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Debt Relief Order (DRO)

A Debt Relief Order (DRO) is a form of insolvency which is designed to help people who have relatively low debt, little surplus income and few valuable assets

A Debt Relief Order (DRO) is a way of writing off debts for people that have limited assets and debts up to a certain level. It is often a viable alternative to bankruptcy, but there are certain criteria you must meet in order to qualify for one. This solution is available to borrowers in England and Wales and if you qualify for a DRO, you will be subject to it for 12 months. 

A Debt Relief Order is designed to give borrowers relief from their debts so they can improve their financial situation. Once your DRO is in place, all debt payments, including the interest, will be put on hold for 12 months. Providing that your situation hasn’t significantly improved during that period, and you have continued to meet the eligibility criteria, your qualifying debts will be written off after the 12 months.

You have a duty to inform the Official Receiver if your circumstances improve during the time you are subject to the DRO. If you no longer meet the criteria prior to the DRO ending, your DRO will be revoked.

A Debt Relief Order is set up through the insolvency service and you need an approved intermediary, such as the Citizens Advice Bureau, to put forward your application. You also need to pay a one off fee of £90 to apply.

You will be eligible for a Debt Relief Order if:

  • You owe a maximum of £30,000
  • You are not a homeowner
  • Your personal assets total less than £2,000 (this does not include certain items like tools used for work and household items)
  • You do not have more than £75 left each month after paying living expenses
  • You have either lived, owned property or have worked in England or Wales within the last three years
  • You are not currently involved in any insolvency procedure (e.g. IVA, bankruptcy etc)
  • You have not previously had a DRO within the last six years

If you do not meet the Debt Relief Order criteria, you may need to consider other options like bankruptcy or an IVA instead.

A Debt Relief Order can be an effective way to clear your debts, but you should only consider this option if you know that your financial circumstances will not improve for a year or more. If they are likely to improve in this time, you will still be liable for the debts at the end of the DRO. 

You can find more information about Debt Relief Orders on the Citizen’s Advice Bureau website here.  

Eligibility Check

What debts does a Debt Relief Order cover?

Your DRO advisor will ask for details of all of your debts before you put your application in. You must include all eligible debts in your DRO as you cannot add them afterwards. If any missed debts would have taken you over the £30,000 threshold then your DRO could be cancelled. Debts covered by a DRO include:

  • Credit cards
  • Bank overdrafts
  • Loans
  • Arrears with rent or utility bills (your landlord can still take action to evict you, even if your rent arrears are included in your DRO, so you may need to continue paying them)
  • Tax underpayments
  • Benefits overpayments
  • Council tax arrears
  • Telephone/Broadband bills arrears
  • Business debts 
  • Hire purchase or conditional sale agreements
  • Buy now, pay later agreements
  • Bills for services 

What debts does a Debt Relief Order not cover?

Debt Relief Orders are a good option because they cover a large range of debts, including some that other debt management solutions do not. However, there are still certain debts that are not covered. The following debts don’t count towards the £30,000 limit:

  • Court debts e.g. fines
  • Child maintenance and support
  • Student loans
  • Death/injury compensation
  • Social fund debt

If you are struggling with these types of debts, you may need to consider alternative debt management solutions. 

    How do I apply for a Debt Relief Order?

    In order to apply for a DRO, you must use a DRO advisor who is an ‘approved intermediary.’ This will be an experienced debt advisor who has been given a licence to advise people about Debt Relief Orders and manage applications. You can find an approved intermediary through your local Citizens Advice Bureau branch and the government also publishes a list online. It is important that you check you are working with a legitimate DRO advisor.

    Before you start a Debt Relief Order application form, your DRO advisor will assess your financial situation and check that you are eligible. This includes an in-depth review of your income, expenditure, debt level and assets. It is important that you are completely transparent and you include all debts because any inaccuracies could lead to your DRO being cancelled. At this stage, your advisor will also discuss the different ways that your DRO could impact your credit rating, your career, and your lifestyle, in general. They will take this into account, along with the Debt Relief Order costs, when deciding if a DRO is right for you or not. 

    Even if you do qualify for a DRO, your advisor may discuss other options with you to ensure that it is definitely the right solution for you. If you meet the criteria and they believe that it is the best option for you, your DRO advisor can then submit your application to the Insolvency Service on your behalf.

    Before the application is considered, you need to pay the £90 fee. It can be paid in one go or in instalments, and there are charities that may be able to help with the payment if you cannot afford it. Bear in mind that the fee is non-refundable if the application is declined.

