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Debt Relief Order (DRO)

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A Debt Relief Order (DRO) is an agreement designed to help people with little to no spare income, who don’t own their home, and have debt of £30,000 or less, pay it back over time.

What is a Debt Relief Order (DRO)?

Set up through a DRO adviser and the Insolvency Service, a Debt Relief Order allows payments to be paused on the debts you owe for a period of 12 months. Once you’re in a DRO, your creditors can’t force you to make any payments, and they can no longer pursue you for the debts.

To apply for a DRO you’ll have to speak to a DRO adviser, who will make an application to the official receiver on your behalf. There is a £90 set-up fee to apply for a DRO. This doesn’t have to be paid in one lump sum and your application won’t progress until it has been paid in full.

Debt Relief Orders are only available in England, Wales, and Northern Ireland.  Scottish residents may be able to apply for a similar solution, called a Minimal Asset Process (MAP).

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What does a Debt Relief Order do?

A Debt Relief Order essentially pauses your debts for 12 months. If you successfully apply for a DRO, your debts, as well as interest and charges, will be frozen for a year. For that period of time, you will not need to pay towards your debts.

The idea behind DROs is to give people freedom from the restrictions of debt for an extended period of time in the hope that their financial situation improves. If, at the end of that period, your debts remain and your situation hasn’t improved, those debts will then be written off.

How much does a Debt Relief Order cost?

A DRO costs £90 to set up. This amount is paid directly to the Insolvency Service – a government department that’s set up to help people facing problem debt and supporting creditors to receive what is owed to them.

The £90 payment doesn’t have to be made all at once – but your application won’t be progressed until it’s paid in full.

The debt adviser you work with will explain to you how this payment works, including when and how it should be made.

Who is eligible for a Debt Relief Order?

To qualify for a DRO you must adhere to a set of strict criteria. You should meet the criteria to qualify for a DRO if you:

  • Live in England or Wales (that means you must have lived, owned a property, or worked in England or Wales in the last three years)
  • You have debts totaling less than £30,000
  • You are unable to pay those debts
  • Your disposable income each month (the money you have left after outgoings like household expenses) is no more than £75
  • You don’t own your home
  • You own a car worth less than £2,000
  • Your other assets (things you own of value) are worth no more than £2,000.
  • You haven’t had a DRO in the last six years.
  • You aren’t involved in another form of insolvency procedure (like an Individual Voluntary Arrangement or bankruptcy) at the time of your application

What debts are covered by a Debt Relief Order?

  • Personal loans
  • Credit cards
  • Rent arrears
  • Overdue utility bills
  • Tax and National Insurance underpayments
  • Overdrafts
  • Benefits overpayments
  • Telephone and broadband bills
  • Council tax
  • What debts are not covered by a Debt Relief Order?
  • Criminal fines – e.g. court or confiscation fines
  • Student loans
  • Social fund loans
  • Compensation for a death/injury
  • Child maintenance/support

If you have a debt that’s not listed here and you’d like to know if it can be included, speak to one of our advisers.

Will a Debt Relief Order impact my credit score?

It’s important to understand that a DRO will have a negative impact on your credit rating and, as with most financial matters, it will remain on your credit report for six years from the date the agreement begins.

Your credit rating reflects your ability or willingness to repay money that you owe, and can affect you obtaining further credit and contract-based products such as mobile phones or insurance.

While a DRO will impact your credit score, it will have a significantly less negative impact than having numerous ongoing arrears and having action taken against you. Your credit rating will also begin to improve once you have your debts back under control.

A DRO also comes with financial restrictions. While it’s in place, you won’t be able to:

  • Borrow more than £500, open a bank account, or manage a business without notifying the lender of your DRO.
  • Produce, manage, or endorse a company without the court’s consent.
  • Be a director of a company.
  • If you’re not sure about what you can and cannot do while in a DRO, it is always best to contact your DRO adviser.

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How do I set up a Debt Relief Order?

You can’t set up a Debt Relief Order by yourself. An application for a DRO is a detailed process that must be done through a DRO adviser or an organisation approved by the Insolvency Service, like Citizen’s Advice, the Money Advice Service, or a debt charity.

As a first step to setting up a DRO, you must approach a DRO adviser. The DRO adviser will then make an application to the official receiver, a government official and officer of the court whose job it is to administer the initial stages of your Debt Relief Order.

The official receiver will investigate your finances and ultimately decide whether to grant you a DRO.

If your application is successful, the official receiver will tell your creditors and manage your agreement going forward.

It’s important to be honest in your application – if the official receiver feels you have acted dishonestly, they can ask the court to make a debt relief restrictions order (DRRO) against you.

