Debt Relief Order

A debt relief order (DRO) is a debt solution for those who have very little income and assets. This means you not own their home or have valuables worth more than £1,000 and have less than £50 monthly disposable income. It acts as an alternative to bankruptcy for non-homeowners, offering effective debt relief.

 

Debt Relief Order Eligibility

There are strict rules that you have to meet to qualify for a Debt Relief order. You must:

  • be unable to pay your debts;
  • have total debts of £20,000 or less at the date the application is approved by the official receiver;
  • have assets worth a total of £1,000 or less;
  • not have a car or motorbike worth £1,000 or more;
  • have £50 a month or less spare income after normal household expenses are taken into account;
  • live in England or Wales (or have lived or run a business in England or Wales in the last three years); and
  • not have had a DRO in the last six years.

You can’t apply for a Debt Relief Order if:

  • your creditors have applied to make you bankrupt but the hearing hasn’t yet taken place (unless your creditors agree that you can still apply)
  • you have been given a Bankruptcy Restrictions Order or Undertaking
  • you’ve petitioned for bankruptcy but your petition has not yet been dealt with – however, this doesn’t apply if you’ve petitioned for bankruptcy and the judge has referred you for a debt relief order instead
  • you’re currently bankrupt
  • you have an Individual Voluntary Arrangement or are applying for one
  • you’ve had a Debt Relief Order (see next section) in the last six years
  • you have been given a Debt Relief Restriction Order or Undertaking.

If you meet some, but not all of these criteria, contact our specialist advisors who will be able to advise you on alternative solutions.

Apply for a DRO

If you qualify for a DRO, National Debtline’s DRO team can help you to apply. An adviser will check that you meet the criteria and send you an application form. We will also send you a hold action letter which you can send to your creditors (the people you owe money to).

Please note, You must get a Debt relief order from the official receiver, an officer of the bankruptcy court, but you must apply through an authorised debt adviser. They’ll help you fill in the paperwork.

The official receiver’s fee is £90. Your debt adviser can tell you how and when to pay it. In some cases a charity may be able to help you with the cost – ask your debt adviser.

For more information or to discuss a debt management plan and also any other debt options available to you, please get in touch.


Impact of a debt relief order

If you qualify for a DRO, National Debtline’s DRO team can help you to apply. An adviser will check that you meet the criteria and send you an application form. We will also send you a hold action letter which you can send to your creditors (the people you owe money to).

A debt relief order is a serious debt solution that is an alternative to bankruptcy, yet carries the same weight. It can impact your credit rating, making it difficult to obtain credit once the initial process is complete and could have implications on your employment if you work in the financial sector.

In addition, if your DRO application is approved, it can affect you in the following ways.

  • Certain restrictions will be placed on you for 12 months from when the DRO is approved.
  • In certain circumstances a ‘debt relief restrictions order’ can be placed on you.
  • Your bank account may be frozen.
  • The DRO will be recorded on your credit reference file.
  • The DRO will be recorded on a public register called the ‘Individual Insolvency Register’.
  • Your job could be affected. This is only likely to be the case where your contract of employment states that you are not allowed to have a DRO.
  • If you rent your home, your tenancy could be affected. Check your tenancy agreement to see if it states that you are not allowed to have a DRO and contact us for advice.

Debt not included in a DRO

Some debts do not count towards the £20,000 limit, although you still have to list them in the DRO application. This means you are still liable to pay these debts in full. You cannot include:

  • hire purchase and conditional sale agreements (If you are not in arrears, you can choose to exclude hire purchase and conditional sale agreements from your DRO in certain circumstances).
  • magistrates’ court fines
  • maintenance, Child Support Agency (CSA) and Child Maintenance
  • Service (CMS) payments and arrears
  • student loans
  • budgeting loans and crisis loans
  • money owed under a ‘criminal confiscation order’;
  • debts resulting from certain personal injury claims against you.

You will need to make sure you pay ongoing payments on these debts and include them in your outgoings.

If you are not in arrears with your hire purchase (HP) or conditional sale agreement, you can choose to exclude the debt from your DRO application. However, if you are in arrears, you must include it. Any further payments to the creditor must stop.

Debt included in a debt relief order

  • water arrears
  • credit cards and store cards;
  • bank overdrafts and bank loans;
  • loans to finance companies;
  • catalogs;
  • home-collected credit
  • benefit overpayments
  • family or personal debts
  • hire purchase and conditional sale agreements if you are in arrears (if you are not in arrears you may be able to exclude this type of debt in certain circumstances)
  • hire agreements
  • parking penalty charges
  • mortgage shortfalls (money you owe if your house was sold for less than the outstanding mortgage).

You may also owe debts from a small business such as:

  • money owed employees
  • debts to customers who have paid for goods or services that are unable to be supplied
  • debts to suppliers.

What will happen to my bank account?

If your DRO application is successful, your bank account will not necessarily be frozen. It will be up to your bank or building society to decide if you are allowed to keep the account open. If you have a debt with your bank or building society, it is likely that your account will be frozen after your DRO is approved. Even if you do not have any debts with your current bank, you account may still be at risk. Check the terms and conditions of your account and contact us for advice.

There is nothing to stop you applying to open a new bank or building society account when you have a DRO, but the bank or building society may ask you if you have a DRO. It is then up to the bank or building society to decide whether they will let you open an account with them.

Get debt advice

It’s always best to talk things through with an experienced debt adviser before you decide to take out a Debt Management Plan.

Over eight out of ten people who have got debt advice tell us they feel less stressed or anxious and more in control of their life again.

A debt adviser will:

  • treat everything you say in confidence
  • give advice about better ways of managing your money
  • never judge you or make you feel bad about your situation
  • suggest ways of dealing with debts that you might not know about
  • always be happy to talk to you, however small or big your problem is
  • check you have applied for all the benefits and entitlements available to you.

For more information or to discuss a debt management plan and also any other debt options available to you, please get in touch.


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