DRO

What is a Debt Relief Order?

A Debt Relief Order (DRO) is a form of insolvency designed for people who are unable to pay off their debts and have little to no assets or disposable income. It is a type of debt solution that can help individuals with a low level of debt to write off their debts, providing them with a fresh start.

To be eligible for a DRO, you must have debts of £20,000 or less, have assets worth no more than £1,000, and have less than £50 per month disposable income. The DRO lasts for 12 months, during which time the creditors included in the order cannot take any action against you to recover the debts. If you meet the eligibility criteria and the application is successful, your debts will be written off at the end of the 12-month period, allowing you to make a fresh start. However, it’s important to note that a DRO will have an impact on your credit rating, and there are some restrictions on the types of financial activities you can engage in during the period of the order.

DRO:

A Debt Relief Order (DRO) is a form of debt solution that is available to people in England, Wales, and Northern Ireland who have a relatively low level of debt and are unable to pay it off within a reasonable timeframe. It is designed to help people who are struggling with debt and are unable to make payments to their creditors.

A DRO is a formal agreement between the debtor and their creditors that typically lasts for 12 months. During this time, the debtor is required to make no payments to their creditors, and at the end of the 12-month period, the debts included in the DRO will be written off.

To be eligible for a DRO, the debtor must meet certain criteria, including:

  • Having debts of less than £20,000
  • Owning assets worth less than £1,000 (excluding a vehicle worth up to £2,000)
  • Having a disposable income of less than £50 per month after paying essential living expenses

It is important to note that a DRO is a formal insolvency procedure, and there are certain consequences associated with it. For example, it will be recorded on the individual’s credit file for six years, and it may affect their ability to obtain credit in the future. Additionally, not all debts can be included in a DRO, such as court fines, student loans, and child support payments.

If you are considering a DRO, it is recommended that you seek advice from a debt advisor or an insolvency practitioner to discuss your options and ensure that a DRO is the right solution for your particular circumstances.

How Does a Debt Relief Order Work?

A Debt Relief Order (DRO) is a formal insolvency process designed to help individuals who are struggling with unmanageable debts and have limited means to pay them off. Here is a step-by-step guide on how a DRO works:

  • Eligibility: To apply for a DRO, you must meet certain eligibility criteria, including having debts of £20,000 or less, having little to no assets, and having disposable income of less than £50 per month.
  • Application: You can apply for a DRO through an authorised debt adviser, who will assess your financial situation and guide you through the application process.
  • Payment: You’ll need to pay a one-time fee of £90 to apply for a DRO. If you’re unable to pay this fee, some organisations may be able to provide financial assistance.
  • Approval: Once your application is approved, the DRO will be in place for 12 months. During this time, your creditors will be unable to take any legal action against you to recover the debts included in the order.
  • Debt relief: At the end of the 12-month period, if your financial situation has not improved, the debts included in the DRO will be written off, and you’ll be released from your obligation to pay them.

It’s important to note that a DRO will have an impact on your credit rating and may restrict your ability to obtain credit in the future. Additionally, not all debts can be included in a DRO, such as student loans, court fines, and child support payments. It’s essential to speak with an authorised debt adviser to understand if a DRO is the right solution for your financial situation.

Debts Included in a Debt Relief Order :

Debts included in a Debt Relief Order (DRO) are those that can be written off at the end of the 12-month period if the individual is unable to pay them. However, not all types of debts can be included in a DRO. Here’s what you need to know about the debts that can and cannot be included in a DRO:

  1. Debts that can be included: Unsecured debts, such as credit card debts, personal loans, payday loans, and overdrafts, can be included in a DRO. These debts are typically unsecured, which means they are not backed by collateral, and the creditor has no legal claim to your property.
  2. Debts that cannot be included: Some types of debts cannot be included in a DRO, such as secured debts, such as a mortgage or car loan, court fines, child support payments, and student loans. If you have any of these debts, you’ll need to continue making payments on them during and after the DRO period.
  3. Joint debts: If you have a joint debt with someone else, such as a joint loan or joint credit card, you can include your portion of the debt in a DRO, but the other person will still be responsible for their share of the debt. It’s essential to note that if you include a joint debt in your DRO, your creditor may still pursue the other person for the outstanding balance.

