A Debt Relief Order (DRO) is a debt solution suitable for those who have accrued under £30,000 in debt but are looking for alternatives to bankruptcy. Here is everything you need to know about DROs.
What Is a DRO?
A Debt Relief Order, or DRO, is one way you can deal with debts that you cannot afford to pay. To be eligible for a DRO, you must meet the following criteria:
- Qualifying debts amount to less than £30,000
- Do not own your own home
- You have less than £75 disposable income after tax and paying household expenses
- Financial assets, such as savings, investments, and possessions, amount to less than £2,000, and a car worth less than £2,000 would be excluded from this figure
- You have going through any other formal insolvency measures, such as an IVA or bankruptcy proceedings
- It has been over six years since any previous DROs were made
- You have lived or worked in England or Wales for three years or more previously
To apply for a DRO, you will need to speak to an authorised debt advisor, otherwise referred to as an approved intermediary. Though the debt specialist cannot ask you to pay for their time, you will have to pay £90 for the application to be made. This fee can be paid in instalments, however, it must be paid in full before the application is submitted.
The experienced debt advisor will make the application on your behalf, assisting you with filling out the details of the application, before submitting it to an official receiver or administrator for review. An official receiver is employed by the Insolvency Service, who will either approve or deny the application.
The DRO is valid from the exact time the application was approved, for a period of 12 months. How quickly your application is processed depends on the DRO processing times in your area. This is something that will be covered during any debt advice session.
Before making an application, you will need to tell your advisor if you have:
- Given away any assets for free
- Sold any assets for less than their value
- Only made some debt repayments, and not others - for example, you paid back a family member or friend but did not pay back any other creditors
How Does a DRO Work?
If your DRO is approved, this means that creditors cannot ask you for repayment during the term of the DRO. This is typically a 12-month time period. After those 12 months are up, all of the debts included will be written off, meaning that creditors not only cannot force you to repay the money you owe during the time interval covered by the DRO but also after the DRO has finished, too. The DRO may be revoked if you incur further creditor after it is approved, or if your circumstances change, and you are no longer eligible.
You must ensure you tell your debt adviser about all of the debts that you owe. If you do not include one of your creditors in your application, then they will not be included, and you will be required to maintain payments to the creditor outside of the DRO. This also means that the debt will not be written off when the DRO order is finalised.
There are certain rules as to what debts can be included within the DRO, known as ‘qualifying debts’. Thus, only qualifying debts can be included in your DRO, which will then be protected from repayment.
Qualifying debts include:
Credit cards, overdrafts, loans, and other debit and credit card details
This applies to both consumer debt and commercial banking & credit cards.
This applies to disability benefits, Government retirement benefits, or other retirement benefits. This is when a benefit analysis has shown that you have received Government benefits you are not entitled to, and thus makes the benefit payable back to the Government via a benefit payment plan. If you can’t afford to repay through the benefit plan, you will incur the amount as an unpaid debt. You cannot include any social fund or budgeting loans provided through your benefits, and if any of the overpayments have been incurred due to fraud, these also cannot be included.
This includes debts pertaining to utility bills, rent, landline and mobile phone bills, and even bills for services like vets, solicitors, and accountants.
However, it is important to note that rental arrears will not be frozen or written off. Even if your rent is included in the DRO, your landlord can still evict you from the property, and you may have to repay the owed rent after the DRO has been made.
Qualifying tax arrears include council tax and income tax debts.
Money owed to individuals
Such as any money you owe to friends or family, even if it was not as part of any official agreement or contract.
‘Buy now - pay later’
Most ‘buy now - pay later’ schemes are covered by DRO, whether it is for clothing, equipment, or car financing, such as hire purchase or conditional sale agreements.
On the other hand, debts that do not qualify for a DRO include:
- Student loans
- Child support
- Compensation relating to personal injury
- Social fund loans
- Any fines received for participating in criminal activity
Is a DRO the Best Option for Me?
To ensure that you are making the best financial decision, it is important to weigh up whether a DRO is the best option for you. The main thing to consider is your credit score.
A DRO will stay on your credit record for six years. This means that any business that requests your credit report from a credit reference agency will be able to see that you recently had a DRO. Many lenders require a credit check or a cursory review of our credit reference file before agreeing to any credit agreements.
Thus, some lenders may see this as a concerning addition to your credit file, whereas others may see that you have struggled in the past but taken positive steps to learn and grow financially.
Other ways a DRO might impact your life include:
- Having to return goods bought on hire purchase or unpaid loans
- Potential closure of your bank account
- Loss of power of attorney status over others’ finances
- You will need to follow various rules and restrictions
- For some debts, you may still need to repay them at a later date as they cannot be included
- You cannot be a manager, director, or promoter of a limited company without written court approval - this will be sent to your employer for review
- It may affect citizenship applications
If any of these will be an issue for you, it might benefit you to explore other options.
If you cannot afford bankruptcy fees, and are not eligible for a DRO due to the criteria, but would like to explore an alternative to bankruptcy before making a decision, why not consider an IVA? Get in touch with NDH Financial today for confidential IVA consultation and to discuss whether an IVA will be suitable for you.