Living on a debt solution

The realities of living on a DRO

Posted 11 April 2016

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If you’re weighing up whether a Debt Relief Order is the right debt solution for you, read our guide to what to expect when you enter one.

If you’re struggling with unmanageable debt, you may have started to look into the different debt solutions available. A Debt Relief Order (DRO) may have caught your attention if you have a low income and few assets, as this solution aims to help people in just that situation.

To qualify for a DRO, you need to have assets (not including your car, which can be worth no more than £1,000) that total less than £1,000, unsecured debts that total less than £20,000, and less than £50 of spare funds left each month to put towards those debts, after your essential living costs have been taken out. A DRO can provide an alternative to bankruptcy, but as with all debt solutions, it has disadvantages as well as advantages. In this blog, we’ll take you through the realities of life on a DRO.

An end to the worry

Entering into a debt solution, no matter which one you sign up to, can mean a welcome end to the sleepless nights and the stress that often come with worrying that your finances have spiralled out of your control. It means you’re taking a step towards clearing your debts and getting your finances back on track, which can be a great feeling.

However, you may be wondering if a DRO is the right solution for you. They are, perhaps, less well known than some other debt solutions, like bankruptcy, so let’s make things a little clearer. 

Introduced in 2009, DROs are an alternative to bankruptcy for people with only a few assets and a low disposable income. There is a fee of £90 to pay to the Insolvency Service and you will need to apply through an approved intermediary, such as ourselves. When your DRO starts, your unsecured debts will be frozen for a year, which means you won’t have to make repayments, the interest won’t mount up and your creditors will not be able to chase you or take action against you. If your circumstances don’t change over that year and the DRO completes successfully, they will be written off.

You can see why an agreement like this could help ease your worry about your debts. But what’s the reality of living on a DRO?

Is a DRO right for me?

There are certain things you need to have to qualify for a DRO. To start with, you must live in England or Wales. If you live in Scotland, there are other debt solutions available to you.

As we mentioned, your assets, which include things like your savings and valuables, must be worth less than £1,000 in total when added together. That’s why a DRO is often unsuitable for a homeowner, as the value of their property would most likely be above this limit. Your car is not included in the £1,000 total, but if you do have a car, it must also be worth less than £1,000.

To qualify for a DRO you need to have very little disposable income once all your important bills have gone out – just £50 in fact. So, once you take out your essential outgoings like your rent, gas and electricity bills and council tax, you’ll need to show you have less than £50 leftover for the month. 

As we mentioned above, DROs are for people with £20,000 or less of debts. The debts you can include in your DRO are credit cards, overdrafts, unsecured personal loans, rent, utility and phone bills, council tax and income tax arrears, buy now-pay later arrangements and hire purchase agreements. If you have items under a hire purchase agreement, you may need to give them back.

Can I borrow while I am on a DRO?

You will not be able to borrow more than £500 for the duration of your DRO without letting the lender you’re applying to know about the solution. The DRO will also show up on your credit history and remain there for up to six years, which may make it more difficult, or at least more expensive, for you to borrow during this time.

However, adding more debts to your existing ones isn’t a good idea while you’re trying to get back on top of your finances, so being unable to borrow may not be such bad news. And once your DRO is over, you can focus on rebuilding your credit history.

Keep in mind that an overdraft counts as credit. If you plan to apply for one while you’re in the first 12 months of a DRO, you will need to let your bank or building society know about the solution. If you plan to include your overdraft in your DRO, it’s worth speaking to your current account provider about how it could affect your account.

Your name will be in The Insolvency Register

Just like with bankruptcy, if you enter into a DRO your name will appear on the public Insolvency Register, where it will remain until three months after your DRO is completed. The Register is mainly used by creditors and credit reference agencies.

Will it affect my job?

There are some jobs that aren’t compatible with a DRO, just as there are with bankruptcy. Check your employment contract or speak to your employer to see if agreeing to a DRO might affect your career, and if it looks like it will you can call us and we can suggest a more suitable alternative. Once your DRO comes to an end, you will still have to declare you were on one when you apply for certain jobs, so this is something to bear in mind if you’re considering a future in any of these areas. 

You’ll also be unable to set up a limited company or act as a business director while the DRO is in force, unless you get permission from the court. 

Your DRO could be affected if your circumstances change

Once you’ve signed up to a DRO, you must let the Insolvency Service know if your circumstances improve. If you get a pay rise at work, start working more hours and earning more or you receive a windfall, your DRO could be revoked because you can afford to pay your creditors more than you are under the agreement.

Get professional advice

Whether or not a DRO is right for you depends on your personal circumstances. The best way to find out which solution is most suitable is to seek advice from debt professionals, which you can do using the options on the left of the page. 


by Christine Walsh

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