It’s important to speak with an authorised debt adviser to understand which debts can be included in a DRO and whether it’s the right solution for your financial situation. Additionally, it’s crucial to keep in mind that a DRO will have an impact on your credit rating, and you may face restrictions on obtaining credit in the future.

Debts Not Included in a Debt Relief Order :

While a Debt Relief Order (DRO) can provide individuals with a fresh start by writing off qualifying debts, not all debts can be included in a DRO. Here are some debts that are not included in a DRO:

  1. Secured debts: A secured debt is a debt that is secured against an asset, such as a mortgage or a car loan. As a DRO only covers unsecured debts, secured debts cannot be included in a DRO.
  2. Court fines: Any fines or penalties imposed by a court cannot be included in a DRO. These debts are considered to be a form of punishment for a criminal offence and cannot be written off through an insolvency process.
  3. Child support payments: Child support payments, also known as maintenance payments, cannot be included in a DRO. These payments are considered a priority debt and must be paid in full.
  4. Student loans: Student loans cannot be included in a DRO. These debts are not considered to be traditional debts as they are backed by the government and have specific repayment terms and conditions.
  5. Debts incurred after the DRO: Any debts incurred after the DRO application is made will not be included in the DRO. This means that the individual must take steps to manage their finances and avoid further debts after applying for a DRO.

It’s essential to note that some creditors may still pursue the individual for debts that are not included in a DRO. It’s important to speak with an authorised debt adviser to understand which debts can and cannot be included in a DRO and how to manage debts that are not covered by a DRO.

Hire Purchase Items and Debt Relief Order ?

In a Debt Relief Order (DRO), hire purchase items are treated as a type of debt that can be included. Hire purchase agreements are a type of credit agreement that allows individuals to pay for goods in instalments, typically with interest. If the individual has fallen behind on their payments and cannot afford to pay off the outstanding balance, the hire purchase debt can be included in the DRO.

However, it’s important to note that the hire purchase item itself cannot be included in the DRO. This means that if the individual wants to keep the item, they will need to continue making payments on it, even after the DRO period is over. If they are unable to make the payments, the creditor may repossess the item.

Additionally, if the individual decides to surrender the hire purchase item as part of the DRO, they may still be liable for any outstanding balance on the item. This means that if the item is sold for less than the outstanding balance, the individual will be responsible for paying the difference.

It’s important to speak with an authorised debt adviser to understand the implications of including hire purchase debt in a DRO and to determine the best course of action for managing this type of debt.

Debt Relief Order Pros :

A Debt Relief Order (DRO) can be a helpful option for individuals who are struggling with unmanageable debt. However, it’s important to consider the pros and cons of a DRO before deciding whether it’s the right solution for your financial situation. Here are some pros and cons of a DRO:

Pros:

  1. Provides a fresh start: A DRO can provide individuals with a fresh start by writing off qualifying debts and helping them manage their finances more effectively.
  2. Protects against creditor action: Once a DRO is granted, creditors included in the DRO are not allowed to take any further action against the individual, including legal action and debt collection.
  3. Affordable: A DRO is a relatively affordable debt solution, with a fee of £90. The fee can be paid in instalments over six months.
  4. Short term: A DRO typically lasts for 12 months, after which qualifying debts are written off, allowing the individual to move forward with a clean slate.

