Understanding Debt Relief Orders: A Guide for Tackling Debt

When financial burdens become overwhelming, finding a viable solution to manage your debts is crucial. One such tool available to individuals in the UK is the Debt Relief Order (DRO). This guide will provide you with detailed information about DROs, including its benefits, eligibility criteria, and how to apply, helping you determine whether it is the right option for your financial situation.

What is a Debt Relief Order?

A Debt Relief Order (DRO) is a form of insolvency designed for individuals with relatively low debts but no realistic option to pay them off. Introduced by the UK government in 2009, a DRO is a way to freeze debt repayments and interest for a period of 12 months. After this period, if your financial situation hasn’t changed, the debts included in the DRO are usually written off.

Eligibility Criteria for a Debt Relief Order

To apply for a DRO, you must meet specific criteria:

• You must be a resident of England, Wales, or Northern Ireland. Scotland has a different system called Minimal Assets Process (MAP).
• Your total debt must not exceed £20,000.
• You do not own a vehicle worth £1,000 or more, unless it’s a vehicle that has been specially adapted because you have a physical disability.
• Your disposable monthly income, after regular expenses, must be £50 or less.
• You cannot be a homeowner, regardless of the property’s value.
• It must be at least 6 years since your last DRO was approved, and you must not have ongoing bankruptcy proceedings.

How to Apply for a Debt Relief Order

The process of applying for a DRO is not directly handled by individuals. Instead, you will need to contact an authorised debt advisor who acts as an intermediary. You can find a list of approved advisors through the Gov.uk website. The advisor will assess your financial situation to ensure that a DRO is appropriate and will assist you in gathering the necessary documents.

There is a cost of £90 to apply for a DRO, which can be paid in installments. Once your application is complete, your advisor will submit it to the Insolvency Service on your behalf.

Advantages and Disadvantages of Debt Relief Orders

Advantages:

• Creditors listed in the DRO are prevented from taking further action against you during the order.
• Debt repayments and interest are frozen during the order’s duration.
• Financial relief with the possibility of starting afresh after the DRO period.

Disadvantages:

• Your credit score will be negatively affected for six years, which could impede your ability to secure new credit during this time.
• Only certain debts can be covered by a DRO. Debts like student loans, court fines, and child support are not included.
• A public record of your DRO will be visible in the Individual Insolvency Register.

Life After a Debt Relief Order

The completion of a DRO can be the start of a new financial journey. It is crucial to consider how to manage your finances more effectively moving forward. Essential tips include budgeting carefully, rebuilding your credit profile, and saving for emergencies. Educational resources like those provided by the Money Helper can be invaluable in this process.

Final Thoughts

Facing up to financial problems can be daunting, but solutions like Debt Relief Orders offer a pathway out of certain kinds of debt. By understanding the details and whether you qualify, you can make an informed decision about how to proceed. Remember, consulting with a professional debt advisor can ensure that all possible solutions are considered and that the most appropriate course of action is taken for your unique circumstances.