1. What is a debt relief order (DRO)?
2. How do you get a DRO?
3. What sort of debts can a DRO handle?
4. What is the eligibility criteria for a DRO?
5. What are the affects of a DRO?
6. What are the possible benefits of a DRO?
7. What are the possible disadvantages of a DRO?
1. What is a debt relief order (DRO)?
A debt relief order (DRO) is a formal procedure to provide financial relief for some or all of your debts. It is one of the alternatives to bankruptcy.
During the DRO you don't need to make any payments for the debts included in the DRO and your creditors cannot take legal action against you for these debts.
A DRO usually lasts for just twelve months and at the end of the period the debts included in the DRO are written off.
2. How do you get a DRO?
An application for a DRO is made to the official receiver and you can apply for a DRO only through an authorised debt specialist called an approved intermediary.
Your local Citizens Advice Bureau can help you determine if a DRO could be the right debt solution for you and can put you in contact with an approved intermediary.
The approved intermediary will be able to look at your eligibility and will be able to advise you and guide you though the application.
A nominal fee is payable to the official receiver who will assess your application to approve or reject the DRO, or you may be asked for more information.
3. What sort of debts can a DRO handle?
Most unsecured debts such as debts from credit cards, store cards, catalogues, banks, friends and family can be included.
Many priority debts such as arrears from rent, council tax, utility bills, income tax and VAT can be included.
Debts which cannot be dealt with in a DRO include secured debts and debts from court fines, maintenance / child support arrears and student loans.
4. What is the eligibility criteria for a DRO?
A DRO has very strict eligibility requirements:
- Your debts don't exceed £15,000 on the date the official receiver approves your application.
- You are not a homeowner. The assets you have cannot exceed £300. (For assessing your eligibility for a DRO, your car may be worth less than £1,000 and many household items are not considered assets.) The official receiver must be told of any asset you may have relinquished in the last two years at less than market value.
- You have no more than £50 a month left after meeting your essential monthly expenses including the monthly repayments for debts that cannot be included in the DRO.
- Your financial situation is unlikely to improve.
- You are resident in England or Wales or in the last three years you have been resident or have run a business in England or Wales.
- At the time of applying for the DRO you are not also applying for or are subject to other formal insolvency procedures.
- You have not had a DRO in the last six years.
5. What are the effects of a DRO?
When a DRO is issued by the official receiver, the following will take effect for the debts included in the DRO:
- You cannot make any repayments for these debts.
- Creditors in the DRO cannot take legal action against you without permission from the court
- At the end of the DRO you will be discharged (freed) from these debts.
6. What are the possible benefits of a DRO?
- During the DRO you don't need to make any payments for the debts included in the DRO.
- Your creditors cannot take legal action against you without the court's permission.
- You don't need to go to court to get a DRO. The application is not made to the county court (unlike a bankruptcy or an IVA) but to the official receiver appointed by The Insolvency Service.
- A DRO usually lasts for just twelve months and at the end of the DRO the debts included in the DRO are written off.
- DRO restrictions usually apply for only twelve months.
- The cost of a DRO is minimal compared to the costs of a bankruptcy.
- Unlike bankruptcies, a legal notice of a DRO is not published in the local paper.
7. What are the possible disadvantages of a DRO?
- A record of your DRO will be held on the Insolvency Register during the term of the DRO and three months after the end.
- Your credit score will be affected because a record of your DRO will be held in your credit reference report for six years.
- Your employment could be affected.
- If your financial situation improves such that you can make repayments then you may no longer be eligible for a DRO and it can be terminated.
- DRO restrictions will be in force during the term of the DRO, such as:
- You must tell a prospective lender about your DRO when you want to get credit of £500 or more.
- You cannot run a business without telling the people you do business with about your DRO.
- You cannot be a company director without the court's permission and you cannot be part of the formation, promotion or management of a limited company
- You cannot apply for another DRO for six years.
- If the official receiver decides that before or during the DRO, you have not provided all the information or cooperated fully and honestly then the DRO may be revoked. For more serious offences the official receiver can take civil proceedings against you – such as a debt relief restrictions order (DRRO) extending the DRO restrictions for two to fifteen years – and can also take criminal proceedings against you.
If you feel that a DRO may be a debt solution for you, your local branch of the Citizens Advice Bureau which you can find at www.citizensadvice.org.uk should be able to help and advise you.
