A Debt Relief Order (DRO) is a debt management solution for residents of England or Wales with limited assets and low disposable income who are unable to repay their debts.
Consumers apply for a DRO when they want to become debt-free without going to court and paying the expensive fees associated with bankruptcy.
This is just one debt management solution that a Jubilee representative may recommend after reviewing your financial situation.
Debt Relief Order Basics
There are several qualification factors you must meet in order to be considered for a DRO:
- resident, property owner, or business owner in Wales or England within the past three years
- unaffordable, unsecured debts may not total more than £15,000
- total asset value must be less than £300 or car must be valued at less than £1,000
- monthly disposable income after paying essential living expenses must be less than £50
- cannot have had a DRO within the previous six years
- not involved in other insolvency processes
Types Of Debts That May/May Not Be Included
Most types of unsecured debts can be included in a DRO as long as total debts do not exceed £15,000.
Here are typical debts that may be included:
- rent arrears
- electricity and gas debts
- phone bill arrears
- income tax, council tax, and VAT
- credit card and store card balances
- bank overdrafts
- bank loans
- water arrears
- hire purchase agreements in arrears
- conditional sale agreements in arrears
- several types of small business debts including money owed to employees
There are also several types of debt that may not be included in but must be listed on the application. These are:
- student loans
- magistrates’ court fines
- family maintenance payments
- crisis or budgeting loans
- debts arising from certain personal injury claims
- money owned in a criminal confiscation order
- debts created after a DRO is issued
Our debt experts will help you identify which of your debts would be covered by a DRO. This allows us to determine whether this is the most effective debt management solution for you. It will help you identify which debt payments must continue while a DRO is in effect.
How A Debt Relief Order Works
If you believe you meet the qualifications, the next step is to apply for a DRO. This may only be done through an authorized debt advisor. If the application is approved, a bankruptcy court officer called the Official Receiver will submit a written letter to creditors informing them of the situation. Covered creditors must then receive court permission if they want to take further action to recover the money they are due. While the DRO is in effect, you do not make payments on covered debt. A DRO typically runs for 12 months and when it ends, the covered debts are discharged so you will not need to repay them.
Positives And Negatives Worth Considering
There are several main reasons that people use a DRO to resolve their debt issues:
- debt repayments are frozen for 12 months from DRO start date
- included debt is written off after one year if repayment still cannot be afforded
- costs £90 compared to £700 for bankruptcy
- no need to attend court
However, there are also several drawbacks:
- multiple criteria to qualify
- cannot be applied for directly by the individual
- recorded on Insolvency Register for DRO period plus three months
- remains on a credit file for six years
Applying For A Debt Relief Order
These are the steps involved in a DRO:
- We help you find an authorized debt adviser in your local area.
- The authorized debt adviser verifies that you meet DRO qualifications.
- With help from this adviser, you complete the DRO application form.
- The adviser submits the completed application to the Official Receiver.
- You pay a £90 fee to have your application considered by the Official Receiver.
- The Official Receiver reviews the DRO application and will request additional financial information, reject the application, or issue the DRO.
- An issued DRO will be listed on the Individual Insolvency Register until three months after the DRO concludes.
- Credit reference agencies will maintain records of the DRO for six years.
Your Responsibilities During The DRO Period
Since a DRO is a formal debt management solution, all parties involved have several responsibilities. You must inform your building society or bank of the situation. The institution will assess matters and determine if continued use of the bank accounts is permitted. In addition, you may not borrow more than £500 without informing the prospective lender of the DRO.
When covered by a DRO, you are barred from serving as a company director or an insolvency practitioner. Court permission is required before creating, managing, or promoting a company. If you want to manage a business, others involved must be informed of the DRO. If your financial situation changes during the DRO period, relevant information must be reported to the Official Receiver. Cooperation with the Official Receiver throughout the process is required to make the DRO experience a positive one.
These restrictions are typically lifted when the DRO ends. However, if dishonest, careless or criminal behaviour contributed to the debt issues, the restrictions may be imposed for as long as 15 years. The Official Receiver investigates causes for covered debt issues. He or she may ask you to agree to continued restrictions. If you comply, court involvement is not necessary and the duration of restriction time may be reduced. If you do not agree, a court appearance will be required. The Official Receiver will petition the court for a debt relief restrictions order that continues the restrictions.
Little Known Facts About Debt Relief Orders
Though you may be familiar with some or most of this information, there are several lesser-known facts regarding DROs. For example, did you know that creditors may object to a DRO being made? Not only that, but they can also object to being included in it and even to the details listed regarding their debt. However, these objections can only be made on certain grounds.
In some circumstances, you may be required to make payments on some debts included in your DRO. This is the case for some rent arrears situations. Let us help you determine when this is the case so you can budget the required amount. Another little known fact is that even if rent arrears are included in your DRO, the landlord may still pursue court action to evict you.
Hire purchase and conditional sales agreements are tricky things when it comes to a DRO. If you are in arrears with these, they must be included in the DRO. If you are not, you can choose to exclude this debt from the DRO application. Some conditional sale or hire purchase agreements feature a clause that allows the creditor to terminate the agreement if you receive a DRO.
Debt Close To The £15,000 Threshold
If your debts total close to £15,000, beware. Creditors are permitted to add interest and other charges to the debts until the date the DRO is approved by the Official Receiver. If the debts exceed the limit by the time the application is considered by the Official Receiver, the DRO will not be approved. Therefore, it is important to pay the DRO fee as quickly as possible to get the application under consideration.
You may also be able to get creditors to freeze interest during the application period. Let us help you do this in writing as you are completing your DRO application. If someone can help you make the additional payments to keep total debt under the limit, this can also be a smart approach. A time order, which is a court request for more time to pay a specific debt, can also be beneficial. This is a complex process, so let us advise you on it.
This Solution In A Nutshell
- designed for England and Wales residents who are non-homeowners with limited disposable income and unaffordable unsecured debt of less than £15,000
- must meet additional qualifications
- must apply through an authorized debt adviser
- £90 fee
- Covered creditors must get court permission to take further action
- make no additional payments toward covered debts
- subject to restrictions during and possibly after the DRO period
- listed on Individual Insolvency Register
- covered debt is discharged at the end (typically 12 months)
- credit references agencies maintain DRO records for six years
With a DRO in place, you are relieved from making payments on covered debts for 12 months. If you still cannot afford to repay these debts at the end of this period, they will be written off. Though you may have difficulty getting new credit for up to six years, this can be a less harmful result than if the debt remained. Contact us to determine whether this solution is right for you.