRO.
Meeting the residence test is part of the eligibility assessment and shows the importance of having a stable and provable presence in the country.
Previous Insolvency
DRO eligibility also has restrictions on previous insolvency. You cannot apply for a DRO if you have had a DRO or bankruptcy in the last 6 years.
This is to prevent people from using the DRO process to avoid their debt. If you are also currently bankrupt or have an Individual Voluntary Arrangement (IVA), you will be disqualified from a DRO.
These restrictions ensure the DRO is a fair and effective debt solution for those who really need it.
DRO Qualifying Debts
Unsecured debts, such as credit cards, loans, and utility bills, are generally included. These are common personal debts that can be a big burden, and including them in a DRO can be a big relief.
Other qualifying debts include rent arrears and money owed to friends and family so a DRO is a solution to many types of debt.
Gather all the debts owed and talk to a debt adviser to ensure you get all the qualifying debts listed in your DRO application.
Excluded Debts from a DRO
A DRO can cover many personal debts, but some debts are excluded, and you will still have to pay them.
Debts from fraudulent activity, such as fraudulent benefit claims, are still enforceable despite a DRO. Student loans, old and new, cannot be included in a DRO.
Other excluded debts include Child Maintenance Service debts, social fund loans, criminal fines, and those under the Proceeds of Crime Act.
Damages or personal injury claims are also not covered by a DRO. Knowing these excluded debts will help avoid future complications and clarify your financial responsibilities.
Creditors of excluded debts can still take action during the DRO moratorium, and if a debt is not included in the DRO application, it cannot be added later.
You must seek confidential debt advice and ensure all your financial obligations are listed and managed.
How to Apply for a DRO
Start the DRO application by contacting an approved debt adviser for guidance.
Gather and provide a full, accurate and up-to-date picture of your financial situation. Transparency helps the debt adviser to assess eligibility and prepare the application.
The DRO application is submitted online through your approved debt adviser. Once submitted, wait for approval from the Insolvency Service, who will notify your creditors if successful.
This formal insolvency process means everyone is informed, and your financial relief journey can start smoothly.
DRO Costs
The cost to apply for a Debt Relief Order (DRO) is £90. This is non refundable and must be paid in full, but it can be paid in installments or in cash at a Payzone point.
Unfortunately, there is no fee reduction for those on benefits or low income, but some debt charities can help with the cost.
If you can’t afford the DRO fee, you can apply to a charity for financial help. Look into all options to apply for a DRO without financial stress.
DRO Moratorium
A Debt Relief Order (DRO) has a 12-month moratorium during which no payments are required on included debts.
During this period, creditors cannot pursue debt recovery or take legal action. This is a big relief for debtors who want to focus on living costs without the burden of debt repayments.
Some restrictions apply during the moratorium period. Debtors must stop paying most listed debts and stop deductions from benefits or wages.
Regular commitments like rent and bills must still be paid to manage living expenses responsibly.
DRO on Your Credit Rating
A Debt Relief Order (DRO) will be on your credit report for 6 years from the date of its application.
Credit reference agencies will hold this information, which will affect your credit rating and may impact your ability to get credit during this period. You must disclose your DRO to lenders when applying for credit over £500.
A DRO will initially harm your credit rating but can help it improve gradually once it is cleared. A DRO is listed on the Individual Insolvency Register, which is accessible to potential creditors.
Despite this, a DRO can lead to financial recovery and improved creditworthiness.
Changes During a DRO
Reporting changes in personal circumstances during a DRO is mandatory, and serious consequences will follow if not.
If your income increases, you acquire new assets, change your address, or earn money, you must inform the Official Receiver immediately.
Failure to report these changes can result in the DRO being revoked, criminal charges or other legal action.
Report in writing and provide documentation to keep records up to date. This is for transparency and to protect your financial future.
After DRO: What Happens Next?
Once the DRO period is over, individuals are released from liability for qualifying debts if their financial situation hasn’t improved.
Creditors cannot pursue debt recovery on these debts, so you will have long-term relief and a fresh start. However, any debts not included in the DRO are your responsibility.
The end of the DRO can also lead to gradual improvement in your credit rating over time.
Keep track of your DRO approval date and the end of the DRO period, as the official receiver can extend it in special circumstances. This will keep you informed of your financial situation, and you can plan for the future.
Other Options
There are other debt solutions if you don’t qualify for a DRO. An Individual Voluntary Arrangement (IVA) allows you to pay your debts through regular payments to an insolvency practitioner.
IVAs give you more control over assets than bankruptcy, as you can keep some assets while making payments.
In Scotland, residents can consider the Minimal Asset Process (MAP) bankruptcy an alternative to a DRO. A debt adviser can help you explore options and decide what’s best for your situation.
Get Confidential Debt Advice
Confidential debt advice is essential if you’re considering a Debt Relief Order (DRO).
Our non-judgmental debt advisers at PennyPlan will help you understand your options and make informed decisions about your financial future.
We’ll give you bespoke advice based on your situation so you get the right debt solution.
There are many ways to get confidential debt advice, including debt charities and other organisations.
All mentioned organisations can guide you through the DRO application, manage your debts and provide ongoing support to keep you on the road to financial recovery.
Conclusion
In summary, a Debt Relief Order (DRO) is an option for individuals with unmanageable personal debts.
By understanding the eligibility criteria, qualifying debts, and application process, you can make an informed decision about whether a DRO is right for you. You must seek professional advice and explore all options to get the best outcome for your financial future.
As you go through the debt relief process, remember there is help and support out there.
By taking action and seeking advice from qualified debt advisers, you can regain control of your financial life and achieve a debt-free future.
FAQs
What is a Debt Relief Order (DRO)?
A Debt Relief Order (DRO) is a legal process that helps individuals with unpayable personal debts by stopping creditor action and potentially discharging some debts after a set period.
This option is for those who are overwhelmed by debt.
Am I eligible for a DRO?
You are eligible for a Debt Relief Order (DRO) if your total debts are under £50,000, your assets are under £2,000 and you have lived or worked in England or Wales in the last 3 years.
Check with a debt adviser to confirm.
What debts can be included in a DRO?
A Debt Relief Order (DRO) can include unsecured debts like credit cards, personal loans, utility bills, rent arrears, debts to friends and family. You need to understand this to manage qualifying debts properly.
How will a DRO affect my credit rating?
A Debt Relief Order (DRO) will affect your credit rating for 6 years from the date of the DRO, you will find it very difficult to get credit during that time.
What if my circumstances change during a DRO?
Tell the Official Receiver if your circumstances change, such as earning more income or acquiring new assets. This is important to avoid major problems with your DRO.
Does a debt relief order write off debt?
Yes, a Debt Relief Order can write off debt. However, this may not materialise if your circumstances change during the 12-month DRO period.
Can I do my own debt relief order?
You cannot complete a debt relief order application yourself. Once it has been agreed that the DRO is suitable for your circumstances, a debt adviser can help you complete the application.
Is a DRO worse than an IVA?
One solution may be better than the other for your circumstances however neither solution is worse than the other. A debt adviser will assess your options and be able to advise which is the best option for you.
