What are Debt Relief Orders?
Debt Relief Orders (DROs) came into force in the UK on 6th April 2009. Issued by the Government’s Insolvency Service, they are aimed at offering financial aid to those with debt, as a quicker and cheaper alternative to declaring bankruptcy. They are also available to assist people who have been turned down for an Individual Voluntary Agreement (IVA) or a Debt Management Plan (DMP)
DROs are available to those with a low income, few assets and who will otherwise struggle to pay off a debt within a reasonable amount of time. A DRO provides a legally binding alternative to an IVA or DMP where a debtor is unable to repay a debt via any other existing means.
Who is eligible for Debt Relief Orders?
DROs are available to those who:
- Are unable to repay their debts.
- Have unsecured loans totalling £15,000 or more.
- Have assets of less than £300, excluding a car of less than £1000 in value.
- Have a surplus (disposable) income of less than £50 per month, as defined using common financial statement.
- Live in England or Wales, or, for the last three years, have been resident or carried out business there.
- Not have an existing Bankruptcy Order, Bankruptcy Restrictions Order or an IVA, or have had a DRO within the last six years.
Who can benefit most from Debt Relief Orders?
DROs are designed to benefit those who do not own their own home, have low income and/ or have no realisable assets of a value of more than £300. They may also be dependent on State Benefits or be in debt due to a crisis or accident and wish to pay off their debts but simply cannot.
How much does a DRO cost?
A DRO costs £90, which is a considerably cheaper solution to debt problems than filing for bankruptcy. Many of the features and processes of DROs are similar to those of bankruptcy, but have been modified to be more cost-efficient.
How will a DRO protect me financially?
During the period in which a DRO is active, you will be fully protected from enforcement action by the creditors included in the application. However, this will exclude those creditors whose debts cannot be scheduled in the DRO, and also those creditors whose debts have been included in the DRO but have obtained leave from the court to pursue their debts.
Following a DRO, you will be free from the included debts (normally a 12 month period). You will then be expected to make arrangements to repay creditors should your financial circumstances have improved.
Are there any restrictions put in place if I am approved for a DRO?
Yes. For the duration of the order, you may not:
- Obtain credit of £500 or more, either alone or jointly, without disclosing your status as subject of a DRO to the lender.
- Trade as a business either directly or indirectly using a name which is different to the one under which you were granted a DRO.
- Act as a Company Director, or be involved in the promotion, management or formation of a limited company without permission of the court.
Are there any negative outcomes of gaining a DRO?
If you apply for a DRO, your credit rating will be affected. There are also civil and criminal penalties for those making fraudulent or misleading claims. The creditors will have the right to begin reclaiming funds (similar to the bankruptcy process) if it is found that the application was fraudulent or if the debtor receives a windfall payment. You should be aware that your details will also be publicly available on the Individual Insolvency Register on the government’s Insolvency Service website.
How can I apply for a DRO?
It is only possible to apply for a DRO via an Approved Intermediary and Competent Authorities. These are normally experienced debt advisors working through organisations such as the Citizen’s Advice Bureau or the Consumer Credit Counselling Service. They will review the information and make a decision regarding eligibility before filing the DRO application online. You will not be charged by an Intermediary for completion or submission of your application.