About Debt Relief Orders

 

A Debt Relief Order (DRO) is a personal insolvency process. It provides you with legal protection from your creditors and your debts are written-off after one year.

 

The DRO application fee is £90 and (unlike an IVA or a debt management plan) you won’t have to make any further monthly payments. This £90 DRO application fee compares favourably with bankruptcy, which currently costs £680 in England and Wales.

 

Debt Relief Orders are used by people who own few assets, owe less than £30,000 in total, and who have little spare cash after paying their essential bills and general expenses.

 

For personal advice about debt solutions, please contact us.

 

DRO Qualification Criteria

 

The following qualification criteria came into force in England and Wales on 29th June 2021:

 

Debt Total: Your total qualifying debts cannot exceed £30,000. There is no minimum debt total. It’s not allowable to exclude a qualifying debt in order to reduce your total debt below £30,000. You can find further information about DRO qualifying debts and excluded debts below.

 

Surplus Income: You must be unable to afford to repay more than £75 per month towards your debts. This figure is calculated by a specialist debt adviser after reviewing your income and expenditure. The adviser subtracts your household bills and essential expenses from your total income. If your income is entirely made up of state benefits, you will pass this £75 disposable income test and you can submit a DRO application.

 

Vehicle: You cannot own a vehicle that is worth more than £2,000. You can quickly get a free valuation of your vehicle by using the Parkers website. Exemptions from the £2,000 rule might apply if your vehicle has been adapted to meet disability needs. Be aware that some vehicle finance providers could terminate your credit agreement and recover your financed vehicle if you enter a Debt Relief Order.

 

Other Assets: Your other assets must be worth no more than £2,000 in total. This total asset value does not include regular household objects like kitchen appliances, furniture, and clothing. It also excludes tools that are necessary for your work.

 

Home Ownership: Homeowners cannot use a Debt Relief Order.

 

Residential Location: You must live in England, Wales, or Northern Ireland. It may also be possible to apply if you moved abroad with UK debts within the past three years.

 

Application Fee: You’re required to pay a £90 application fee before your application is submitted.

 

Exclusions: You cannot apply for a Debt Relief Order if you have already used this process within the past six years. You also cannot apply for a DRO if you’re currently bankrupt or subject to an IVA.

 

Northern Ireland Criteria

 

The following differences in the DRO qualification criteria apply to residents of Northern Ireland:

 

• Debt Total: A maximum of £20,000

• Surplus Income: A maximum disposable income of £50 per month

• Vehicle: A maximum value of £1,000

• Other Assets: A maximum value of £1,000

 

Breathing Space – The Debt Respite Scheme

 

A relatively new development (in May 2021) is the introduction of the Debt Respite Scheme; otherwise known as Breathing Space. Breathing Space provides you with formal legal protection from your creditors while you get debt advice and implement a debt solution. The standard period of legal protection is 60 days, though this can be extended for those receiving treatment for a mental health crisis.

 

The Debt Respite Scheme can provide you with protection from your creditors while you work with an adviser to produce and submit your Debt Relief Order application. It’s only available to residents of England and Wales.

 

Benefits and Advantages

 

This is a relatively low-cost and quick debt solution. The application fee of £90 is far more affordable than the alternative £680 bankruptcy application fee. You’ll get discharged and your debts will get written-off after just one year.

 

You will not be asked to make a monthly payment towards your debts. The £90 application fee is all that you will have to pay.

 

Your debt adviser deals with your creditors for you and you do not need to rely upon creditor acceptance for your application to be approved.

 

Drawbacks and Disadvantages

 

Your credit rating will be negatively affected. A Debt Relief Order is registered on your credit report for six years and is likely to affect the availability and terms of any new credit you apply for.

 

Your personal information will be added to a public register. There are separate public registers for residents of England & Wales and Northern Ireland.

 

You’ll only be able to borrow a very small sum of money without informing the lender about your DRO. You will also not receive any allowance to continue repaying any money you owe to friends or relatives.

 

You may need to open a new bank account and your selection of bank accounts will be limited.

 

In a limited number of circumstances your DRO could fail and you’d then need to address your debts in a different way. Please see below for further information.

 

Certain types of employment may be affected by using a personal insolvency process. Please see the “Employment Matters” section below for further information.

 

Can A Debt Relief Order Fail?

 

Your Debt Relief Order could be cancelled if your financial situation improves significantly prior to getting discharged. This isn’t common and affects a very small percentage of cases.

 

This could be a consideration if your income is likely to increase, for example a return to work after Covid-19 furlough. It’s also a consideration if you’re likely to come into money or assets (like an inheritance, for example).

 

A DRO could also be cancelled if you fail to cooperate with the Official Receiver, if your honesty is questioned, or if an undisclosed debt takes you over the £30,000 total debt threshold.

 

Employment Matters

 

Most types of employment are not affected by using a Debt Relief Order. It’s still sensible to check your contract of employment for insolvency restrictions before you proceed with an application.

 

A DRO could cause serious disruption if you operate a business. You cannot serve as a company director and also cannot create, manage or promote a company without the court’s permission. You must inform those you do business with about your Debt Relief Order. Sole traders must include bounce back loans and other trade credit that they are personally liable to repay in their creditor list.

 

Vetting is common in disciplined types of employment where managing risk is important. This could apply if you’re a police officer, prison officer, or a member of the armed forces. Advance disclosure and employer consent are common requirements for those who work in vetted positions.

