What is a Debt Relief Order and how does it work?
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Do you think a DRO might be right for you? If so, it’s important that you understand the process before you make any decisions. Our guide is the perfect place to start.
If you are struggling to make your debt repayments at the moment, or are already falling behind with them, and you have decided to look into debt solutions then you’ve already taken a huge step in the right direction. Just knowing that there’s a solution that could alleviate some of those money worries will be a huge weight off your shoulders. Having said that, when you’re considering a debt solution, particularly a formal debt solution like a Debt Relief Order (DRO), you will inevitably have lots of questions about how the process works and how it may affect your life.
To help ease some of those worries and answer your questions, we’ve put together a guide so that you can get a real understanding of the DRO process. DROs are only available in England, Wales and Northern Ireland. In Scotland there is Minimal Assets Process which has many similarities, for more information on MAP and the other options available in Scotland, have a look at our Scottish page. So to start with, let’s look at a brief explanation of what a DRO actually is.
What is a DRO?
DROs are formal debt solutions designed to help you if you are insolvent. Insolvency means that you officially cannot pay your debts back, at least in full over a reasonable period of time. DROs work by suspending your repayments – you don’t pay anything towards your debt at all – for twelve months. If after that time your situation has not improved, they will be written off.
As DROs can potentially wipe your debt off, they are only meant to be available for those who are unable to find a substantial amount of disposable income to pay off what they owe. So, there are some eligibility criteria you need to meet. For instance, how much money you’ve got left over after you’ve paid your essential bills affects whether or not you are eligible. If you find that you have less than £50 to spare to put towards your debts, a DRO could be right for you.
You also need to have less than £20,000 in unsecured debts, those are debts like credit cards, store cards, and loans that are not secured against your house or car.
To find out whether you’re eligible for a DRO an expert would also look at your assets – meaning anything of value you own that could potentially be used to pay off what you owe. Your assets have to be worth less than £1000 in total for you to be eligible. Your car is looked at separately and also has to be worth less than £1000.
Now we’ll you take you through the DRO process from beginning to end.
Get expert advice
The very first thing you should do is seek debt advice from a reputable company. Remember, you are not expected to be able to make the decision about whether a DRO would be right for you by yourself. In fact, you’re not actually allowed to apply for a DRO unless it’s through an approved intermediary, such as ourselves. You should always seek out expert advice from experienced advisors who will either confirm that a DRO is the right route out of debt for you, or recommend another solution that would be better suited to your circumstances. Use the options to the left if you’d like to speak to our experts.
Make an application
Once you’ve spoken to experts, and you know that it’s the right solution for you, you’re able to apply for a DRO through your intermediary. You’ll work with them to create the application but, ultimately, it will be submitted by your approved intermediary. You may be asked to provide documentation to support what you state in your application. For example, a wage slip or benefit letter might be needed for proof of income, or copies of bills or bank statements to prove your outgoings.
It costs £90 to apply for a DRO – payable to the Insolvency Service - and this amount isn’t refundable, even if your application is rejected. This can be paid in instalments, or if you can’t afford this fee, it’s possible a debt charity will cover it for you. Make sure to tell your debt advisor and they will point you in the right direction or search for a grant at Turn2us.
Once the application is made, it is sent to the Official Receiver (the OR is an officer of the bankruptcy court) and they will either accept or reject it. At this point the OR could ask for more information and, if they do, it’s very important that you supply anything you’re asked for.
If the application is accepted, the OR will take on the responsibility of overseeing your DRO throughout its life, making sure that you and your lenders abide by the rules. If the application is rejected, it would be a case of going back to your experts who will look at other options to deal with your debts.
Just as a side note, if you’ve already started another insolvency process, like bankruptcy or an IVA, then you won’t be able to get a DRO. However, if your lenders are trying to make you bankrupt at the moment, then it is possible for you ask the lender if you can apply for a DRO instead.
What happens while the DRO is ongoing?
Assuming that your application is approved, your DRO will start, and as we said, will normally last for twelve months. During this time you won’t be expected to make any payments towards your unsecured debts and your lenders certainly should not chase you for payments. If they do, make them aware of your DRO and if they continue to do so inform your OR. There are other restrictions in terms of what you and your lenders are allowed to do whilst the DRO is ongoing. You’re not able to:
· obtain credit of £500 or more without telling the lender about your DRO
· trade in a different name to the name that your DRO is in, without first telling those you work with what name the DRO is in
· be a director of a company without permission from the court
If you don’t keep to these restrictions then your DRO may be revoked or the restrictions may be extended from 2-15 years.
When it’s approved your DRO will be added to the Insolvency Register, which is a public register keeping track of all the insolvencies in the country.
It’s also very important that you keep the OR informed of any changes in your circumstances. For instance, if your income rises, or you come into a sum of money, it may be possible for you to start making payments again. If this happened, your DRO may be revoked so that you can start doing this.
What happens after the DRO has finished?
After the year has passed, if your situation hasn’t changed, your unsecured debts will be written off and you will be discharged from the DRO. From this point onwards, the lenders that were included on the DRO won’t chase you for the money.
If you can’t remember exactly when your DRO is supposed to end, you can check this on the Insolvency Register - three months after your DRO ends, your name and details will be taken off the register altogether.
The DRO will appear on your credit file for six years after the date that it started. This will, unfortunately, damage your score and may mean that you either find it hard to obtain credit or have to borrow at a more expensive rate than if it wasn’t there.
So there we have it, the DRO process in a nutshell. It’s important to remember that there are other debt solutions available, so don’t assume that it’s right or wrong for you without getting expert advice first. We’re always available for help and The Money Advice Service also has lots of information. When it comes to starting this or any other debt solution getting the right advice really is the most important thing. From there on, your advisor will be able to guide you to the right solution and through every step of the process.
by Christine WalshBack to blog home