Have you heard of Debt Relief Orders (DRO)? Seen them online and wondered if one was for you? Has one been suggested for your situation and you’re unsure?
This post will discuss Debt Relief Orders. What they are, how they work and how they can help.
They aren’t designed to replace professional advice in any way but this post should offer a little more clarity on what a Debt Relief Order is and what it can do for you.
What is a Debt Relief Order?
A Debt Relief Order is a legally binding agreement between you and your creditors to repay what you owe on a more generous timescale.
If you’re not a homeowner and owe less than £30,000, you may qualify for one.
Where Debt Management Plans are non-legally binding, a Debt Relief Order is. It’s a form of insolvency and one step removed from bankruptcy.
It enables you to write off certain debts for up to a year if you cannot realistically repay them within a reasonable time.
After that year, if your situation hasn’t improved, the debts will be written off permanently.
If a creditor agrees to a DRO, they cannot chase you for the debt and interest freezes for the entire time it is active.
What debts can you pay with a Debt Relief Order?
Most government debts are covered by a Debt Relief Order. That can include some priority debts and most non-priority debts.
The cynical amongst you will quickly realise that the Debt Relief Order can write off debts to everyone except the government.
That includes:
- Rent
- Energy bills
- Credit cards
- Personal loans of any kind
- Store cards
- Overdrafts
- And most other debts
Debts not included within a Debt Relief Order include:
- Court fines
- Student loans
- Government loans such as those from the Social Fund
- TV licence arrears
- Outstanding child maintenance
- Any finance acquired by fraud such as benefit overpayments while you were working
If you’re a homeowner, you cannot qualify for a Debt Relief Order. You’ll need another solution.
How do you get a Debt Relief Order?
A Debt Relief Order isn’t for everyone but it can be a solution if debts are bad enough that you stand little chance of repaying them.
To qualify for a Debt Relief Order, you’ll need to:
- Owe less than £30,000
- Not be a homeowner
- Not have assets or savings worth over £2,000
- Have less than £75 per month spare once bills are paid
- Have lived in England or Wales for at least 3 years
If you think you qualify, you’ll need to work with an intermediary to arrange a DRO.
Most debt charities can act as an intermediary and are trained to discuss your situation and assess the best approach.
Nothing can substitute a frank conversation with a debt expert!
If a Debt Relief Order is the right solution, your intermediary will apply for one on your behalf. There’s a £90 fee you’ll need to pay, which can be paid over 6 months.
What are the consequences of a Debt Relief Order?
A Debt Relief Order will stay on your credit file for 6 years and will impact your credit score.
If you’re in debt through hire purchase or other store credit, you may have to return the goods you cannot pay for. This is assessed on a case by case basis.
A Debt Relief Order can also impact some private tenancies, bank accounts, power of attorney and other areas of life.
You won’t be able to borrow money during the Debt Relief Order. If you really need to borrow, you’ll need to inform your creditor.
You cannot set up a new business, start a company or migrate to another country.
You’ll also appear on the Individual Insolvency Register while the DRO is in force and for 3 months afterwards.
Debt Relief Orders and you
Debt Relief Orders are serious business and should not be entered into lightly. However, they can be the perfect instrument to help you get out of debt and get ahead of your situation.
Consult an expert, work with a debt charity and only use a DRO as a last resort. But, if one is recommended, don’t hesitate to use it as it can be a liberating experience.
It isn’t without its downsides though so make sure you know exactly what you’re getting into!
