Understanding Debt Relief Orders (DROs): A Lifeline for Financial Struggles
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If you’re struggling with unmanageable debt in the UK and have limited income or assets, a Debt Relief Order (DRO) could be the solution you need. Introduced as an alternative to bankruptcy, DROs provide a way to write off debts for those who genuinely cannot afford to repay them.
In this blog, we’ll explore what a DRO is, how it works, its eligibility criteria, and the advantages and disadvantages of choosing this debt solution.
What Is a Debt Relief Order?
A Debt Relief Order is a formal debt solution available in England, Wales, and Northern Ireland (a similar scheme called a Minimal Asset Process is available in Scotland). It is designed for individuals with low income, minimal assets, and debts below a certain threshold.
Once a DRO is approved, creditors cannot chase you for payment, and your debts are typically written off after 12 months if your financial situation hasn’t improved.
How Does a DRO Work?
- Apply Through an Approved Adviser: DROs can only be applied for through an authorised debt adviser, such as StepChange or Citizens Advice.
- Pay the Application Fee: A one-time fee of £90 is required to process your application.
- Approval Process: The Insolvency Service assesses your application. If approved, your DRO will be registered.
- 12-Month Moratorium Period: During this time, creditors cannot take action against you.
- Debt Write-Off: At the end of the 12 months, your debts included in the DRO will be written off, provided your circumstances haven’t improved.
Who Is Eligible for a DRO?
To qualify for a DRO, you must meet the following criteria:
- Debt Limit: Your total unsecured debts must not exceed £30,000 (England and Wales) or £20,000 (Northern Ireland).
- Asset Limit: Your assets must not exceed £2,000, including savings.
- Disposable Income: After essential expenses, your disposable income must be less than £75 per month.
- Residency: You must live in England, Wales, or Northern Ireland, or have been a resident or carried out business there in the last three years.
- Previous DROs: You must not have had a DRO in the last six years.
Debts Covered by a DRO
A DRO can include most unsecured debts, such as:
- Credit cards.
- Personal loans.
- Overdrafts.
- Utility arrears (e.g., gas, electricity, water).
- Council tax arrears.
Certain debts, such as student loans, court fines, and child maintenance payments, cannot be included in a DRO.
Advantages of a DRO
- Debt Write-Off: At the end of the moratorium period, eligible debts are written off entirely.
- Affordable Solution: The one-time fee of £90 is significantly lower than the costs associated with bankruptcy.
- Protection from Creditors: Creditors cannot contact you or take legal action during the DRO period.
- No Court Appearance: Unlike bankruptcy, a DRO doesn’t require a court hearing.
- Quick and Clear Process: The process is straightforward and typically takes around 12 months to complete.
Disadvantages of a DRO
- Impact on Credit Rating: A DRO will remain on your credit file for six years, affecting your ability to borrow in the future.
- Eligibility Restrictions: Strict criteria mean it’s not suitable for everyone.
- Asset Limits: You cannot have assets worth more than £2,000, which might not suit individuals with higher-value possessions.
- Public Record: DROs are added to the Insolvency Register, which is publicly accessible.
- Excludes Certain Debts: Some debts, such as student loans and court fines, cannot be included.
Alternatives to a DRO
If you don’t qualify for a DRO or it doesn’t suit your needs, consider other debt solutions, such as:
- Debt Management Plan (DMP): An informal agreement to pay debts at an affordable rate.
- Individual Voluntary Arrangement (IVA): A formal agreement to repay a portion of your debts over time.
- Bankruptcy: A legal process to write off debts if you have significant financial difficulties.
- Consolidation Loan: Combining multiple debts into one loan for easier management.
Final Thoughts
A Debt Relief Order can be a valuable solution for those with low income and minimal assets who are struggling to repay their debts. However, it’s essential to fully understand the implications and consider other options if a DRO isn’t the right fit for your circumstances.
At Debt Despair, we provide information and resources to help you explore your debt relief options. If you’re considering a DRO or need advice on managing debt, visit our website for expert guidance and support.
Take the first step toward a debt-free future today with the right solution for your financial needs.