Debt Relief Orders are available to people on low incomes who owe relatively small amounts of money. They offer a low-cost alternative to bankruptcy if you have debts that you cannot afford to repay.
What is a Debt Relief Order?
A Debt Relief Order is a formal arrangement that lasts for a year. As long as your financial situation does not improve, you do not have to make any repayments towards your debts during that year.
During the period in which the Debt Relief Order applies, the people you owe money to cannot chase you for that money. They cannot add interest to the amount that is outstanding either.
At the end of the year, your debts are written off. This means that a Debt Relief order will almost always result in you becoming debt free a lot faster than a debt management plan would. However, a Debt Relief Order is considerably more restrictive than a debt management plan.
Although your debts are written off at the end of the year, the Debt Relief Order will stay on your credit history for six years from the date that the arrangement was set up.
People on low incomes who find themselves in a situation where they cannot afford to repay their debts should consider Debt Relief Orders as a way to get their finances back on track.
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Who Can Apply for a Debt Relief Order?
Debt Relief Orders are available to people who owe up to £20,000 and cannot repay their debts because they have less than £50 spare money each month after they have paid their household expenses.
They are not available to people who own their own home or who have assets that are worth more than £1,000. This includes the value of your car unless your car has been adapted because you are disabled.
There are certain debts that cannot be dealt with via a Debt Relief Order. These are:
- criminal fines
- TV Licensing arrears
- child maintenance arrears
- loans from the DWP Social Fund
- debts that you have taken out fraudulently
How Do You Apply for a Debt Relief Order?
A Debt Relief Order is a formal arrangement so you are required to apply via a DRO Advisor or Approved Intermediary. This person will check that you are eligible for a Debt Relief Order, check that it is the correct solution for your financial situation and complete the necessary paperwork for you.
Your DRO Advisor will work out what your income and expenditure are as well as calculating what assets you have. Once that has been done the application will be sent to the official receiver at the Insolvency Service.
It is important that you are open and honest with the DRO Advisor. If you lie on your application there could be severe consequences and in extreme cases, you could even be taken to court.
It costs £90 to apply for a Debt Relief Order. This fee can be paid in instalments, but it is not refundable if your application is unsuccessful so it is important to make sure you are eligible for a Debt Relief Order before paying the fee.
Once your application has been submitted the official receiver will make a decision. If they turn down your application they will explain the reason(s) that they have rejected your application in writing. They may ask you for additional information before they can make a decision.
What Happens Once a Debt Relief Order Has Been Granted
If a Debt Relief Order is granted by the Official Receiver, you will be sent a letter to confirm this. The letter will tell you what you are required to do during the time that the Debt Relief Order is in force. This period is called the Moratorium. A letter will also be sent to your creditors to tell them that the Debt Relief Order has been granted.
Although you don’t need to pay back any debts that are covered by the Debt Relief Order you will still need to pay your usual household expenses, such as your:
- utility bills
- Council Tax
You will also need to continue repaying any debts that weren’t included in the Debt Relief Order.
During the Moratorium, you are not allowed to take out credit exceeding £500 without telling the lender that you have been granted a Debt Relief Order. You are also limited in terms of what you are able to do in terms of running a business or being a company director.
If your circumstances change during the Moratorium you must tell the Official Receiver.
At the End of the Moratorium
You won’t receive notification that the Moratorium has ended. However, you can check your entry in the Insolvency Serivce’s register for confirmation and print it out if you want. That entry will be removed three months after the end of the Moratorium so if you do need to print out confirmation that your Debt Relief Order has ended you will need to do so before within that three months timeframe.
The people covered by the Debt Relief Order are not allowed to chase you for money after the Moratorium has finished. If they chase you for money after the Moratorium has ended you do not need to pay any money to them and should remind them that the debt was covered by the Debt Relief Order.
The fact that you had been granted a Debt Relief Order will stay on your credit history for six years. As a Debt Relief Order lasts for one year, this means that for the five years following the Moratorium it will be difficult to take out credit or open a new bank account. You might also find that you will be unable to get a mobile phone contract during those five years, and you might have to pay for your gas and electricity via a prepayment meter because most energy suppliers will refuse to let you pay by monthly direct debit.