 

Vetting is also common within the financial services sector. Your employer or regulator may have expectations about your personal financial status. This could apply if you work for a bank, for an insurer, as a financial adviser, or as a mortgage and protection broker. You should seek clarification from your employer and/or your regulator before going ahead.

 

Some types of professionals must be members of regulatory professional bodies, such as accountants and solicitors for example. These bodies may impose standards regarding the personal financial standing of their members, which could include restrictions against using personal insolvency procedures like a DRO.

 

Applying for a Debt Relief Order

 

Debt Relief Order applications can only be submitted by “authorised intermediaries”. These intermediaries are specialist debt advisers.

 

For local advice services you can contact Citizens Advice which employs authorised intermediaries throughout the UK.

 

To find other local advice centres and national telephone helplines, you can contact the Money Advice Service.

 

Bright Oak is not an authorised intermediary and we cannot submit a DRO application for you. We can signpost you to appropriate local and national services if this debt solution is suitable for your situation.

 

How Does the DRO Process Work?

 

The process of starting (and completing) a Debt Relief Order isn’t complex. Once you have contacted and appointed an appropriate adviser, they will provide you with the support and information that you need to navigate the process.

 

The main stages are:

 

1. Contact an “authorised intermediary” debt adviser

2. Provide financial information to the adviser

3. Receive debt advice

4. DRO application is prepared by the adviser

5. Pay the £90 application fee

6. The application is submitted

7. The application gets approved (10 working days)

8. You may need to liaise with the Official Receiver

9. You get discharged after one year

 

Included & Excluded Debt Types

 

Most types of debts are included in a Debt Relief Order.

 

Regular consumer credit debts are included. This category includes common debts like credit cards, store cards, catalogue accounts, loans, overdrafts, and credit union debts.

 

Arrears on household bills are also included. This category includes arrears on council tax, gas, electricity, water, and telecommunications.

 

You can still include the above debts if they have already been handed over to a debt collection agency.

 

Some types of debt that are excluded from a DRO are:

 

  • Mortgages and other secured loans
  • Hire purchase for goods you need
  • Child maintenance or child support
  • Court fines
  • TV licence
  • Confiscation orders
  • Social fund loans
  • Injury (or death) compensation

 

Excluded debts do not count towards the £30,000 total debt threshold.

 

It’s extremely important that your debt adviser is made aware of all of your debts. You cannot add a debt after your application has been approved.

 

Fraudulent debts do count towards the £30,000 threshold but aren’t written-off when you get discharged. You’ll remain liable to repay them in the future.

 

Joint Debts and Guarantor Loans

 

A Debt Relief Order addresses your personal liability for your qualifying debts. However, it provides no protection to any other person who is also liable for payment.

 

The other party will remain liable for repayment and the lender will continue to seek repayment from them. This potential concern applies primarily to:

 

 

Joint DRO

 

There is no such thing as a joint Debt Relief Order. This debt solution is only available on an individual basis. Couples can however contact a debt adviser together, receive debt advice together, and then submit their individual DRO applications. Each will be required to pay the £90 application fee.

 

Couples don’t have to use the same type of debt solution as each other. If one of you qualifies for a Debt Relief Order but the other does not, they’ll still have access to other types of debt solutions.

 

Debt Relief Restrictions Undertakings and Orders

 

If the official receiver believes your actions have been dishonest or blameworthy, your standard DRO restrictions could be extended by two to fifteen years.

 

Examples of such behaviour could include:

 

  • Borrowing money that you knew you could not repay
  • Giving away assets
  • Paying certain creditors in preference to others
  • Failing to cooperate
  • Excessive gambling losses

 

A “Debt Relief Restrictions Undertaking” applies if you accept the official receiver’s allegations. If you reject the allegations, or fail to respond to them, the official receiver can apply to the court to impose a “Debt Relief Restrictions Order”.

 

These Undertakings and Orders are published in detail for three months and are further recorded on the public insolvency register thereafter.

 

Alternative Debt Solutions

 

Debt Management Plan: Debt management plans are an informal alternative to a Debt Relief Order. They are not a type of personal insolvency, so your assets aren’t taken into account and there is no public register. No debt gets written-off, so in some scenarios it could take a long time to become debt-free. A DMP also doesn’t provide formal legal protection from creditors and does not fully guarantee that interest will be stopped.

 

IVA: An individual voluntary arrangement (IVA) is also a type of personal insolvency. An IVA is also subject to a public register, but it can deal with assets more flexibly than bankruptcy. This debt solution is therefore often suitable for homeowners. You make monthly payments towards your debts for an agreed period of time (often five years). Once the arrangement has been completed, you’ll get discharged and your remaining debt gets written-off.

 

Bankruptcy: Bankruptcy may be a suitable debt solution if you do not qualify for a Debt Relief Order but your debts are overwhelming. You get discharged after one year, but if you can afford to make a monthly payment then that payment will last for three years in total. This is a type of personal insolvency, your details will get added to a public register, and applications cost £680 in England and Wales.

 

Debt Consolidation: Debt consolidation involves applying for new credit to repay your older debts. This can be effective if your new monthly payment is affordable and the interest costs aren’t excessive. Consolidating debt can also be very risky, especially if you secure the new loan against your home.

 

Get Debt Advice

 

For friendly confidential debt advice please contact us.

 

 

Author: Andrew Graveson

Qualified Debt Adviser & Bright Oak’s Founder

 

Page Last Updated: 05/07/2021

 

 

 

 

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