If you have a Debt Relief Order, what happens after a year? This is a common question from people who are thinking of using this type of debt solution and even among people who already have a Debt Relief Order.

Learn the answer to this query and lots of other key information you need to know about a Debt Relief Order, right here!

What Is a Debt Relief Order (DRO)?

A Debt Relief Order is one of many formal debt solutions which is designed to get you out of debt. If you manage to secure a Debt Relief Order, your creditors cannot contact you and request payment for a full 12 months. During this period, officially known as the Moratorium, the creditor is also not allowed to apply any interest on the debt you owe.

In a nutshell, a Debt Relief Order is exactly like it sounds. It provides debtors with relief from their debt by ordering creditors to take a step back for a year.

What Debts Can a Debt Relief Order Help With?

A Debt Relief Order can be a debt solution for most types of unsecured debt. But there are some debts that a Debt Relief Order cannot be used against. These include:

  • TV License debts
  • Criminal fines
  • Loans from DWP
  • Debts accumulated through fraud
  • Arrears to do with child maintenance payments 

Who Is Suitable for a Debt Relief Order?

A Debt Relief Order is suitable for certain types of debtors. People who are in debt and do not have significant disposable income at the end of each month, maybe due to not having a full-time job or on a low salary, will usually be suitable. 

There are additional criteria that you must meet to be suitable for a Debt Relief Order. Your debt must be lower than £20,000 and you must not own a home. You must also not own assets with a combined value more than £1,000, with the exception of a vehicle if it is a vehicle that has been adapted for a disability. 

What Counts as Significant Disposable Income?

If you have £50 or less after all your bills and necessary expenses have been paid then you will not have significant disposable income.

What Happens After a Year on a Debt Relief Order?

At the end of the Debt Relief Order, if your income has not increased any debts covered by the Debt Relief Order will be wiped, meaning you won’t have to pay and you become free from debt. This means a Debt Relief Order can get you out of debt much faster than a Debt Management Plan (DMP) in some cases.

But that shouldn’t be the only consideration when choosing between a DRO and a DMP. Read on!

Will I Be Told My Moratorium Has Ended?

No, you do not receive any letter or notification to state that the year has ended. Instead, your details will have been recorded into the Insolvency Service’s Register. The entry into the register will remain there for three months before being removed again. 

This means you will need to print out a confirmation of the Debt Relief Order and the end of the Moratorium within these three months. You could need this proof for various applications and in case creditors wrongfully starting asking for their money again.

The Disadvantages of a Debt Relief Order

You might be wondering why you would choose to get a Debt Management Plan when it appears that a Debt Relief Order will save you money and stress. That is often the case but the repercussions of a Debt Relief Order are usually a lot more restrictive than the outcome of a Debt Management Plan.

Debt Relief Orders remain on your credit history for six years from the beginning of the Moratorium. This often results in significant difficulty taking out further credit, opening bank accounts, getting a mobile contract and much more. 

You probably will have to have a top-up electric metre installed in your future home during this period as well because suppliers are reluctant to offer you direct debit payments. 

How Do I Get a Debt Relief Order?

Because a Debt Relief Order is a formal debt solution with legal weight, it must be accepted by a person working as an Official Receiver. This means you will need to get help applying for a Debt Relief Order in most cases, which could come at a cost as well. The current cost is £90 and you will not be refunded if your application is unsuccessful.

Finance firms, accountancy businesses and debt management companies usually offer Debt Relief Order services – and they will charge further fees for their help. You might want to call free debt charities to see if they can help to begin with.

Can I Get a Loan When I Have a Debt Relief Order?

You will be surprised to hear that during the 12 months when creditors are not allowed to make contact, you are able to apply for a loan and other credit. However, if you apply for credit above £500, you must inform the lender that you are currently on a Debt Relief Order, which is likely to end up in you being refused.

What If My Income Increases During the Debt Relief Order?

If your income increases during the 12 months, you must inform the Official Receiver. You could come into money through inheritance or earn a new job with better pay. With increased disposable income, this could affect the Debt Relief Order and your right to relief. 

Should I Use a Debt Relief Order?

A Debt Relief Order could be the most advantageous debt solution for your situation, but always look at alternative debt solutions in case there is something better available.

About the author

Scott Nelson

Scott Nelson is a financial services expert, with over 10 years’ experience in the industry, including 6 years in FCA regulated companies. Read more
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