    Once the application is in and the fee is paid, the Official Receiver must make a decision. Usually, the entire process will take around two weeks to complete. If all of the information is correct and you are eligible, they will make the Debt Relief Order and your debt payments will cease. In some cases, they can defer the DRO if they require more information from you. But if you do not meet the requirements or you are found to have been dishonest on your application, the DRO will be denied. 

    In the event that it is denied, you will be given a written notice outlining the reasons. You have the option of challenging the decision through your DRO advisor. However, you will only be successful if the decision was genuinely unfair. 

    How long does a Debt Relief Order last?

    A Debt Relief Order is in place for 12 months. Once the DRO application has been approved, your debts will be put on hold immediately for 12 months and you won’t have to make any payments. During this period, known as the ‘moratorium,’ your creditors cannot chase you for the debt. However, they may continue to add interest and charges to the debt during this period. This will only impact you if the DRO is cancelled during the 12 months and you have to continue making payments.

    The DRO will last 12 months and if your financial situation has not improved, the debts will be written off. If your financial situation improves and you no longer meet the eligibility criteria for a DRO, it will be cancelled. You will then be liable for the debts and payments must start again, including any extra interest and charges added during the moratorium period. 

    If your income increases or you receive a lump sum of money from somewhere (e.g an inheritance) you must inform your DRO advisor. They will then reassess your situation and decide whether your DRO can continue or not.

    What impact does a Debt Relief Order have on my Credit Rating?

    Your credit score impacts your ability to borrow money and use contracted services in the future. Before applying for a DRO, it is important to consider the impact that it will have on your credit rating. The Debt Relief Order will be recorded on your credit file and it will remain there for six years from the date that your DRO was granted. 

    If you attempt to borrow money whilst your DRO shows on your credit file, lenders will be able to see that you had difficulties with debt in the past and entered a DRO to write them off. This signifies that you are a higher risk borrower and will affect your ability to get credit. 

    After the six year period, the DRO will be removed from your credit report which should make it easier to obtain credit if you need it.

    Although it is only for a period of six years, the impact that a DRO has on your credit report can make life difficult for you in the future and this should be taken into consideration when deciding if this is the right way to deal with your debts.

    Does a Debt Relief Order cause financial restrictions?

    The main purpose of a DRO is to help you improve your financial situation, and you are still expected to make debt payments a priority if you have surplus income available. As a result, there are certain financial restrictions in place designed to make sure you are being responsible with your budget. While a DRO is in place, you will not be able to:

    • Borrow more than £500 without telling the Lender you have a DRO
    • Be involved in the promotion, management of or setting up of a limited company without permission from the court
    • Act as a company director without permission of the court
    • Manage a business without communicating to your creditor that you’re currently in a DRO
    • Continue running a business under a different name from the one under which you were given the DRO, unless you tell everyone you do business with the name in which you got the DRO

    In most cases, disclosing your DRO (which is a legal requirement) will be a red flag for creditors and they will not deal with you. So, if you are a business owner, you must think carefully before applying for a DRO because it could create difficulties in continuing to run your business.

    These restrictions ordinarily last 12 months and once the DRO is finished, they are lifted. However, if the official receiver believes that you have been dishonest on your application, they can file a Debt Relief Restriction Undertaking or Order (DRRU or DRRO). If accepted by the courts, this can extend the restrictions for up to 15 years. That is why it is crucial that you are always completely honest about your finances when applying for a DRO.

    Should I get a Debt Relief Order?

    Before deciding whether to get a Debt Relief Order or not, you need to have all of the correct information. Make sure that you consider your financial situation and whether you are eligible or not. Look into different debt management options too because they may be more suitable for your situation. It is especially important to consider the long term impact on your credit score and your business, if you have one.

    Remember, if you apply for a DRO and it is not approved, the £90 application fee won’t be refunded. Any discrepancies in your application can also lead to serious consequences if it is decided that you were intentionally dishonest, and the restrictions can last up to 15 years. That’s why you need to be sure that you are eligible and you have all of the right information to put in your application before you get started.

    If you are confident that you satisfy all of the criteria and a DRO is the best way to manage your debts, you can contact an approved provider, like your local Citizen’s Advice Bureau or find an advisor yourself.

    At Swift Debt Help, we can carry out a review of your circumstances to assess whether a DRO, or any other financial solutions are suitable for you. Please call 0161 843 1516 for further assistance.

