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.
Can I obtain a Debt Relief Order?
For you to obtain a Debt Relief Order there are certain criteria that need to be met:
Having a residency in one of the following: England, Wales or Northern Ireland
You cannot own or have a mortgage on your own home
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
Your financial situation must be such that you are unable to pay your debts
You cannot obtain a Debt Relief Order if you have a current insolvency agreement (such as an IVA)
Your monthly disposable income must be less than or equal to £50
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.
Can all debts be a subject of the Debt Relief Order?
Most unsecured debts will be included in the DRO. For example:
Credit card debt
Bank/building society loans
Money borrowed from friends/family
Unfortunately, not all unsecured debts can be subject to the Debt Relief Order. For example:
Criminal Fines – i.e. court or confiscation fines
Social Fund Loans
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.