Debt Relief Orders

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Debt Relief Orders

A Debt Relief Order (DRO) offers debt relief to individuals struggling with unaffordable debts and few assets. It’s a legal arrangement overseen by the Insolvency Service, designed for those with debts less than £30,000, no assets, and residing in England, Wales, or Northern Ireland.

If you’re struggling with unaffordable debts in the UK and have few assets to your name, a Debt Relief Order (DRO) may be an option for you.

A DRO is a legal arrangement that gives you the breathing space you need to manage your debts and regain control of your finances.

In this article, we’ll cover everything you need to know about DROs, including eligibility requirements, the application process, and using a debt solution like a DRO can affect your credit rating.

What is a Debt Relief Order (DRO)?

A Debt Relief Order (DRO), is a debt solution designed for those who are struggling with debt and don’t have enough income to pay them back.

It is designed for those who have no assets and owe less than £30,000 as a way to have the balances written off.

Available only to those living in England, Wales and Northern Ireland, this solution is overseen by the Insolvency Service.

A DRO freezes all the debts included for a year to allow you time to improve your situation. If nothing has changed after one year, your debts will be written off.

To enter a DRO, you have to apply through a licensed money advisor and pay a one-off flat fee of £90. You can pay this in instalments if you need to, but it’s best to try and pay it upfront

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Qualifying debts that can be included in a DRO

You can include most unsecured debts when entering into a DRO, including:

  • Utility bills
  • Rent arrears
  • Council tax and income tax arrears
  • Credit cards
  • Overdrafts
  • Store cards
  • Loans

Excluded debts

Unfortunately, however, you cannot put all debts into a DRO, there are some that are exempt, including:

  • Court fines
  • Student loans
  • Any child support/maintenance
  • Confiscation orders
  • Social fund loans

You will need to continue to budget for these and they would not be counted in your overall debt level.

If you have missed any debts when setting up your arrangement, you cannot add these to your approved DRO, and if they put your debt level over the £20k threshold, then your order may be revoked.

What are the restrictions of Debt Relief Orders?

Once your DRO has been granted, you will be given a strict set of restrictions that you will need to stick to whilst it’s in place.

You won’t be able to borrow more than £500 without telling the lender that you are in a DRO.

Although you may find this difficult whilst the order is in place anyway due to it being noted on your credit file.

If you are looking to set up, manage, direct or promote a limited company, you will not be able to do this without first getting permission from the court.

For those of you who own businesses under a different name from the one you got your order with, it is compulsory that you tell everyone you do business with that you have a DRO and the name of the company you used to get it.

DRO advantages and disadvantages

Deciding how to deal with your debts isn’t an easy decision. As such, it’s important to weigh up the advantages and disadvantages so that this process is easier.

We’ve laid these out for you below to help:

Advantages of a Debt Relief Orders

  • Your debt is written off if your financial situation doesn’t improve in one year.
  • DROs are a low-cost solution, with a one-time £90 fee.
  • No creditor contact or legal action by lenders during the DRO period.
  • DROs restrict borrowing, protecting you from further debt.
  • DROs take care of most unsecured debts, though not court fines and student loans.

Disadvantages of a Debt Relief Orders

  • Strict criteria for qualification may limit eligibility for a DRO.
  • Your credit rating will be affected negatively for six years.
  • DROs are recorded on a public register that can be seen by lenders.
  • Potential job impact, depending on the industry you operate in.
  • Not all debts can be included in a DRO, leaving some obligations intact.

The DRO process

The DRO process is one that can become complicated if not done right. As such we’re giving you a step by step guide through the journey that is a DRO to help you:

Talk to an authorised debt adviser

You cannot apply for a DRO without going through a licensed adviser, so your first step is to pick one.

Once you have contacted them, they will go through your situation and make sure that you both qualify for the solution and that it’s the right one for you.

Everything will be taken into account at this stage, including all your income, your expenses, your work and what effect it would have on your life.

Apply to the official receiver

If you then decide to continue with the DRO, the adviser will work with you to complete the application forms.

You will need to fill in all details of your circumstances, your debts and any assets that you may have.

This will then be sent to an Official Receiver, who will then decide whether or not to grant you the order.

You will also need to pay the £90 fee at this stage as your application cannot be processed until this has been done.

Pay the fee

You can pay the £90 fee in one go or in instalments, but this must be paid in full before your application can be processed.

It can be paid at your local post office or Payzone. This is non-refundable and you won’t get this back if your application is rejected, so it’s important to make sure this is the right solution for you before applying.

Wait for the official receiver’s decision

Once you have completed the above steps, the Official Receiver will decide to either grant you the DRO or to reject it.

This will be based on whether you have filled in the application correctly and if you have given enough information.

If they need to find out more information, your application may be deferred. In these cases, it’s important that you work with them to answer their questions as if it’s found that you have given incorrect or false information your DRO restrictions could be extended to up to 15 years and you could even be taken to court.

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What happens when my DRO is approved?

If the Official receiver approves your application, you will be sent confirmation of this in the post.

They will also then contact all of the lenders included to inform them that the order has been granted.

In some instances, some of your lenders may object to the DRO. However, this will only be upheld if this is on reasonable grounds.

Once it has been granted, you won’t need to make any more payments to the debts included for the 12-month DRO period.

These lenders can then no longer ask you for any further payment or take any action against you during this time.

If your application is rejected, you will be contacted in writing to make you aware of the decision and given the reasons why. You can appeal this if you think the decision is unjust.

Debt relief restrictions order

A Debt Relief Restrictions Order (DRRO) is a legal order that may be issued to individuals who have obtained a Debt Relief Order (DRO) in the UK.

A DRRO can be imposed if the official receiver believes that you have made your debt situation worse before applying for a DRO or if you have provided dishonest information during your DRO application.

The order can last for up to 15 years and can place restrictions on your financial activities, such as borrowing money or acting as a company director, during that period.

It is important to be honest and transparent throughout the DRO application process to avoid the risk of a debt relief restrictions order being issued against you.

Will a DRO affect my credit rating?

Yes, obtaining a Debt Relief Order can affect your credit rating in the UK. Once a DRO is issued, it will be recorded on your credit report and stay there for six years.

During this period, details of the DRO will be visible to credit reference agencies and other lenders, which can make it difficult for you to obtain credit as lenders may view you as a higher risk borrower.

It’s worth noting that DROs are designed to help individuals who are struggling with unaffordable debts, and obtaining a DRO can actually help you improve your credit record in the long run.

By eliminating your unsecured debts and allowing you to make affordable payments towards your priority debts, a DRO can help you get back on track financially.

Can I keep my car if I’m in a DRO?

Whether or not you can keep your car while in a Debt Relief Order (DRO) in the UK depends on the value of the vehicle and how it was purchased.

If your car is worth less than £2,000 and you do not have any other assets that would exceed the DRO threshold of £2,000, you should be able to keep your car.

Additionally, if your car has been adapted to support a disability, it will not be counted as an asset regardless of its value.

If your car is worth more than £2,000, it may need to be sold to pay off some of your debts. However, if your car was purchased on hire purchase or conditional sale agreements, it will not be considered an asset as long as you are not in arrears with the payments.

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Key Takeaways

DROs help those with low incomes deal with unmanageable debts under £30,000.

There are strict criteria for eligibility; you must live in the UK and own no assets of value.

Your credit rating will be impacted for six years upon obtaining a DRO.

Certain debts, like student loans and court fines, can’t be included in a DRO.

DROs can provide relief, but careful consideration and debt advice are essential.