What is a Debt Relief Order (DRO)?
A Debt Relief Order (DRO) is a debt solution to write off debts when you have little disposable income and don’t have any valuable assets, such as property. You can only apply for a Debt Relief Order from the Insolvency Service.
It’s just one type of debt solution and is usually referred to as a low-cost alternative to bankruptcy. To learn about other debt solutions you could be suitable for, jump back to our debt solutions page.
Or keep reading to learn more about DROs.
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There are several debt solutions in the UK, choosing the right one for you could write off some of your unaffordable debt, but the wrong one may be expensive and drawn out.
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How long does a Debt Relief Order last?
A Debt Relief Order stops creditors from contacting you or taking further action against you due to the money you owe them for one whole year from the date it’s approved. This is known as the moratorium period.
What happens to your DRO after a year? This depends on how your financial situation changes during the course of the year. If your finances don’t improve, all debts included within the DRO are written off.
Change in circumstances while in a Debt Relief Order – What happens?
But what if your finances do improve during the course of the year? Depending on how much your finances have improved, you may no longer qualify to use a Debt Relief Order and won’t be able to have your debts written off.
If your disposable income increases to £75 or more per month, it’s likely that you’ll no longer qualify. This could happen if you get a new job, qualify for new state benefits or if your benefit payments increase.
Debt Relief Order criteria
To be eligible to use a Debt Relief Order, you:
- Must live in England, Wales or Northern Ireland (not Scotland!)
- Must own assets worth less than £2,000 plus a car with a maximum value of £2,000 in England and Wales or £1,000 in Northern Ireland
- Must have a disposable monthly income of less than £75 in England and Wales, or less than £50 in Northern Ireland
- Must have below a certain level of debt depending on where you live (more on this below!)
Could you write off some debt?
- Affordable repayments
- Reduce Pressure from people you owe
- One simple monthly payment
What’s an Official Receiver?
An Official Receiver is a professional who works for the Insolvency Service. They deal with applications from debtors who wish to use a Debt Relief Order or bankruptcy to get out of debt.
What does the Official Receiver check for DRO?
The Official Receiver’s job is to ensure that you qualify to use a Debt Relief Order. They will assess your situation against the qualifying DRO criteria to accept or reject the application.
The Official Receiver will check that you have limited finances to pay back debtors in reasonable time and that the debts you wish to include in the DRO are allowed. They’ll also check that you don’t own any assets that could be sold to pay off the debt.
The Official Receiver will also look to see if you have given away money or assets in the recent past to try and qualify for a DRO. This is known as a deprivation of assets and will stop you from getting DRO approval.
How much do you have to owe to get a Debt Relief Order?
To use a Debt Relief Order you must owe less than £30,000 in total if you live in England or Wales or less than £20,000 in total if you live in Northern Ireland.
What if my debts are near the £30,000 limit?
If your debts are close to the £30,000 limit in England and Wales, it’s possible that your DRO application could be rejected by the Official Receiver.
But why is this?
The reason is that debts continue to grow and a DRO application can take up to 10 days to be approved. By the time the Official Receiver comes to look at your application and approve it, there’s a chance that your debt could have grown above the £30,000 limit.
Which debts can I pay off with a Debt Relief Order?
The good news is that most debts can be included within a Debt Relief Order, including rent arrears, household debts from utility companies, some tax debts and consumer debts, such as personal loans and credit cards.
Does a Debt Relief Order cover Council Tax?
Yes, you can include council tax debts in a Debt Relief Order.
Which debts can’t I pay off with a Debt Relief Order?
The most common debts that cannot be included within a Debt Relief Order are:
- Child maintenance debts
- TV licence arrears
- Criminal fines
- DWP Social Fund loans
- Debts that were taken out through fraudulent activity, including benefit overpayments resulting from fraud.
Is a DRO suitable for me?
The best way to know if a Debt Relief Order is the most suitable debt solution based on your individual circumstances is to receive personalised debt advice.
You can get free and personalised debt advice from debt charities. Their advisers will then recommend the most appropriate and advantageous debt solutions for your situation.
What restrictions will be placed on me?
When you get a DRO you will be placed under restrictions that prevent you from taking out credit of more than £500 without informing the lender that you have a DRO. Additionally, you cannot set up a new business without a court’s permission.
What will happen to my bank account?
Your bank may decide to freeze or close your bank account when you get a DRO. This is most likely to happen if your account is in arrears.
If your bank account is frozen, you’re allowed to apply for another bank account but will need to disclose that you’re using a DRO. This will prevent you from getting approved with many banks, but some will still offer you a basic bank account with an ATM card rather than a debit card.
Can a Debt Relief Order stop bailiffs?
If your DRO application is approved, creditors cannot take further action against you to recover the debt during the moratorium period. They cannot get a court order to make you pay and therefore cannot enforce the debt using bailiffs.
Using bailiffs is just one way of enforcing a debt through the court. A DRO will also stop similar actions from being taken, including the use of a third-party debt order form.
What are the advantages of a Debt Relief Order?
The main pros of using a Debt Relief Order are:
- DROs are considered a cost-effective alternative to a bankruptcy application
- You do not have to make any debt repayments within the initial 12-month period, and no interest will be added to your debts during this time
- During the 12 months, creditors cannot contact you to request payments
- Although a DRO is legally binding, there is no need to appear in court
- The DRO could result in your debt being written off
What are the disadvantages of a Debt Relief Order?
The main drawbacks of using a Debt Relief Order are:
- DROs are not available in Scotland and they are only available to people who owe less than £30,000, or less than £20,000 in Northern Ireland
- You must pay £90 to apply for a DRO, which is non-refundable
- DROs negatively impact your credit file and are visible on a public register
How do I Apply for a DRO?
You can only apply for a DRO through a licensed professional who will either work for commercial debt management companies or for debt charities.
It can be cost-effective to apply for a DRO through a charity.
The person acting and applying on your behalf can make the DRO application online. But they will need cooperation and information from you to complete most of the DRO application form questions. So be prepared and responsive to ensure a smooth application process.
How long does a Debt Relief Order take to process?
A decision on your Debt Relief Order application should be made within 10 working days. However, the actual processing time is 12 months because the Debt Relief Order isn’t confirmed until after the moratorium period.
What are the consequences of a Debt Relief Order?
The major consequence of using a Debt Relief Order is that it will be visible on your credit file and will significantly damage your credit file. The DRO will also be published on an insolvency register, which is publicly accessible.
We’ve provided further details in a dedicated post discussing how a DRO affects your credit rating.
Overall, it will become extremely difficult to get approved for a mortgage, other credit and even things like mobile contracts during and after the DRO. It can even be difficult to open a new bank account.
How long does a Debt Relief Order stay on my credit file?
A Debt Relief Order is recorded on your credit file for six years before it automatically falls off your report.
Is a DRO the same as bankruptcy?
A Debt Relief Order isn’t the same as bankruptcy. But it’s considered a similar alternative for people with unmanageable debts they simply cannot afford to repay in reasonable time.
How many Debt Relief Orders can I have?
All qualifying debts are included in one Debt Relief Order and you can only use one Debt Relief Order within a six-year period.
Aside from this rule, there are no limitations on the number of Debt Relief Orders you can use within your lifetime.
Are you struggling with unaffordable debt?
- Affordable repayments
- Reduce pressure from people you owe
- Lower monthly repayments
Debt Relief Order reviews
If you’re considering a Debt Relief Order to end your debt nightmare, it’s worthwhile reading the reviews and experiences of people who have already done it. You can do this easily by checking out our Debt Relief Order reviews post.
Are you struggling with debt? 