Can’t decide between a debt relief order (DRO) and bankruptcy? This article explains the difference between a DRO and declaring yourself bankrupt.
What is a Debt Relief Order (DRO)?
The Debt Relief order is a new procedure for people with debts under £15,000, no disposable income and few assets.
You can not apply for a DRO if you:
- Can afford to pay more than about £50 per month towards your debts
- Are a homeowner
- Have assets of over £300
- Own a car worth over £1000
- Plus other considerations
For more information, please refer to the DRO leaflet from the insolvency service.
Difference between Debt Relief Order and bankruptcy
DRO’s are generally simpler and cheaper and don’t require you to go to court. In bankruptcy, you might be expected to make payments towards your debts (the Income Payments Order for 3 years). If you have disposable income you would not qualify for the DRO and bankruptcy may be a better option. The section below highlights the difference between a DRO and bankruptcy:
- Lasts for 12 months
- Your debts and repayments are frozen
- You remain control of your assets
- Costs £90
- Lasts for 12 months
- Your assets can be sold to pay off your debts
- You lose control of your assets
- Your debts are written off
- Costs £680
Please note, only certain organisations can provide DROs, the CAB being the main one.
What are the benefits of a debt relief order?
There are many reasons why someone would get a DRO. Some of the benefits of a DRO are:
- It will freeze your debts for a year (a “moratorium”) and your creditors will not be allowed to pursue you. If you are still unable to pay your debts they will be written off.
- It isn’t advertised in the newspaper – although it is on the internet.
- You don’t have to go to court.
- It only costs £90 (compared to £680 for bankruptcy)
How long does a debt relief order take to process?
A DRO normally takes 12 months to process. During this time your creditors are not allowed to pursue you for any debts.
What if my circumstances change during a DRO?
if your circumstances change within the year the order will be revoked and you can resume payments to your creditors.
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