Debt Relief Order Cons :

  1. Credit rating: A DRO will have a negative impact on the individual’s credit rating, making it more challenging to obtain credit in the future.
  2. Restrictions on borrowing: During the DRO period, individuals cannot borrow more than £500 without informing the lender of their DRO status. Additionally, the individual may face restrictions on obtaining credit for several years after the DRO is complete.
  3. Limited eligibility: To qualify for a DRO, individuals must meet strict eligibility criteria, including having a low income and few assets.
  4. Limited debt types: A DRO only covers certain types of debt, such as unsecured debts. This means that secured debts, such as mortgages, and other priority debts, such as child support payments, cannot be included.

It’s important to speak with an authorised debt adviser to understand whether a DRO is the right solution for your financial situation and to consider all of the pros and cons before making a decision.

Eligibility Criteria for a Debt Relief Order ?

To be eligible for a Debt Relief Order (DRO), individuals must meet specific criteria set by the Insolvency Service. The eligibility criteria include:

  1. Debt level: The individual must have unsecured debts totaling no more than £30,000.
  2. Income level: The individual must have a low income, typically less than £50 per month after paying essential living expenses.
  3. Asset level: The individual must have assets worth less than £2,000, with certain assets excluded from this limit, such as a vehicle worth less than £1,000.
  4. Residency: The individual must reside in England, Wales, or Northern Ireland.
  5. No existing debt solution: The individual cannot have any existing debt solutions in place, such as an Individual Voluntary Arrangement (IVA) or bankruptcy.
  6. Not a homeowner: The individual cannot own a home or have an interest in a home, such as a shared ownership scheme.
  7. Only UK debts: The individual must only have debts in the UK and not be subject to any legal proceedings outside of the UK.

It’s important to note that the eligibility criteria for a DRO can change, and it’s essential to check the current criteria before applying. Additionally, even if an individual meets the eligibility criteria, a DRO may not be the right solution for their specific financial situation. It’s crucial to speak with an authorised debt adviser to explore all available options and determine the best course of action.

You Are Not Eligible for a Debt Relief Order If ?

There are certain circumstances under which an individual may not be eligible for a Debt Relief Order (DRO). These circumstances include:

  1. Debt level exceeds the limit: The individual’s unsecured debts exceed the limit of £30,000.
  2. Income level too high: The individual’s disposable income is too high, typically more than £50 per month after paying essential living expenses.
  3. Asset level exceeds the limit: The individual’s assets exceed the limit of £2,000, with certain assets excluded from this limit, such as a vehicle worth less than £1,000.
  4. Residency: The individual does not reside in England, Wales, or Northern Ireland.
  5. Existing debt solution: The individual has an existing debt solution in place, such as an Individual Voluntary Arrangement (IVA) or bankruptcy.
  6. Homeowner: The individual owns a home or has an interest in a home, such as a shared ownership scheme.
  7. Non-UK debts: The individual has debts outside of the UK or is subject to legal proceedings outside of the UK.
  8. Fraudulent activity: The individual has engaged in fraudulent activity, such as obtaining credit through false pretences.
  9. Insolvency proceedings: The individual is subject to any other insolvency proceedings, such as a Debt Management Plan (DMP) or a Trust Deed.

It’s important to speak with an authorised debt adviser to determine whether a DRO is the right solution for your specific financial situation and to explore all available options.

Debt Relief Orders and Restrictions ?

Debt Relief Orders (DROs) come with certain restrictions that individuals need to be aware of. These restrictions are put in place to ensure that the individual’s financial situation improves, and they do not incur any further debt. Here are some common restrictions that come with a DRO:

  1. Credit restrictions: During the DRO period, individuals cannot borrow more than £500 without informing the lender of their DRO status. Additionally, after the DRO period, the individual may face restrictions on obtaining credit for several years.
  2. Business restrictions: During the DRO period, individuals cannot act as a company director or manage a business without permission from the court.
  3. Asset restrictions: During the DRO period, individuals cannot sell or dispose of any assets, such as property or vehicles, without permission from the court.
  4. Income restrictions: During the DRO period, any increase in income must be reported to the DRO team. This can result in an increase in monthly payments, or the DRO being revoked.
  5. Travel restrictions: During the DRO period, individuals may not travel outside the UK without permission from the DRO team.

