An Expert Opinion… Debt Relief Order with Diane Watson
Written by PayPlan on 5 April 2019
Hi Diane, can you briefly explain what it is you and the DRO team do here at PayPlan?
My role is the Competent Authority Liaison, which means I’m the link between PayPlan and the Insolvency Service. I am also an Approved Intermediary. Our experienced Debt Advisers will speak to clients and assess whether a DRO is right for them. From that point the client then needs an Approved Intermediary to put together the Debt Relief Order and submit it on their behalf. The Approved Intermediaries are the DRO team.
Once assessors have passed a client over to the team, what is the next step?
The DRO team will gather all the information from the client and retrieve their credit report for them if needs be. DRO’s follow very strict criteria, so we’ll make sure we evidence everything and double check it all and ensure that the client meets the required criteria. We’ll then send the paperwork to the client so they can cross-check it and make sure they’re happy. After this, the client will simply pay a fee of £90, the Approved Intermediary will submit it to the Insolvency Service and the Debt Relief Order should be approved.
Roughly how long does this process take?
From the point of choosing a Debt Relief Order to actual submission, the process could take as little as 4 weeks. It could be longer depending on any aspects of the DRO that are outstanding; a lot of how long it takes depends on the pace of the individual.
What would you say are the main advantages of a DRO?
Before DROs were introduced there were thousands of people who were insolvent, but struggled to use bankruptcy because it is more expensive. DROs have made debt relief available to many more people. The individual can be debt free extremely quickly. A DRO is designed so that once it’s been approved, any of your debts are immediately suspended for 12 months, after which you can walk away and get a fresh start.
Another benefit of a DRO is that in the interim period – known as the moratorium period – creditors cannot pursue you for the debt. They are forbidden to do so by the Insolvency Service, giving you the peace of mind you need when dealing with debt
Are there any disadvantages to a DRO?
Although creditors cannot chase you for payments, they can still add interest and charges to the account during the moratorium. They have no right to demand this additional money unless the DRO is cancelled. In this case the borrower would owe the original debt plus any interest & charges which have been added. What’s more, whilst a DRO might seem an obvious option for many people, its terms are very strict. For example, the rules mean that the DRO won’t always protect a person from the threat of eviction, and if you have a car worth over £1000; this would make the person in question ineligible for a DRO.
Who is eligible for a DRO?
To be eligible for a DRO, your debt level has to be below £20,000. Your surplus, which is money left over once you’ve paid your household bills and any other expenses, has to be less than £50 a month. You can’t have any assets valued at over £1000, and items on hire purchase (HP) such as a car will have to be included in the DRO unless a third party is willing to take over the HP agreement and make the payments. Basic essential items on HP, such as a sofa, a bed or a cooker for example may be allowed in the budget, but this will depend on payments being made and how much those payments are.
DROs are often compared to bankruptcy; why is this, are they similar?
We often hear it described as the ‘cheap version of bankruptcy’ because it has all the same restrictions of bankruptcy. It’s still public knowledge; you’ll be placed on the Insolvency Register as you would if you were bankrupt. The upside of a DRO compared to bankruptcy is that the start-up fee only costs you £90, whereas full bankruptcy will cost £680. This makes it much more accessible for those on a lower income.
You mentioned the £90 fee; would the individual have to make any additional monthly payments?
No not at all. Where in bankruptcy you may be required to pay your surplus income for anything up to 3 years, in a DRO once your £90 fee is paid you won’t have to pay anything. If you have any surplus it’s yours to keep.
Will a DRO affect an individual’s credit rating?
A DRO will stay on your credit file for 6 years from the point of approval. Upon approval you will be added to the IR (Insolvency Register), although upon completion of your DRO you will be removed.
Has there been an increase or decrease in the number of people being recommended for a DRO over the past 10 years?
More and more people are starting to enter DROs since its inception in 2009 – many people who use a DRO were trapped with debts and unable to access debt solutions before. The Insolvency Service has increased the debt limit from £15,000 to £20,000 and this has captured a lot more clients.
Have you noticed any trends in the types of circumstances individuals are in when a DRO has been recommended?
Although a DRO has very strict criteria, it’s aimed at those who don’t have a great deal – possibly having been out of work for some considerable time, maybe on long term benefits. Usually applicants don’t have much in the way of assets. They don’t own a property and are generally either renting or living with family.
How would someone apply for a DRO with PayPlan?
People can get in touch with us through a variety of different channels, via phone, text, our website or email. When someone contacts PayPlan they will be put through to our trained team of assessors. If the Helpline team then recommend a Debt Relief Order as the right solution for the client, and the client wants to proceed with one, PayPlan will send them a Debt Relief Order application pack. Once the individual has input all the information onto the form, the DRO team can start the process.
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