    The Advantages of a Debt Relief Order

    Affordable Costs

    The fee (£90) is affordable and can be paid by instalments but must be paid before the application can be made.

    All Debts Written Off

    A DRO last for 12 months, and once completed you are released from all your debts.*

    Confidence Of Good Advice

    The approved intermediary ensures that you are given appropriate advice and that you fit the criteria for a DRO.

    Creditor Protection

    Creditors included in the DRO cannot take further action against you without the Court’s permission.

    *You will remain liable to pay certain debts – in particular: Student loans, Fines, Debts arising from family proceedings, Budgeting loans and crisis loans owed to the Social Fund.

    The Disadvantages of a Debt Relief Order

    Not Private

    Being subject to a DRO is recorded in the Personal Insolvency Register.

    Not For Homeowners

    You won’t be able to have a DRO if you own a house, even if it has no equity in it.

    Employment Implications

    Those subject to a DRO may be excluded from certain professions and roles.

    Co-operation Required

    Your DRO could be cancelled if you don’t co­operate with the official receiver while the DRO is in force.

    Credit Rating Affected

    A DRO will affect your credit rating for up to 6 years.

    You Can’t Already Be Insolvent

    You may not be currently bankrupt, subject to bankruptcy restrictions, in an IVA or have had a DRO in the last 6 years.

    Debt Relief Restrictions Order (DRRO)

    You will be committing an offence if you get credit of £500 or more without disclosing that you are subject to a DRO.

    Business Implications

    You can’t act as a director of a company or be involved in its management unless the court agrees and a person subject to a DRO who runs a business must disclose the name in which a DRO was made to all those they deal with.

    Restrictions On Credit

    You will be committing an offence if you get credit of £500 or more without disclosing that you are subject to a DRO.

    Important: If during the DRO your circumstances change such that you no longer qualify; for example you can afford more than £75/month towards your debts; you’re legally obligated to inform the Official Receiver. The DRO will be terminated and you’ll be back where you started – remaining liable for the debts in full.

    Frequently Asked Questions

    • Can A Debt Relief Order Stop Bailiffs?

      Once the DRO is approved, your creditors cannot take any action against you. However, there are important exceptions, especially where bailiffs are concerned. If the debt has already been transferred to bailiffs and they have a controlled goods agreement in place, this allows them to take your belongings and sell them in order to pay off the debts. Having a DRO does not stop them from being able to do this. So, if you want to keep those belongings, you will still need to make payments to bailiffs.

    • Can A Debt Relief Order Be Refused?

      Yes, a Debt Relief Order can be refused for a number of reasons. Firstly, if you don’t meet the criteria for a DRO, it will be denied. If the Official Receiver believes that you have lied on your application, missed off certain debts, or been misleading about your financial situation in any way, they will refuse the DRO. If the situation is unclear, they may defer it and ask for more information. It is possible to challenge a refusal, but you are unlikely to win unless a genuine mistake has been made.

    • Can I Get A Debt Relief Order If I Work?

      Yes, you can get a DRO if you work, but your eligibility is tied to your disposable income. As long as you don’t have more than £75 left each month when you have paid your expenses, you should qualify. So, people with high paying jobs may not be able to get a DRO. 

    • Is An Iva The Same As A Debt Relief Order?

      No, an IVA and a DRO are two different debt management solutions. An IVA (individual voluntary arrangement) is an agreement between you and your creditors that you will pay back as much as you owe over a set period. An IVA will write off any debt still outstanding at the end of the agreement period. An IVA typically lasts up to five years and you will need to make all of the payments in that time or it could be extended. This differs from a DRO, which writes off debts after 12 months, as long as your finances haven’t improved. 

    • Can I Get A Mortgage After A Dro?

      Yes, you can get a mortgage after a DRO but it can be challenging. During the DRO, you can’t borrow more than £500, but once the moratorium period is over, you can apply for a mortgage. However, you will be subject to a credit check and your credit score will be damaged by having the DRO on your report. After six years has passed and it is removed, your chances of getting a good mortgage should improve, so it is best to wait. A rejected application could further harm your credit, so applying immediately after your DRO is not a good idea.

    • Can A County Court Judgement (Ccj) Be Included In A Dro?

      Yes, a DRO stops your lender from taking any action against you. That includes taking you to court and issuing a CCJ. If they have already issued a CCJ before you apply for a DRO, you are still protected. They will no longer be able to take action like sending bailiffs or applying to have a portion of your wages withheld.