It’s important to note that these restrictions are in place to ensure that the individual’s financial situation improves, and they do not incur any further debt. It’s crucial to comply with these restrictions to avoid any legal consequences. If an individual fails to comply with these restrictions, the DRO may be revoked, and the individual may face further legal action.

Which Assets Are Not Included in a Debt Relief Order?

Certain assets are excluded from the £2,000 asset limit in a Debt Relief Order (DRO). Here are some assets that are not included in a DRO:

  1. Basic household items: These include essential household items such as bedding, clothing, furniture, and white goods.
  2. Tools of the trade: If an individual requires specific tools or equipment for their employment, these items are not included in the DRO. For example, a carpenter’s tools or a hairdresser’s scissors would be excluded.
  3. Vehicles: If an individual’s vehicle is worth less than £1,000, it is not included in the DRO. However, if the vehicle is worth more than £1,000, it is included in the asset limit, and the individual may need to contribute to the DRO.
  4. Pension savings: Any pension savings or investments are not included in a DRO.
  5. Assets held in trust: If an individual holds any assets in trust, these assets are not included in the DRO.

It’s important to note that just because an asset is not included in a DRO, it does not mean that it cannot be taken into consideration when assessing an individual’s overall financial situation. The official receiver may still consider these assets when making a decision about the individual’s eligibility for a DRO or any contributions they may be required to make. It’s essential to seek advice from an authorised debt adviser to determine which assets are excluded from a DRO in your specific situation.

Can I Keep My Car on a Debt Relief Order in the UK?

In the UK, you may be able to keep your car on a Debt Relief Order (DRO), but there are specific rules that you need to follow.

If your car is worth less than £1,000, it will not be included in the asset limit of £2,000 for a DRO. This means that you can keep your car, and it will not affect your eligibility for a DRO.

However, if your car is worth more than £1,000, it will be included in the asset limit of £2,000. In this case, you may need to sell the car and use the proceeds to pay off your debts. If you cannot sell the car for a reasonable price, you may be able to keep the car if it is essential for your work, for example, if you need it to get to your job.

If you need to keep your car, you may need to provide evidence to support your case, such as a letter from your employer confirming that you need the car for work or evidence of medical conditions that make public transport difficult.

It’s essential to speak with an authorised debt adviser to determine how your car may affect your eligibility for a DRO and whether you can keep it on a DRO in your specific situation.

How Is My Home Affected By a DRO?

A Debt Relief Order (DRO) may affect your home in several ways, depending on your specific circumstances.

If you own your home, it will not be automatically included in a DRO. However, if your home’s value, including any equity you have in it, is over £1,000, it will be considered as part of the asset limit for a DRO. This means that if the value of your home is over £1,000, you may not be eligible for a DRO. If you have a mortgage on your home, the mortgage debt will not be included in the DRO.

If you are renting your home, a DRO should not affect your tenancy, as long as you are keeping up with your rent payments. However, your landlord may be notified about your DRO.

It’s important to note that a DRO may affect your credit rating, and it may be difficult to get a mortgage or other credit in the future. If you own your home and have a mortgage, a DRO may also affect your ability to remortgage or sell your home.

If you are considering a DRO, it’s essential to seek advice from an authorised debt adviser to understand how it may affect your home and other assets.

What If I Do Not Qualify for a Debt Relief Order?

