A debt relief order (DRO) is one of the debt management options available to you if you are under a debt of £20,000 or less, your disposable income is low, and you do not own your house. DRO may also be a viable option for people with minimal assets and outstanding debt.
As with most debt solutions, applying for a DRO has certain merits and drawbacks. Whether or not a DRO is suitable for you depends on your subjective circumstances and financial conditions.
Before you settle for a debt relief order, we advise that you consult a professional money or debt advisor. Money Advisor debt experts will hear you out, provide you with valuable feedback and help you decide whether a DRO would suit your individual requirements.
Before that, lets understand what a debt relief order is and what it can do for you
What is a Debt Relief Order?
A debt relief order is a form of insolvency for people who do not have much in the way of a disposable income and have been unable to pay off relatively low-level debts (up to £20,000). After a DRO is approved and completed, all your debts are written off.
If your DRO is approved and binding, your debt repayments and total accumulated interest would freeze for a duration of 12 months. If your financial circumstances have not improved after a year has elapsed, all your included debts would be written off.
DROs are only available if you are residing in England, Wales or Northern Ireland. If you are a resident of Scotland, you may want to look up other debt solutions available to you.
How Does a Debt Relief Order Work?
Debt relief orders are a viable option if you are sustaining yourself on a low income and you own minimal assets.
Once a debt relief order is agreed on, all your debt, interest payments and additional charges will freeze for at least a year. Simply put, you will not be required to repay your lenders. This would provide you with a measure of relief and keep your debt from accumulating.
After 12 months, if your situation has not improved and you are still not able to repay your debts, all included unsecured credit will we written off. However, a DRO is recorded on your credit report for 6 years.
During the 12 months, if your situation has improved enough that you can make contributions towards your creditors, the Official Receiver could stop or revoke your DRO. If you do not tell the Official Receiver of changes to your circumstances, this is an offence which could lead to a restriction order being made against you which could be in place for up to 15 years.
Remember, your lenders are more likely to agree to a DRO arrangement if they are convinced that you will never be able to pay your outstanding debts. A DRO can be negotiated only through a qualified debt advisor. This professional serves as an ‘approved intermediary’ in the exchange. You can get in contact with an approved intermediary through Money Advisor.
Standard charges for DRO application are £90. You can choose to pay it in lump sum or space the payments out by chopping them into installations, to be paid over a span of six months. Your DRO application will only be processed once the full fee is received.
Advantages of a Debt Relief Order
Entering a debt relief order has numerous benefits, some of which include:
- Affordable solution, the application fee is £90 and that too you can pay in installments.
- DRO will protect you from enforcement/legal actions by your creditors
- With an approved DRO, you won’t have to go to the courts anymore
- If you meet a certain criterion, you won’t have to sell your car
- At the end of the DRO, all of your debts will be covered
Disadvantages of Debt Relief Order
Here are a few downsides of a debt relief order that you must know about:
- If you own a house, you are ineligible, even if the house is in negative equity
- DRO can have restrictions on your income, job and assets
- You’ll still have your name published on a public register
Debts that a DRO Covers
The qualifying debts that a debt relief order covers include:
- Credit Cards
- Arrears with Council Tax, Income Tax, National Insurance Contributions
- Arrears with Rents, phone bills, utility
- In-store credit agreements
- Benefit overpayments
Debts that a DRO Does Not Cover
A debt relief order cannot help you wipe off the following debts:
- Educational Loans
- Magistrate’s court fines
- Confiscation orders
- Social Fund loans
Is a Debt Relief Order Suitable for Me?
Debt relief orders were specifically designed for low-income individuals who default on small debts. Debt relief orders are typically less expensive compared to insolvency solutions such as bankruptcy. You are eligible to apply for a DRO if:
- You reside in England, Wales or Northern Ireland
- Your debt is less than £20,000
- The value of your total assets is less than £1000
- Your disposable income (income after deducting living costs, expenditure and household bills) is less than £50 per month
You can check whether you are eligible for a DRO and whether it is the best insolvency option for you by speaking to a professional debt advisor.
How to Get a Debt Relief Order
If you think you are eligible for a DRO and it may work out for you, follow the steps given here:
Step 1: Talk to a debt expert and confirm whether you are eligible for a DRO. You can get in touch with our expert debt advisors by calling us on 0800-056-6820.
Step 2: If a debt relief order fulfils your requirements, complete the application form
Step 3: Pay the one-time fee of £90 for the application to be processed by the Insolvency Service.
Step 4: Wait for correspondence from an Official Receiver. They will inform you whether the application got approved.
Get Debt Solutions from Experts
Money Advisor is committed to providing the best possible service to all those who need help with their finances. If you are struggling to make ends meet or perhaps have experienced a change in circumstances that have affected your ability to manage your finances, please contact us as soon as possible, we will complete a thorough, impartial examination of your individual situation and put you on the road to financial recovery.