At Creditfix, our team of experienced advisors know what the Insolvency Service looks for in a person’s financial situation – so we’ll be able to help you find the solution that’s exactly right for you.

How long do Debt Relief Orders take to process?

The official part of the DRO process – awaiting confirmation from the Insolvency Service – takes up to ten working days. This is the time they need to look over your application and decide whether or not you qualify.

The overall process will take a little longer. We’ll need to discuss your situation and request certain personal information i.e. the names of the companies you owe money to, details of those debts, and information about your income, benefits, and cost of living.

The quicker you come through with this information, the shorter the DRO process will be.

How long does a Debt Relief Order last?

A DRO typically lasts 12 months. Assuming your financial situation doesn’t improve during those 12 months, the debt that’s listed on the DRO will be written off.

However, if your financial situation changes – even if it’s just enough to lift you over the eligibility criteria listed above – your Debt Relief Order is likely to be revoked, allowing you to make repayments toward your debt again.

Will a Debt Relief Order impact my credit score?

It’s important to understand that a DRO will have a negative impact on your credit rating and, as with most financial matters, it will remain on your credit report for six years from the date the agreement begins.

Your credit rating reflects your ability or willingness to repay money that you owe, and can affect you obtaining further credit and contract-based products such as mobile phones or insurance.

While a DRO will impact your credit score, it will have a significantly less negative impact than having numerous ongoing arrears and having action taken against you. Your credit rating will also begin to improve once you have your debts back under control.

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Are there financial restrictions I need to know about when undertaking a DRO?

Like any debt solution, a Debt Restriction Order also comes with financial restrictions. A DRO is primarily about fixing your finances, so when you get a DRO, you will be expected to make payments towards your debt a priority.

To ensure you remain focused on the debt you need to pay back, certain restrictions are included in the DRO. While it’s in place, you won’t be able to:

  • Borrow more than £500, open a bank account, or manage a business without telling the lender about your DRO.
  • Produce, manage, or endorse a company without telling the court and acquiring their consent.
  • Be a director of a company.

Before you agree to a debt repayment plan, it’s important to understand what’s involved. If you’re not sure about what you can and cannot do while in a DRO, it is always best to contact your DRO adviser.

How long does a DRO stay in your credit file?

A DRO will have a negative effect on your credit rating, however, this is still likely to be less negative overall than ongoing arrears and having action taken against you if you cannot pay what you owe.

Your credit rating reflects your ability or willingness to repay money that you owe, so it will begin to improve again when your debts are back under your control and you have the means to work on paying them off.

As with most financial records, a DRO will stay on your credit file for six years after the date of commencement.

Can you get a mortgage or other credit with a Debt Relief Order?

You won’t be able to get a mortgage while you have a Debt Relief Order in place. It’s extremely unlikely you would meet the mortgage lenders’ strict affordability and creditworthiness criteria. If you did, owning a home would make you ineligible for the DRO.

If you’re hoping to obtain credit, you will face similar problems. Your disposable income of less than £75 means that you are unlikely to be able to afford the repayments, so you won’t pass the affordability checks that lenders will perform.

If you do seek credit and find a lender who is willing to offer it to you, you must be aware that it is against the law to borrow more than £500 without first declaring to the lender than you’re in a DRO.

Is a Debt Relief Order a good idea?

There are many different ways of dealing with problem debt. A Debt Relief Order is best suited to people in debt, with minimal assets, who will struggle to repay their debt in a reasonable amount of time.

While there are other, similar debt solutions, of you are being weighed down by debt you can’t pay back, and you fit the strict criteria for a Debt Relief Order, then it could be the best option for you.

To find out whether a DRO might work for you, or to get debt advice and explore your options, talk to a Creditfix money adviser today on 0808 253 2946. We’d be happy to help.

Frequently asked questions.

Need more info? Here are a few of our most frequently asked questions on this topic. If you don’t see the answer you’re looking for here, give us a ring – we’d love to help.

 

Unfortunately, if one of your debts has reached the stage where you are being contacted by bailiffs, a debt relief order will not stop them from taking your belongings through a controlled goods agreement.

In order to qualify for a debt relief order, you need to have an overall debt level of £30,000 or less and have less than £75 left after all your regular expenses.

You also must have lived in England or Wales for at least three years.

A debt relief order normally lasts for 12 months, and the companies you are in debt to will not be able to take any action against you or attempt to collect money during this time. You will also not be able to take out any further credit over £500 without making the company aware that you are on a debt relief order.

Once the year has ended, as long as your circumstances haven’t changed, your debts will be written off.

You can include most unsecured debts in a debt relief order, such as credit cards, loans, council tax, income tax, utility bills and rent arrears.