Debt Relief Orders

What is Debt Relief Order ?

A debt relief order is Government legislation intended to create an alternative to bankruptcy for those not able to afford an IVA, Debt Management Plan or to even afford to petition for their own bankruptcy.

A debtor pays just £90 to enter into a DRO, much less than the £495 needed to petition ones own bankruptcy. Many debtors can't afford to go bankrupt, even though it can be in their best interest to do so.

The cost of a DRO is kept low as applications are made online (with the assistance of a debt advisor to act as an intermediary) and there is no estate to take into consideration. The outcome is much the same as bankruptcy.

Debt Relief Order Criteria

To be able to apply for a Debt Relief Order you must satisfy all the below.

• Be unable to afford current repayments and charges.
• Owe no more than £15,000 in unsecured debts.
  You must include ALL your debts. You can't selectively write off a proportion of larger total by a DRO.
• Have assets totaling less than £300.
  Only non-essential items that can easily be sold are taken into account.
• Have a disposable income of no more than £50 per month.
  This is your income minus reasonable living expenses, not counting your credit repayments as defined using a common financial statement.
• Not be currently involved in another formal insolvency procedure
  For example being a serving bankrupt or in an IVA.
• Be domiciled in England or Wales, or for the last three years have been resident or carrying on business there.
  

If this position remains for 12 months after the DRO is granted, all debts are cleared. You would be expected to start repaying creditors should your situation improve during this time.

If you have equity in your home, then that is an asset and you can't do a DRO. Your creditors would get back more by bankrupting you.

Disadvantages of a Debt relief Order

The downside of debt relief orders, as opposed to being able to repay your debts in full are similar to that of bankruptcy.

A DRO will remain on public record for 15 months, and like all adverse information will stay on your credit record for 6 years.

You will be subject to the following restrictions:

• You may not obtain credit of £500 or more, either alone or jointly with someone else, without telling the lender you are within a DRO.

• You may not trade (directly or indirectly) in a name that is different from the name under which you were granted a DRO, without telling all those with whom your do business, the name under which you were granted a DRO.

• You may not be involved (directly or indirectly) with the promotion, management or formation of a limited company, and may not act as a company director, without the court’s permission.

• You will only be able to obtain a DRO once every six years.

You may also be subject to a Debt Relief Restrictions Order, similar to a bankruptcy restriction order. This can extend the period of restriction for up to 15 years for debtors who are deemed dishonest or culpable to the extent of their financial difficulties. An example of this hiding assets or continuing to borrow knowing you have no chance of making repayments.

Applying for a Debt relief Order

If you think a debt relief order may be for you contact your local Citizens Advice Bureau for advice.

If you have some assets such as a house or car to protect or you can afford at least £100 per month towards your debts, then you can't do a DRO.

In such cases debt management may be the best option. Debt management allows you to repay your debts from £100 per month, based on affordability, without involving the equity in your home.