Tackling your debts

Debt Relief Orders

Posted 28 December 2016

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Here’s a straight to the point overview of how a Debt Relief Order works.

In this blog we’re going to explain what a Debt Relief Order is and how it can help some people with their unmanageable debts. If you’re unable to make your repayments anymore, it’s really important that you do your research and find out which options are available to you – there’s always a way to deal with problem debt.

What is a Debt Relief Order?

A Debt Relief Order is one of a range of debt solutions available in England and Wales. If you live in Scotland, then the Minimal Asset Process (MAP) provides similar benefits.

A DRO is a cheaper route into bankruptcy. The full bankruptcy process costs £680, whereas a DRO only costs £90. It’s a plan to deal with your unaffordable, unsecured debts over 12 months and aims to put you back in a more secure financial position.

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How can a Debt Relief Order help me?

In the right circumstances, a Debt Relief Order can help by suspending the payments on your unsecured debts for 12 months. You don’t pay anything to your creditors during this time, and they are not allowed to contact you for payment.

If nothing changes for you over the twelve months – so you still can’t afford to put anything towards your debts – the debt is completely written off. The interest and charges on your debts are also frozen and written off.

You are obliged to tell your solution provider if your circumstances change and you have more money coming in. If this is the case, your DRO will be revoked and you’d look at starting another more appropriate debt solution for your improved situation.

So a DRO can help by completely alleviating the worry of having unsecured debts that you can’t pay, and can pave the way towards a debt free future.

Do I qualify for a DRO?

DROs are designed to help people who are struggling the most with their debts. This means they’re only right for people who cannot afford to pay anything each month. Your budget will show you whether you have anything to put towards your debts or not. This involves making a note of all the income you have coming in and everything you have going out on essential spending. 

You then subtract the outgoings from the income and see what’s left, known as your disposable income. A DRO is only suitable for people who can show they have less than £50 in disposable income to put towards their debts each month and who owe less than £20,000.

There are also rules surrounding what you own – known as your assets. The total value of your assets has to be less than £1,000, your car is looked at separately and this also can’t be worth more than £1,000. This means that you can’t be a homeowner and qualify for a DRO.

Applying for a DRO

You must apply for a DRO through an Approved Intermediary – a person or company with the right qualifications to put the application together. Our advisors are specially trained to deal with this solution, and will be able to tell you whether it’s the right option for you.

Are there any downsides?

Starting a debt solution will affect your life in various ways, both positive and negative. One of the negative effects of a DRO is that it will appear on your credit history for six years from the date you start it. When a lender or service provider looks at your credit history they will be able to see that you were on a debt solution and that you’ve had issues repaying your debts in the past.

This can mean that they see you as more of a risk and you may not be approved for certain services or borrowing. If you are approved for borrowing, the lender may charge you a higher rate of interest. Of course, it’s worth noting that your credit history may have already been damaged due to missed payments and that a DRO will offer you a plan to deal with your unsecured debts once and for all.

Anybody who starts a DRO is also added to the Insolvency Register. This is a publicly accessible record of all the people who have started a solution to deal with insolvency, and is mainly used by creditors and those involved in the running of your debt solution.

Now that you have an idea about how this solution works, the next step is to contact a debt advisor and have a chat about your situation. Just use one of the options at the bottom of the page to do this.

by Christine Walsh

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