What is a Debt Relief Order (DRO) and is it right for me?

A Debt Relief Order (DRO) is a way of resolving your financial difficulties if you meet certain criteria. It is designed to be a cheaper and easier alternative to bankruptcy to assist individuals with low assets and low disposable income, originally implemented in 2009.

After a long wait, a consultation by the Insolvency Service was published earlier this year and the responses from insolvency professionals, including Debt Movement, creditor representatives and debt advisors led to the eligibility criteria changing from 29 June 2021. These changes impact residents in England and Wales only at this time.

The new DRO criteria now allows an increased total debt and asset value which could mean it might be the answer you need to take the pressure off and give you back control of your finances.

Am I eligible for a Debt Relief Order?

With the new criteria in place, you are now able to apply for a DRO if you are a resident of England and Wales:

Your total debt is less than £30,000.
Your monthly surplus after covering the household bills and living costs is £75 or less.
You do not own a property.
The total value of assets you have are not worth more than £2,000.
If you have a car its value is not more than £2,000
You have not had a DRO in the last 6 years.

For residents in Northern Ireland, the criteria currently remains the same as it was prior to 29 June 2021:

Your total debt is less than £20,000.
Your monthly surplus after covering the household bills and living costs is £50 or less.
You do not own a property.
The total value of assets you have are not worth more than £1,000.
If you have a car its value is not more than £1,000
You have not had a DRO in the last 6 years.

Is there a fee?

Yes, the cost to apply for a DRO is £90.00 which is paid to the Insolvency Service. To make it easier to cover this cost it can be paid in instalments.

What debts are covered in a DRO?

Most debts are included in a DRO. These include:

Credit cards, overdrafts, and loans
Arrears with rent, utility bills, telephone bills, council tax and income tax
Benefits overpayments
Hire purchase or conditional sale agreements.
Buy now – pay later agreements.
Bills for services like vets or solicitors
Debts you owe to family and friends.
Business debts

Which debts aren’t included?

There are some debts which are not included in a DRO. These are:

Child maintenance
Student Loans
TV licence arrears
Debts taken out fraudulently.
Criminal fines & Magistrate Court fines,
Loans from the DWP Social funds (e.g. budgeting loans)

If you have any of these debts, they are not included when working out the debt limit.

Advantages of a DRO

Debt repayments to your creditors are frozen for a 12-month period (called the moratorium).
Creditors cannot take further action during this 12-month period and after that your debts will be written off.
No contact from creditors after the DRO is approved.
No need to appear in court to arrange your DRO.
It’s a low-cost alternative to bankruptcy.

Disadvantages of a DRO

A DRO is only available if you owe less than £30,000 and live in England andWales or less than £20,000 if you live in Northern Ireland.
You can’t have a DRO if you own a property.
The DRO appears on the Individual Insolvency Register which is a public register.
Having a DRO will impact your credit report negatively.
If your income increases during the DRO period, this may mean the DRO could be stopped or revoked.
If your DRO application is turned down, you won’t get the £90 application fee back.

How do I get a DRO?

You can only apply for a DRO through an “approved intermediary”.

These are specialist advisers and include:

Your DRO adviser will review your situation and if you are eligible, they will work with you and fill in your application.

Once you have paid the £90.00 fee and completed your application it is then sent to an Official Receiver at the Insolvency Service. The Official Receiver will then review your application and decide if the DRO can go ahead.

They can do one of the following:

Make the DRO as you are eligible, and the application is correct.
Defer the DRO to obtain further information before making their decision; or
Turn down the DRO if they decide you are not eligible or false information has been provided.

What do I have to do once the DRO is in place?

When the DRO is in place there are certain things you are not allowed to do.

These are the restrictions which apply once your DRO is in place, as you cannot:

Get credit of £500 or more without telling the lender you have a DRO.
Act as a company director
Manage, promote, or set up a limited company without first getting permission from the court.

Run a business in a different name without telling everyone you do business with the name you used for your DRO.

Will a DRO affect my credit rating?

Yes, your DRO is recorded on your credit file for six years from the date it was approved.

What happens if my circumstances change?

If your circumstances change during the DRO period, you must contact the Official Receiver.

Essential changes to notify the Official Receiver of are:

Any incorrect or missing information on your application
Any increase in your income
Any additional money or assets you receive e.g., an inheritance or lottery win.

The Official Receiver will review this information to see if you are still eligible for the DRO.

What happens at the end of the DRO?

12 months after your DRO was approved the debts included in it will be written off.

When deciding which debt solution is right for you, you should always seek expert advice before you make any rash decisions. Contact Debt Movement today to speak to one of our friendly and impartial guides about which debt solution could be right for you.