It is important to make sure you fully understand what a Debt Relief Order (DRO) is and what impact it will have. It is, therefore, essential you seek debt advice before committing yourself to it. There are a number of criteria to meet. A debt advisor can advise you on to allow you to make sure it is the right solution for you. A free debt management company will be able to assist you in applying for a Debt Relief Order.
If you are married or have a partner, you might want to read our article on how a DRO affects your partner.
What is a Debt Relief Order (DRO)?
A DRO can be suitable if someone has debts under £15,000. They must not own an asset worth more than £300 and have no vehicle worth over £1,000. After looking at the income and daily living costs, it should be clear that there is less than £50 a month left over to pay for debts. That is a very simple explanation and there are lots of other areas that may need considering. You can find more information on our Debt Relief Orders page.
What are assets in a DRO?
Assets are anything an Official Receiver (OR) will deem as value. For a DRO these cannot amount to more than £300 or £1000 for a car, if you have more than this, it would not necessarily mean they would take them from you, just that you would not be eligible to apply. You will be advised about all these details by a debt advisor or the Authorized Intermediary submitting your DRO.
Who is liable for the debts under a DRO?
Any creditor or debt that was part of the order will not be able to ask you for any money during the DRO or after its completion. If there are any debts in your DRO that are joint debts then it may be that in the future the other party are the only person who can be asked to pay the remainder of the debt.
In the case, you can pay the debt, or come to an arrangement to pay the debt, then the bailiff will have no need to call and attempt to seize goods. If this is going to be difficult to do then it would be worth contacting a free debt advice charity to see how best to deal with this, and any other debts that you may have.
Please note, if you move to a new property after your DRO has been approved, then you will be liable for the council tax at the new property. As your DRO would only have covered this year’s council tax at your current address. You should contact your local benefits office to see if you are eligible for any council tax benefit.
Can I apply for a DRO if my income is negative or less than zero?
One of the requirements of the DRO is that you have less than £50 a month left over after paying for all essential living costs. So on a basic overview of the law, it would appear that it is possible to do. However, there may be some practical issues that mean you may have to wait until your income can cover your living costs.
If you enter into a DRO and the money you have coming in is less than your essential outgoings then you could be creating new, increasing levels of debt with each month that passes. It would be a good idea to go through all of the information in detail with a qualified adviser to make sure that everything has been considered. If a DRO is not possible at this time it is usually a good idea to communicate with your situation with the people you owe money to.
I’m applying for a DRO will they know about my savings account?
As part of the process of applying for a DRO, you will be asked about any assets you have. This could include money in savings. If these savings are less than £300 then it may not cause any issues. As long as the application is submitted to the Official Receiver (OR) by the Approved Intermediary.
The Guidance notes for the Approved Intermediaries says: It is imperative that the debtor is made aware that the information they provide for this section of the application is both accurate and true. If a debtor fails to provide an honest account of their affairs, and this failure in disclosure is later determined by the OR to be a deliberate undervaluing or a deliberately inappropriate description of their assets when a description is required, the OR may revoke the DRO. The debtor may also face criminal and civil sanctions in respect of the incorrect information being provided.
So if you have savings and fail to disclose them it could lead to serious consequences. Your DRO could be revoked. If the OR considered the omission sufficiently serious you could be subject to criminal and/or civil sanctions. You would really need to speak to an OR. And ask them how they conduct their investigations after they have received the application.
Please note, reasonable savings for a special event (like Christmas) are not likely to do anything to jeopardise your DRO. Particularly if they are built up from the income you had when you went into your DRO. If your circumstances change, then you need to inform the OR of this. An example may include acquiring new sources of income. However, if your savings are from the income you had when your DRO was awarded. Then this should not be a problem.
I’m applying for a DRO, can they check my past transactions?
There are usually audit trails for all sales, transactions, movements of cash or assets. These things can be checked if necessary. As part of applying for a DRO, you will provide information to the approved intermediary. Here you will declare any previous assets sold or transferred to others. If your application is rejected by the OR because of previous transactions then you may need to choose an arrangement to pay instead. If you go through in greater detail with your approved intermediary. They should be able to give you further guidance.
Can I apply for a DRO, if I’m on an IVA?
The first thing to do is to speak to your Insolvency Practitioner (IP) who is supervising your Individual Voluntary Arrangement (IVA), it will not be possible to submit an application for a DRO whilst this is still in place. Your IP will be able to discuss your options. They can communicate with your creditors and identify if the IVA can continue. Perhaps with a lower or frozen payment for a short while, until you are back in work. It may be that the IVA is not recoverable and ultimately fails.
A DRO can only take place if all of the criteria are met and you can check these with your Insolvency Practitioner. If your debts are less than £15,000 and you don’t own a property, or another asset, worth over £300 or a vehicle worth more than £1,000 and after assessing your income and expenditure the amount of money left over is less than £50 then you may be able to apply.
However, there are lots of other considerations before allowing your IVA to fail and if you contact your IP they will be able to discuss in detail specific to our circumstances. If your IVA fails then contact a free advice charity as soon as possible to check the options available to you.
Can I apply for a DRO while on working tax credits?
When applying for a DRO, the budget needs to be an accurate reflection of your financial circumstances. Tax credits are claimed jointly, so you are jointly entitled to the money. However, your approved intermediary (the person that will process your DRO for you) will be able to give you further guidance on this matter.
You should also be able to apply for working tax credits if you start to work again, provided you meet the eligibility criteria. Your DRO will have written off any previous overpayment of tax credits that you owed to the HMRC at the time you went through your DRO.
Do I use the same UTR while on a DRO?
If you’re submitting a Self Assessment tax return, you will have a Unique Taxpayer Reference (UTR) number. You will have to contact HMRC if you have any tax reference questions.
Can I apply for a DRO overseas?
In order to be able to do a DRO (or any other form of insolvency) in the UK, you are ordinarily required to be resident in the UK for 6 months prior to going insolvent. Please note that DRO’s are only available in England, Wales and Northern Ireland.
As far as the application process is concerned, you should make the approved intermediary aware of your personal circumstances to ensure that you are eligible for a DRO. Regarding credit scores, your partner’s credit score should only be affected if you borrow jointly or if you have bills together etc.
What happens if my circumstances change?
If you have a change of circumstances during your DRO then you are required to inform of the changes, it may be that you have a higher income than before and it may be that you now have more than £50 a month left over each month. It could be that although you now have income from earnings you may also have higher costs and lost some benefits and still fit the criteria for the DRO. Even if you move addresses, you must notify the unit of any changes.
There are many places that information can be sourced and you will be required to provide proof to the DRO Unit if you do not provide the information then you may find that you face restrictions after the DRO has ended. Income can easily be verified by bank statements, benefits awards, tax details so the only advice that anyone could give you is to notify of changes as you are required.
Failure to do so could result in you committing a criminal offence and your DRO being revoked.
You may also want to read this article on the differences between a DRO and bankruptcy.