Debt Relief Orders explained
If your income has dropped or you have taken on more debt than you can afford, you may sometimes find yourself in a situation where you cannot repay your debts. There are various alternatives that may help your situation, one of which is a Debt Relief Order.
What is a Debt Relief Order?
For people who are unable to pay off their debts, a Debt Relief Order (DRO) is one way to resolve the situation without pursuing more serious insolvency measures like bankruptcy. It is available in England, Wales and Northern Ireland and will be authorised by an official receiver, who will decide if your circumstances qualify you for a DRO. You will also need an authorised debt adviser to help you with the process.
The benefits of a DRO are that it prevents your creditors from taking you to court for a period of 12 months, and at the end of this period your debts will be written off. It is cheaper than a bankruptcy and you will not have to appear in court. However, there are very specific restrictions that determine whether you qualify.
How do you qualify for a Debt Relief Order?
Debt Relief Orders are for people with relatively low levels of debt who own few assets and have low surplus income. If you live in England or Wales, your total debts must be less than £20,000 or if you live in Northern Ireland less than £15,000. You must have less than £1000 in assets, cannot own your own home, and must have less than £50 left each month after paying regular household expenses. You must have also lived or worked in the relevant country in the last three years, not have previously applied for a DRO in the last six years, and cannot already be involved in other insolvency procedures such as an IVA or bankruptcy.
Debt Relief Orders do not cover all forms of debt, while they do include things like overdrafts, credit cards and unpaid utility bills, they do not include student loans or child support arrears. When arranging a DRO your debt adviser will inform you which of your debts will be counted.
What are the consequences of a Debt Relief Order?
If you were to get a Debt Relief Order you would face certain restrictions during the period in which it is active. You would not be able to borrow more than £500 without first notifying the lender of your DRO and you can also not act as the director of a company during this time. You will also need permission from the authority overseeing your case should you wish to create, manage or promote a company.
You would also still be required to pay household costs like rent and bills, as well as any debts that are not included in the DRO. A record of your DRO will be added to the Individual Insolvency Register and kept on there until three months after the DRO period ends. The insolvency register allows members of the public to search for people who are insolvent and have undergone bankruptcy proceedings or other debt agreements like IVAs and DROs.
How Debt Relief Orders affect your credit history
A DRO will form part of your credit history and will remain on your credit report for six years after the DRO has been issued. This will be taken into consideration by lenders when you apply for a loan or other forms of credit, and may affect how they view your creditworthiness.
Debt Relief Orders are an alternative to other insolvency procedures, so although they may affect your credit history negatively, other potential outcomes such as bankruptcy, Individual Voluntary Arrangements (IVAs) or County Court Judgements will also be reflected in your credit report. Whether they are the right choice, depends on your individual circumstances, but DROs can be a cheaper alternative to bankruptcies and as such may be a preferable option for those who qualify.
Applying for a Debt Relief Order
If you think a Debt Relief Order is the right option for managing your debts, the first step would be to speak to an approved intermediary who can advise you on eligibility and help you fill out the relevant paperwork. You can read more about finding an adviser on the Citizens Advice website. You will then have pay £90 to have your application processed and a decision will be made by the official receiver. They may reject your application if you do not meet the required criteria, but they will explain their decision and you may wish to appeal.
Equifax is a Credit Reference Agency, not a DRO adviser.
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