What is a Debt Relief Order and how does it work?
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Thinking of using a DRO to help with your unmanageable debts? This guide should help.
While most people have heard of bankruptcy, Debt Relief Orders (DRO) don’t seem to have the same high profile. This may be because they are a relatively new debt solution – introduced in 2009 – and in the past there were relatively few people who met the criteria to get one because the rules surrounding who qualified were quite strict. But recently the Governmentannounced improvements to DROs that will make this option available to an estimated 3,600 more people every year. The new criteria came into effect on 1st October 2015.
DROs are not available if you live in Scotland. A Minimal Assets Process is a similar solution available for Scottish residents, however there are some differences between the options. Have a look at our page on MAPs to find out more.
How does it work?
A DRO is a type of debt solution available to people with low assets and low disposable income and who can’t see a way of paying back their debts in a reasonable amount of time. When you enter into a DRO your debts are “frozen” for a year so that you don’t have to pay anything towards them and your creditors will not chase you. If after a year your circumstances haven’t improved then the debts included in your DRO are written off. If your circumstances do improve during the year then you would come to a new payment arrangement with your creditors.
Read on to find out whether it could be the right solution for you.
Can I get a DRO?
Well this all depends on your circumstances. DROs are designed to help the people struggling with problem debts of up to £20,000 – the limit was recently increased from £15,000. So if you were not eligible for one in the past, you may be now.
You also can’t own too many high value items or have too much in savings either – if you do you’ll be expected to sell those things and put your savings towards your debts. Before the recent changes you could only have £300 in assets, quite a low threshold. But this has been raised, so you’re now allowed £1,000 in assets and a vehicle worth £1,000 as well. Due to these limits DROs are not an option if you’re a homeowner, but there are other debt solutions that may be suitable for you.
Money does have to be very tight for you to qualify for a DRO. Once all your priority bills have been accounted for, you are only allowed £50 in surplus income every month. So once all your bills have gone out, gas, water, electric, rent, council tax – everything – then you would need to show that you didn’t have any more than £50 to spare. You also have to have lived or worked in England, Wales or Northern Ireland within the last three years.
Here’s a list of the types of debts that can be included, so you know where you stand:
· credit cards
· council tax
· benefit overpayments
The fee for a DRO is £90 – payable to the Insolvency Service – although it may be possible to pay it in instalments.
The Consequences of a Debt Relief Order
Even though a DRO can be a real life saver if you meet the criteria, it is still a form of insolvency and will have an effect on your life. Your credit rating will be affected, and there’s no way around this. You will not be allowed to borrow any money while it’s ongoing, and the DRO will show up on your credit report for up to six years after it’s finished, so may well affect your ability to borrow for a time.
Like bankruptcy, your name will appear on The Insolvency Register if your DRO is approved and will stay on until three months after your DRO ends. While it is possible for people to search this register, they would have to have a reason for doing so, and it is possible to stop your details being recorded here if you’re at risk of violence or abuse. Have a look at our blog on how do this.
Sometimes the job you do has a bearing on whether a DRO would be right for you. For instance, you couldn’t work in a bank or as a solicitor or an accountant. You’re also not allowed to act as the director/owner of any company. And, if in the future you wanted to apply for these kinds of jobs, they may ask whether you have ever been made bankrupt and you would have to tell them about your DRO.
I think it could be right for me – how do I apply?
If you’ve done your research, received professional advice and you want to go ahead with a DRO, you would have to make an application through an Approved Intermediary. This is just an organisation, like Debt Advisory Centre, who has permission to assess whether a solution is right for someone and has permission to apply for you.
So what do you think? Could a DRO be right for you? It’s great that the government have realised that there are some people out there in desperate need of debt help, but for whom other forms of insolvency are just not right. If you meet the criteria then there’s no reason why you shouldn’t apply for a DRO and look forward to a date when you’re going to be debt free. If you don’t qualify for a DRO, have a look at the or contact us for a chat.
by Christine WalshBack to blog home