Debt Relief Order (DRO)A debt relief order (DRO) is a debt solution for those who have very little when it comes to assets – so do not own their home or have valuables worth more than £1,000 and have less than £50 monthly disposable income. It acts as an alternative to bankruptcy for non-homeowners, offering effective debt relief.
What is debt relief?
Debt relief is when a solution is put in place – such as a debt relief order – that relieves the person who owes money of their obligations to repay it. Insolvency solutions, such as debt relief orders, IVAs (Individual Voluntary Arrangements) and bankruptcy are all examples of solutions that offer debt relief. Debt relief orders offer the same type of debt relief as an IVA or bankruptcy but are only suitable for people who have no assets to use towards repaying their debts.
Qualifying for a debt relief order
There are certain criteria that you must meet, to qualify for a debt relief order:
- You must be unable to make minimum repayments on your debts.
- You cannot be currently involved in an insolvency agreement, such as an IVA.
- You must be a resident of England, Wales or Northern Ireland.
- You must have a disposable monthly income of £50 or less.
- You must owe unsecured debts of £20,000 or less (this amount is £15,000 in Northern Ireland).
- You do not own assets worth more £1,000, excluding your car.
- If you do own a car, then it must be worth less than £1,000.
If you meet some, but not all of these criteria, contact our specialist advisors who will be able to advise you on alternative solutions.
Applying for a debt relief order
A debt relief order is a serious debt solution that is an alternative to bankruptcy, yet carries the same weight. It can impact your credit rating, making it difficult to obtain credit once the initial process is complete and could have implications on your employment if you work in the financial sector.
This solution can only be administered by an official approved company, such as PayPlan. For your protection, ensure the company you use is accredited and a member of the Financial Conduct Authority. They will file your application for you after receiving all the important information they need from yourself, allowing you to take the weight off your shoulders and to get back to living again.
A debt relief order takes 12 months to process – you can read more about this here – and at the end of this period you will be discharged, debt free.
When you enter a debt relief order, those first 12 months are referred to as the moratorium. This means certain restrictions are placed upon you, the same ones applied during the bankruptcy process. We have an in depth guide about bankruptcy offences and restrictions to read, here on the site.
What kind of debt can be included in a debt relief order?
It’s important to note what debts can be included in your debt relief order, these include:
- Late rental payments
- Utility bills
- Telephone and broadband
- Council tax
- Tax and national insurance underpayments
- Credit cards
- Personal loans
- Benefit overpayments
Does a debt relief order show up on your credit report?
Yes, a debt relief order will be listed on your credit report and will impact your score. However, a low credit score is something that can be recovered with patience and sensible borrowing at a later point when your finances are in order and debts are cleared.
A debt relief order will make obtaining credit difficult, even when the 12-month period is over as it will remain listed on your credit report for six years from the date it was created.
It’s best to keep a close eye on your credit rating – our guide on rebuilding this has lots of information about where to start and sign up for more information – to ensure you are clear where you stand and what you need to do about it.
Is a debt relief order right for you?
You should explore all other options before settling on a debt relief order. Here we take a look at the pros and cons of this debt solution:
Pros of a debt relief order
Cons of a debt relief order
Takes just 12 months to process and once you are discharged at the end of this you will be debt free.
You will have to abide by a set of restrictions and breaking these will have serious consequences. These can include a fine, an extension of the restrictions up to 15 years or even prison.
You will no longer have to deal with your creditors and they will no longer be able to pursue you, legally.
Your credit rating will be severely impacted and your ability to get credit will be affected for six years, from the date the debt relief order is created.
Your debts are written off after 12 months.
You may struggle to obtain a new rental agreement if your landlord or letting agency performs a credit check on you with a debt relief order in place.
You can keep your assets if they are worth less than £1,000, such as your vehicle.
You will be listed on a public register, which can be viewed by creditors.
If you are already in a rental agreement, it’s unlikely the debt relief order will affect this so you can continue living in your current home.
If you work in certain financial sectors, such as an insolvency practitioner or solicitor, you may not be able to continue working in these roles.
The fee is more affordable than bankruptcy – £90 compared to £680.
You will have to continue making repayments on certain debts, such as student loans and rental arrears.
If you are considering a debt relief order, then speak to a member of our expert team here at PayPlan – via phone on 0808 250 3822 or live chat – who can advise if it is the right choice for you and assist you when setting one of these solutions up.