A debt relief order (DRO) allows you to freeze your debt for a year, before writing it off entirely if there is no change in your personal circumstances. They are a good option for people on low incomes who owe less than £20,000 and don’t own their own home. Unlike other forms of debt relief, you don’t have to make any additional payments to your creditors once a DRO has been agreed.
Who Is Eligible For A DRO?
To be eligible for a DRO, you need to:
- Be less than £20,000 in debt
- Have savings less than £1,000
- Not own anything worth more than £1,000
- Have less than £50 left at the end of every month after paying your bills
- Have lived or worked in England, Wales or Northern Ireland for the last three years.
You can’t apply for a DRO if you have:
- Applied for bankruptcy, even if this hasn’t yet been granted
- A Debt Relief or Bankruptcy Restriction Order/Undertaking
- Already been declared bankrupt
- Had a DRO in the past six years.
You also can’t apply for a DRO if your creditors have applied for bankruptcy to cover your debts.
If you have given away belongings, sold personal property, e.g. a car, for less than it was worth, or prioritised debt, e.g. paying off one creditor over others, in the last two years you may not be eligible for a DRO. Speak to your debt adviser if any of these apply.
What Is Covered By A DRO?
DROs cover what are known as qualifying debts. These include loans, overdrafts, catalogues, credit or store cards, council tax, rent arrears, utility bills, overpayment of benefits, tax and national insurance contributions.
DROs cover your debts, not your ongoing bills so, remember, you will still need to pay your rent and other household bills, e.g. gas and electric. Even if your rent arrears are part of a DRO, if you don’t make current payments, your landlord could start eviction proceedings against you.
A DRO doesn’t cover student loans, social fund loans, confiscation orders, maintenance or child support arrears, or magistrate’s court fines. You need to speak to a debt advisor, Citizens Advice, for example, if you have these types of debts to understand what help is available.
How To Apply For A DRO
You cannot apply directly for a DRO but need to go through what is known as an Intermediary. Most debt advice agencies, including charities, offer an Intermediary Service, which costs £90 and can be paid for in instalments for up to six months. Your application will be reviewed by the Official Receiver who will consider your eligibility and grant a DRO if you are approved.
You cannot get a DRO unless you have paid the full £90, so you need to bear this in mind when you are applying and, if you need to pay in instalments, pay the most you can each time to speed up the process.
Once your DRO has been approved you go on the Individual Insolvency Register, which is in the public domain. You remain on the register for three months after your DRO has ended/been discharged.
Intermediaries must be authorised, so make sure this is the case before you make an application to reduce any risk of it being rejected.
Like other types of debt relief, there are restrictions on what you can and can’t do when you are under a DRO including:
- Letting a lender know about your DRO if you plan on borrowing more than £500.
- Not acting as a company director or setting up a company without the permission of the court (you also need the court’s permission to manage or promote a company).
- If you manage a business, telling your customers about your DRO.
- Telling the bank or building society if you apply for a new bank account.
Normally, a DRO ends after one year. However, it can be cancelled if your financial situation improves or you break the restrictions.
Restrictions end at the end of your DRO, which lasts one year. However, if you broke them, e.g. lied to get credit, they can be extended; the Official Receiver will let you know, or you can check on the Individual Insolvency Register.
The Impact Of A DRO On Your Credit Rating
A DRO is recorded on your credit file and remains on there for six years. This will impact your credit rating and your ability to get credit in the future. Therefore, it is always a good idea to take independent advice from a debt advisor before making any decisions about whether to apply.
This debt adviser can also work with you to develop a budget to reduce any reliance you have on credit going forward, meaning you are more likely to remain debt free after your DRO has been discharged.