If you do not qualify for a Debt Relief Order (DRO), there are still other debt solutions available that you can explore. Here are some options:

  1. Individual Voluntary Arrangement (IVA): An IVA is a legally binding agreement between you and your creditors, where you agree to pay off your debts over a set period, usually five to six years. Your monthly payment is based on what you can afford, and any remaining debt is written off at the end of the IVA. To qualify for an IVA, you need to have at least £6,000 of unsecured debt and a regular income.
  2. Debt Management Plan (DMP): A DMP is an informal agreement between you and your creditors, where you make reduced payments based on what you can afford. DMPs are suitable for people with lower levels of debt who can afford to make some payments towards their debts. DMPs are not legally binding, and your creditors may still charge interest and fees.
  3. Bankruptcy: Bankruptcy is a formal insolvency process that can help you write off most of your debts. However, it has significant consequences and may affect your credit rating, employment, and ability to get credit in the future. Bankruptcy is suitable for people with significant debt that they cannot afford to pay off.
  4. Debt consolidation loan: A debt consolidation loan can help you pay off multiple debts by combining them into one loan. This can make it easier to manage your debts and reduce the interest you pay. However, you will still need to make payments on the loan, and you may end up paying more interest in the long run.

It’s important to seek advice from an authorised debt adviser to determine which debt solution is right for your specific situation.

How Much Does a Debt Relief Order Cost?

The cost of a Debt Relief Order (DRO) is currently £90, which is a one-time fee. You can pay this fee in full, or you can make payments over six months. If you choose to pay in instalments, you will need to pay £15 upfront and then make five monthly payments of £15.

It’s important to note that you should not pay anyone to apply for a DRO on your behalf. Only an authorised debt adviser can help you apply for a DRO, and they will not charge you for their services. If someone offers to help you apply for a DRO for a fee, it’s likely a scam, and you should avoid them.

If you’re struggling to pay the fee for a DRO, you may be able to get help from a charitable organisation. You can contact a debt advice charity like StepChange or Citizens Advice for guidance on getting help with the fee.

Overall, a DRO is an affordable debt solution for people with low levels of debt and little to no assets. However, it’s important to seek advice from an authorised debt adviser before applying for a DRO to ensure it’s the right debt solution for your specific situation.

The Official Receiver :

The Official Receiver is a civil servant who works for the Insolvency Service in the United Kingdom. Their primary role is to administer insolvency procedures, including bankruptcies, Debt Relief Orders (DROs), and Individual Voluntary Arrangements (IVAs).

When a DRO is approved, the Official Receiver will be appointed to administer the DRO. Their duties include:

  1. Reviewing the debtor’s financial circumstances and assets to determine whether they qualify for a DRO.
  2. Ensuring that the debtor’s assets are protected, and creditors are not unfairly disadvantaged.
  3. Informing creditors and other interested parties of the DRO and inviting them to make a claim if they are owed money.
  4. Ensuring that the debtor adheres to the conditions of the DRO, such as not taking on new credit.
  5. Dealing with any queries or issues that arise during the administration of the DRO.

The Official Receiver’s role in a DRO is to ensure that the process runs smoothly and that all parties are treated fairly. If you have any questions or concerns about your DRO, you can contact the Official Receiver assigned to your case for guidance.

Get Debt Help from Experts :

If you are struggling with debt and need help, there are several debt help options available to you in the UK. Here are some ways to get debt help from experts:

  1. Contact a debt advice charity: Debt advice charities such as StepChange, Citizens Advice, and National Debtline provide free and confidential advice on debt problems. They can help you with debt solutions such as Debt Relief Orders, Individual Voluntary Arrangements, and bankruptcy.
  2. Speak to a debt management company: Debt management companies can help you manage your debts by negotiating with your creditors to reduce your monthly payments. However, they may charge a fee for their services.
  3. Contact a debt counsellor: Debt counsellors can provide one-to-one support and advice on how to manage your debts. They can help you create a budget, negotiate with creditors, and develop a debt repayment plan.
  4. Seek legal advice: If you are facing legal action from creditors, it is important to seek legal advice from a solicitor who specialises in debt law.
  5. Contact your creditors: If you are struggling to make your payments, it is important to contact your creditors and explain your situation. They may be willing to offer you a repayment plan or reduce your interest rates.

Remember that it is important to seek debt help as soon as possible to prevent your debts from spiralling out of control. The earlier you seek help, the more debt solutions will be available to you.