DRO vs DMP: Choosing Between Debt Relief and Repayment

A Debt Relief Order (DRO) can write off qualifying debts for someone who meets strict eligibility conditions. A debt management plan (DMP) is an informal arrangement to repay non-priority debts at an affordable rate. This guide uses the DRO rules for England and Wales.

In this article, we’ll explain:

• How a DRO works and who can qualify.
• How a DMP changes repayments.
• The costs, credit consequences and limitations of each option.
• Why a personal assessment matters before applying.

We know how tough it can be to make a choice between a DRO and a DMP. Both have their own benefits and drawbacks.

A free debt adviser can compare these options with other solutions using your income, essential spending, assets and liabilities. General information cannot establish which option is suitable for you.

How does a DRO Work? 

A DRO is an insolvency order made by the official receiver after an application through an approved intermediary. It does not require creditors to agree or vote in favour.

When you first apply for a DRO, your DRO advisor and the official receiver assess your financial circumstances to determine whether you qualify for a DRO or not. I’ll go over the eligibility criteria for a DRO later in this post. 

Once a DRO is approved, payments towards listed qualifying debts are normally suspended for 12 months. You must still pay ongoing household commitments and excluded debts. A DRO does not itself impose a requirement to look for work, although separate benefit conditions may apply.

If the DRO is not revoked, you are normally released from its qualifying debts at the end of the period. Certain liabilities, including debts arising from fraud, can remain payable.

Creditors are restricted from recovering the qualifying debts listed in the DRO during its period. They can still send statements and general correspondence. A DRO does not remove every legal risk, such as a landlord’s ability to seek possession because of rent arrears.

Report relevant increases in income or assets to the Insolvency Service throughout the DRO period. Changes can result in review and possible revocation; do not wait until the final month.

Bankruptcy in England and Wales usually ends in discharge after 12 months, although income payments can run for three years and the administration of assets can continue. A DRO also normally lasts 12 months but has different eligibility, costs and consequences.

Criminal fines, most student loans, maintenance obligations and other excluded liabilities are not cleared by a DRO. An adviser must check the debts you owe and the payments you need to maintain.

A DRO can be appropriate for some people who cannot afford repayments. Its restrictions and eligibility criteria mean it is not a universal solution.

Well, that’s because the eligibility criteria for qualifying for a DRO are extremely strict. 

DROs are typically aimed towards people that live in low-income households and have little to no assets to their name. 

It’s important to note that most types of debts can be included within DROs including priority debts such as council tax arrears. 

When you enter into a DRO, your name gets added in the Insolvency Register that is maintained by the Insolvency Service. 

A DRO is also recorded on your credit file for six years from approval. It can make borrowing and some housing applications more difficult. Check employment or professional restrictions where relevant.

Eligibility Criteria 

In order to be eligible for a DRO, you must: 

• Have no more than £50,000 in debts counted for DRO eligibility.
• Have no more than £75 a month left after reasonable household expenses.
• Have counted assets within the £2,000 limit; a separate £4,000 vehicle limit and other exclusions apply.
• Not own your home.
• Have the required connection with England or Wales, such as having lived or worked there within the last three years.
• Not be subject to a current bankruptcy, IVA or interim order, and not have had a DRO within the previous six years.

An approved intermediary must check all the conditions, including how assets are valued, excluded items, recent transactions and your insolvency history. Northern Ireland has separate DRO rules; Scotland has different debt solutions.

Please note that even if you fulfil all of these criteria, it does not guarantee that your DRO will be approved. 

There is no DRO application fee in England and Wales. The former £90 fee was abolished on 6 April 2024. Your approved intermediary submits the application to the Insolvency Service.

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How does a DMP Work? 

Debt management plans are considered to be one of the most flexible debt solutions available in the UK. 

A debt management plan is an informal agreement between you and your creditors. It states that you will keep making monthly payments towards your debts at a reduced rate that is affordable to you. 

You will keep making these monthly payments until your debt is paid off in full. 

Unlike a DRO, a DMP does not create a legal moratorium preventing creditors from pursuing court action.

A DMP is normally used for non-priority unsecured debts. Budget separately for priority commitments, such as housing and council tax, and arrange any arrears with advice.

Creditors are not legally bound by a DMP in the same way as a formal insolvency arrangement. However, FCA-regulated lenders must treat customers in financial difficulty with forbearance and due consideration. Their obligations include reducing, waiving or cancelling further interest and charges enough to prevent the debt increasing while a customer meets an agreed forbearance repayment arrangement.

A DMP is a debt solution that you can opt for when you have unsecured debts and you don’t fulfil the criteria required for getting a DRO. 

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Since a DMP is an “informal” agreement, you are not considered to be formally insolvent if you enter into it. This means your name is not entered into the insolvency register like it is when you enter into a DRO. 

Reduced or missed contractual payments, arrangements to pay and defaults associated with a DMP can damage your credit record. The effect depends on what each creditor reports and your other circumstances.

A default normally remains for six years from its default date. An account without a default can remain on your credit file for six years after it is closed or settled. There is not a separate six-year deletion date for every DMP payment.

A DMP has no single statutory minimum debt or payment threshold, but it must leave enough for essential costs and offer a realistic repayment route. Providers may have their own acceptance criteria.

A low payment offer is not automatically rejected. Explain what you can afford with a budget and ask creditors or an adviser about forbearance. Avoid offering more than you can maintain.

Some organisations provide DMPs without charging you; commercial providers may deduct fees. Ask how much reaches creditors and how long repayment is estimated to take, including any interest and charges.

If you feel that you can’t fulfil the criteria for a DRO but feel that your DMP might also not be accepted given your financial circumstances, I suggest that you contact a professional for debt advice. 

MoneyNerd can introduce you to The Debt Advice Service through its enquiry form. MoneyNerd does not provide personal debt advice. You can also use MoneyHelper’s locator to find free, independent debt advice.