Debt Relief Made Simple
Debt Relief Order
A debt relief order is a personal debt solution available in England, Wales and Northern Ireland. It is often considered to be a simple form of bankruptcy.
This solution is designed for people who have relatively low incomes and few assets.
Unlike bankruptcy, you can implement a DRO for free. However in order to qualify, you need to be able to meet some strict qualification criteria.
Use this guide to find out the answers to many of the most common debt relief order questions. Need specific advice? Get in touch today to speak to one of our experts.
What Is A Debt
Relief Order?
A debt relief order (DRO) is a personal debt management solution available to people living in England, Wales and Northern Ireland but not in Scotland.
It allows you to write off debt you can’t afford to pay.
A DRO is often considered to be a simple form of going bankrupt. It lasts just 12 months and does not require you to make any further payments towards your debts.
The key advantage of this solution is that unlike bankruptcy, it is 100% free to implement. However, you can only use it if you meet some strict acceptance criteria.
Debt Relief Order Key facts:
• In order to apply for a DRO you have to meet the qualification criteria. The main ones are:
- Your total debt must be less than £50,000
- Your surplus income must be less than £75/mth
- Your car (if you have one) must be worth less than £4000
- You can’t be a home owner
• A debt relief order is free to implement. In order to apply you need the assistance of an Approved Intermediary. However, they will not charge you any fee.
• Your DRO will last just 12 months (1 year). After that, it is completed and your debt is written off.
• Once your DRO is in place, you do not have to make any further payments towards the included debts.
How Will A Debt
Relief Order Affect You?
How a debt relief order will affect you will depend on your circumstances. This means that it will be right for some people but not others.
Some of the main things you should think about are as follows.
How long dues a debt relief order last?
Once in place a DRO lasts for 12 months. You do not have to make any further payments towards your debts during this time.
A record that the Order has been put in place will be recorded on your credit file. This will negatively affect your credit rating.
The record will remain on your file for 6 years from the start date.
Who will find out?
A debt relief order is a relatively private debt management solution.
Generally speaking, no one will find out you have one unless you choose to tell them. Your employer and landlord will not be told.
Your name will NOT be published in the local newspaper.
Your name and address is recorded in the insolvency register. This is accessible via the internet. However, given most people do not even know this list exists. As such, it is very unlikely any of your friends or family would ever see it.
Will you have to sell your car?
You are allowed to keep your car as long as it’s second hand value is no more than £4000.
If you vehicle is worth more than £4000 second hand, you are not eligible for a DRO and will need to consider a different debt management solution.
Note: If your car is on finance, the valuation rules still apply. If the second hand value is greater than £4000, you can’t do a DRO regardless of the amount of finance outstanding.
Will your job be affected?
Most jobs are not affected if you use a DRO. Your employer will not be told and you simply continue going to work as normal.
There are a small number of roles which you can’t continue to do after you start your debt relief order. For example, you are not allowed to be a company director.
If you are currently a company director you whould have to resign from your position.
You can become a company again after the Order is completed. In other words, in 12 months.
If your employer requires you to maintain a clear credit rating, using a DRO will be a problem. However, it would mean that you would also be prevented from using a debt management plan, IVA or going bankrupt.
No Monthly Payments
You don’t make payments during the DRO
Free to Apply
No fees required to start a DRO
12-Month Duration
Lasts just one calendar year
Debt Written Off
Included debts are cleared at the end
What Happens To
Your Credit Rating?
A record that you have a Debt Relief Order (DRO) will be added to your credit file.
This will have a negative effect on your credit rating and make it difficult for you to borrow money and get other new forms of credit.
The record will remain on your file for 6 years. Your credit rating will not start to significantly improve until this time has passed and it has been deleted from your file.
Improving your credit rating after a DRO
Once your DRO has ended (after 1 year) there are steps you can take to start improving your credit rating.
The most effective of these is to start using a so called credit repair credit card. These cards are available from lenders such as Capital One, Aqua and Vanquis.
How Much Does A Debt
Relief Order Cost?
You do not have to pay anything to start a debt relief order. You will not be charged by the company that implements it on your behalf.
Low Income
Surplus income under £75 a month
Limited Assets
Car worth £4,000 or less
Not a Homeowner
Available if you don’t own property
Strict Criteria
You must meet all eligibility rules
Advantages of a
Debt Relief Order
There are number of advantages of starting a debt relief order. Whether they are relevant to you will depend on your individual circumstances.
1. Free to implement
There is no cost to start DRO. If you qualify, it is free to implement this solution.
2. 100% of your debt is written off
All the debt you owe (as listed on your application) is written off. You do not have to make any further payments towards it.
Once you have a DRO, you are not required to make any more monthly payments towards your debt whatsoever.
3. You get legal protection
A debt relief order gives you legal protection from your creditors.
Once in place, they are no longer allowed to use legal means to make you pay what you owe. For example they are not allowed to apply for a CCJ against you or appoint a bailiff to collect their debt.
If you already have any CCJs or wage attachments in place, these are overturned by your DRO.
4. Your DRO lasts just 12 months
Your DRO only lasts for a year. 12 months from the start date, the Order is completed and your debts are written off.
Disadvantages of a
Debt Relief Order
As well as the advantages, there are a number of disadvantages of a debt relief order.
It is important you understand these as they may prevent you from being able to use this debt management solution.
1. Debt must be less than £50,000
In order to qualify for a DRO, the total amount of debt you owe must be less than £50,000.
You will have to provide evidence of the balance you owe to each of your creditors. This could be in the form of a recent statement or collection letter.
2. All your debts must be listed
If you are not sure who you owe money to or how much, a DRO is unlikely to be suitable for you.
The reason for this is that you have to prove your total debt is less than £50,000. In addition, if you miss a debt out, you will still be liable to repay it.
In these circumstances, you may be better off going bankrupt.
In bankruptcy, all of your debt is included. If you forget to include one of your debts or the amount turns out to be different, it does not matter.
3. Surplus income must be less than £75/mth.
Debt relief orders were designed to assist people on low incomes.
When you apply you will have to give detailed information about your monthly income and living expenses.
Your surplus income is calculated by deducting all of your reasonable living expenses from your income. The amount remaining is known as your surplus.
If your surplus is greater than £75/mth, you can’t do a DRO. This is the case even if your income is only made up of benefits.
4. Will fail if your circumstances improve
If your surplus income increases above £75/mth during the year your DRO is in place, it will fail (also known as being revoked).
This means that you are back to square one. You will still owe the total of the debt you had before the Order started.
As such, a DRO is unlikely to be suitable if you know that your income is likely to rise significantly in the next 12 months.
Your DRO will also fail if you get a windfall of more than £2000 (such as an inheritance payment) while it is in place.
5. Can only apply once in every 6 years
Once you have started a debt relief order, you are not allowed to start another for 6 years.
This is the case even if your first agreement failed.
If you get into trouble with debt again within 6 years of starting a DRO, you will need to use a different debt manage solution to resolve the problem.
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If you need advice and help with your personal debt, get in touch with us today. Talk to us in confidence. Take control of your finances. Get on the way to becoming debt free.
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