A Debt Relief Order (DRO) is a form of insolvency, which you can apply for if you are unable to pay off your existing debts. It is aimed at people who do not own their own home, who have little in the way of surplus income and who owe relatively small amounts of money.
DROs came into force in England and Wales in April 2009 and are operated by the Insolvency Service. They do not directly involve the courts and are generally viewed as a cheaper and simpler alternative to bankruptcy.
The order usually lasts for 12 months and during that time, the people you owe money to (known as your creditors) are unable to take action against you in order to recover their money without court permission. At the end of that 12 month period, you will be free from all of the debts listed in the order.
Not everybody is eligible to apply and certain conditions must be met in order to receive a Debt Relief Order. These conditions are:
- You must owe less than £15,000 and be unable to pay your debts.
- After normal household expenses and National Insurance contributions, you must have a disposable income of £50 a month or less.
- Your assets must be worth less than £300, with the exception of a car, which can be worth up to £1,000.
- You have to live in England or Wales, have done so at some point in the last three years, or have owned property or operated a business in either of those countries.
An exception on the maximum value of your car may be made if it has been specially adapted due to a physical disability.
Although DROs are a method of debt relief, only some debts qualify for inclusion. These include:
- Credit cards
- Rent, council tax and telephone and utility bills
Hire purchase agreements are a qualifying debt, although you will usually be required to return the goods purchased, unless someone else is able to take on the payments.
Benefit overpayments are valid for inclusion in a DRO, as long as the overpayments were not obtained via fraud.
Rent arrears can be included, although your landlord may still be able to take action to get their property back.
Court fines, student loans, social fund loans and child support do not qualify for inclusion in a Debt Relief Order.
You will be unable to obtain a Debt Relief Order if:
• You are currently bankrupt.
• You currently have an IVA or are applying for one.
• Your creditors have applied to make you bankrupt and you are awaiting a hearing.
• You have previously had a DRO during the last six years.
During the time that the Debt Relief Order is in place, you will be unable to:
• Get credit of more than £500 without informing the lender you have a DRO.
• Act as a company director.
• Manage a business unless you tell those you do business with about your DRO.
• Create, manage or promote a company, without court permission.
You can only apply for a Debt Relief Order through an approved debt adviser or an authorised third party. In order to apply, you must also pay a fee of £90. This fee can be paid over a period of six months, although your application will not be processed until it is paid in full.