Is a DRO a ‘mini bankruptcy’?
You can apply for bankruptcy yourself, or a creditor can begin the process. It involves an Official Receiver gaining control of your finances and assets for 12 months, although they can arrange repayments for up to 3 years. Legally, once Bankruptcy begins, they own your assets and can sell them to pay off your debts. Similarly, they are put in control of your finances and will organise repayments based on what you can afford each month. Although there are rules limiting what your Official Receiver can sell, for example there are limitations surrounding tools necessary for your work, or items necessary for the care of children or vulnerable adults, Bankruptcy is a highly disruptive and difficult process.
Similarly, a DRO lasts for 12 months and must be approved by an Official Receiver. However, in many ways, a DRO is the opposite of a Bankruptcy. Rather than having an Official Receiver use your assets and finances to repay your debts, the Official Receiver freezes your debts and your repayments stop for up to 12 months. During this time, your situation is continually assessed and, if your circumstances have changed, your debts are unfrozen and you will be expected to pay them. However, if nothing has changed after 12 months, then your debt is written off.
A crucial difference to note, however, is that DROs only help with your unsecured debts and you are not eligible for a DRO if you have assets, such as owning your home, or a car worth over £1,000.
Benefits of a DRO
While both Bankruptcies and DROs are considered ‘last resorts’, if you are eligible for a DRO, it is usually a better option than Bankruptcy. This is because:
- You remain in control of your finances
- A DRO is less expensive. It costs £90, whereas a Bankruptcy costs £680 in England and Wales, and £669 in Northern Ireland
- You will not have to make any payments for up to 12 months
- Your debts could be written off after 12 months
Unfortunately, the criteria of eligibility for a DRO is specific and strict. This means that many people are not eligible for a DRO. This does not mean that your only option is bankruptcy – other insolvency solutions, such as an IVA, could be suitable for your situation. To find out more DROs, and whether one might be the right solution for you, click here.