Debt Relief Order

If you are an individual with a debt of £20,000 or less and you do not own your home and have little to no spare income (ie a disposable income of less than £50) you might opt for a “Debt Relief Order”. Also known as ‘DRO’, this is an agreement designed to help people who fall in the above category alleviate some or all of their debt. Here you will find more information on how it works.

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Understanding DRO’s

To begin with, for you to obtain a DRO you will need the help of a DRO advisor who is approved by the Insolvency Service who is responsible for issuing the Debt Relief Orders.

In short, if you manage to obtain a DRO that means that the payments for your debts will pause for a period of up to 12 months, helping you get reorganized and reconsider your situation. One of the most important aspects of a DRO is that it protects you from your creditors during this 12 month period and they cannot ask you to make a payment or take any legal actions against you.

To apply for a DRO you will have to pay a £90 set up fee. The positive part of it is that you do not have to pay this amount right from the beginning and as long as you pay the full sum up to the time you need your application to progress.

Finally, and probably most important is that your debts will be written off completely after 12 months if you manage to obtain and successfully complete a DRO.

Keep in mind that the Debt Relief Order is available only in England, Wales and Northern Ireland.

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Can I obtain a Debt Relief Order?

For you to obtain a Debt Relief Order there are certain criteria that need to be met:

  • 1

    Having a residency in one of the following: England, Wales or Northern Ireland

  • 2

    You cannot own or have a mortgage on your own home

  • 3

    Your unsecured debt must not be above £20,000 if you are in England, or Wales or above £15,000 if you live in Northern Ireland

  • 4

    Your financial situation must be such that you are unable to pay your debts

  • 5

    You cannot obtain a Debt Relief Order if you have a current insolvency agreement (such as an IVA)

  • 6

    Your monthly disposable income must be less than or equal to £50

  • 7

    Assets you own (including a car) must worth less than £1,000

Keep in mind that to obtain a Debt Relief Order you must meet all the above criteria. However, even if you do not meet all of them you might still be able to write off a large amount of your debt through some other insolvency solution. You should seek proper advice.

Moreover, the above criteria should be met throughout the 12 month period during which your Debt Relief Order is active. This is important to note as if your financial situation changes for the better the Insolvency Service can revoke the DRO which means that you will have to make a payment again including added interest for the delay.

What will you have to pay?

As already mentioned, the debt relief order application process will cost you £90 to set up. You will pay this amount to the Insolvency Service.

The Insolvency Service is a governmental agency that is set up specifically to help people who are facing financial difficulties alleviate their debt as well as helping the creditors get back their money.

You will be able to pay the £90 fee in smaller instalments but you should know that your application will not be processed until you have made the full payment.

The best way to deal with this process is to ask for the help of a debt advisor who will explain to you in detail how to make the payments.

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Can all debts be a subject of the Debt Relief Order?

Most unsecured debts will be included in the DRO. For example:

  • Personal loans
  • Credit card debt
  • Overdrafts
  • Bank/building society loans
  • Payday loans
  • Store cards/credit
  • Money borrowed from friends/family

Unfortunately, not all unsecured debts can be subject to the Debt Relief Order. For example:

  • Student Loans
  • Criminal Fines – i.e. court or confiscation fines
  • Social Fund Loans
  • Child maintenance/support
  • Compensation for a death/injury

Keep in mind that this is not an extensive list. Seek advice if you're in any doubt about your situation.

How can a Debt Relief Order affect you in the future?

If you manage to obtain a Debt Relief Order it means that for the next 6 years this will reflect on your credit history and your rating. This means that any future creditors will know that you have a low ability to repay any debts. Future credit as well as contract-based products (for example insurance or mobile phone contracts) might be hard to obtain until this 6-year period finishes. As for a mortgage, it is impossible to obtain one during the period the Debt Relief Order is active.

Some more financial restrictions apply to those with a Debt Relief Order:

  • You cannot to borrow more than £500 without telling the lender you are in a DRO

  • You cannot form a limited company or act as a company director without the court’s consent

  • You cannot carry on a business under a different name without revealing your previous business was subject to a DRO

How to obtain a Debt Relief Order

To apply for a DRO you will need the help of a DRO advisor and get in touch with the Insolvency Service who is responsible for issuing the Debt Relief Orders. If you are considering a DRO you can contact an approved advisor who will give you all the help you need to consider your specific financial situation.

As soon as your application is delivered to the Insolvency Service it will take up to 10 working days for them to process your file and make a decision. However, putting together a file with all the documents needed with the help of your advisor might take a little bit longer. If your situation is urgent and you need a DRO as soon as possible you need to start the process immediately.

How to find the DRO application Form

A debt relief order application process is quite long and complicated and a specialised advisor is needed to make the process smooth as well as increase the chances for your application to get approved. You need to find an organization approved by the Insolvency Service to help you process your application.

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"Become Debt Free" is a trading name of Re10 (Finance) Ltd (company number 4651137) with offices based in Leeds and London. We specialise in providing and administering Individual Voluntary Arrangement (“IVA”) solutions to individuals based in England, Wales and Northern Ireland. We do not administer Debt Management Plans, Debt Relief Orders, or any other debt solutions.  We only provide advice after completing or receiving an initial fact find where the individual(s) concerned meets the criteria for an IVA, therefore, all advice is given in reasonable contemplation of an insolvency appointment. Re10 is regulated by the Insolvency Practitioners Association.

To qualify for debt write off in an IVA with us, you must have a minimum of £7,000 of qualifying unsecured debt owed to two or more creditors. A debt write off amount of between 25% and 75% is realistic, however the debt write off amount for each customer differs depending upon their individual financial circumstances and is subject to the approval of their creditors.

Andrew Bowers FIPA FABRP is authorised by the Insolvency Practitioners
Association to act as a Licensed Insolvency Practitioner.

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