Debt Relief Orders (DRO’s) are a viable alternative to bankruptcy for people who have a low surplus income, few or no assets and low liabilities. As with bankruptcy the debts will usually be written off after a year and your creditors will not be able to take action to recover or enforce their debts against you.
There are certain criteria that needs to be met before you can apply for a DRO:
• You must be unable to pay your debts.
• You must owe less than £20,000.
• You can own a car to the value of £1000 but the total value of other assets must not exceed £1000.
• After taking away tax, national insurance contributions and normal household expenses, your disposable income must be no more than £50 a month.
• You must be domiciled (living) in England, Wales or Northern Ireland, or at some time in the last 3 years have been living or carrying on business in England, Wales or Northern Ireland.
• You must not have been subject to another DRO within the last 6 years.
• You must not be involved in another formal insolvency procedure at the time you apply.
• It is a lot cheaper than bankruptcy as the fee is £90.00 at present and once paid no further payments are needed.
• Creditors cannot pursue you for the debt or start legal action against you if they are included in the DRO.
• After a year the DRO will cease and the debts included in the DRO will be discharged. You will then be free of those debts.
You must follow rules called ‘restrictions’ if you get a DRO.
This means you can’t:
- borrow more than £500 without telling the lender about your DRO.
- act as the director of a company
- create, manage or promote a company without the court’s permission
- manage a business without telling those you do business with about your DRO.
If you want to open a bank account, you may also have to tell the bank or building society about your DRO.
Check the Individual Insolvency Register to see when the restrictions end.
The restrictions usually last 12 months. They can be extended if careless or dishonest behaviour caused your debt problem. For example, you lied to get credit.
The official receiver will tell you if they should be extended. To extend them, you’ll be asked to agree to a ‘Debt Relief Restrictions Undertaking’. The court can issue a ‘Debt Relief Restrictions Order’ if you don’t agree.
What you need to know
While you have a DRO you still have to pay:
- your rent and bills
- certain debts, eg student loans, court fines
DROs can be cancelled if:
- your finances improve
- you don’t co-operate with the official receiver – eg you don’t give them the information they ask for
If you get new debt after your DRO is approved you could:
- get a bankruptcy order
- be prosecuted if you don’t tell new creditors about your DRO.
Your DRO is added to the Individual Insolvency Register – it’s removed 3 months after the DRO ends.
Your DRO will stay on your credit record for 6 years.
You can only apply for a debt relief order online through an approved intermediary. An intermediary is usually a skilled debt adviser who has been given permission by a competent authority to complete the forms and give advice on debt relief orders. If this is the right option for you, we will refer you to an approved intermediary, such as StepChange debt charity. They can be found at https://www.stepchange.org or by calling 0800 138 1111.
Alternatively, visit www.gov.co.uk/options-for-paying-off-your-debts/debt-relief-orders