Qualifying for a Debt Relief Order

Experiencing financial turmoil can often leave individuals feeling overwhelmed and out of options. One potential solution for managing serious debt issues in the UK is a Debt Relief Order (DRO), which is designed to help those who cannot afford to pay off their debts. In this blog post, we will guide you through the qualifications needed for a DRO, ensuring you have the knowledge required to make an informed decision about tackling your debts.

Understanding Debt Relief Orders

A Debt Relief Order is a formal debt solution managed by the Insolvency Service. Primarily aimed at those with low income and minimal assets, a DRO serves as a way to freeze debt repayments and interest for a period of 12 months. After this period, if your financial situation hasn’t improved, the debts included in the DRO may be written off.

Eligibility Criteria for a DRO

The criteria for applying for a Debt Relief Order are specific, and it’s crucial to understand whether you qualify before proceeding. Here’s what you need to know:

• Debt Limit: Your total qualifying debts must not exceed £30,000. This includes unsecured debts such as credit cards, personal loans, and utility arrears.
• Asset Rules: Your total assets must not be worth more than £2,000. This includes savings and personal belongings, but excludes essential household items and a vehicle (if it’s valued under £2,000).
• Disposable Income: Your disposable income, after covering basic living costs, must be £75 or less per month.
• Residency Requirement: You must be a resident of England or Wales, or have been a resident or conducted business mainly in England or Wales within the last three years.

It’s important to note that certain debts such as student loans, court fines, and child support are not covered by a DRO.

Steps to Apply for a DRO

To apply for a Debt Relief Order, you must work with an authorised debt advisor. This professional will assess your financial situation to ensure that a DRO is the appropriate solution and help you with the application process.

Here are the typical steps involved:

1. Find an authorised debt advisor: You can start by visiting organisations such as MoneyHelper or Citizens Advice, both of which can connect you with qualified advisors.
2. Compile your financial information: Gather all necessary documents that detail your financial status – this includes your income, debts, and assets.
3. Complete the application: Your debt advisor will help you fill out the necessary forms and ensure all the data is accurate before submission.
4. Payment of the fee: There is a £90 fee for a DRO, which can sometimes be paid in instalments. Ensure you have the means to cover this fee.

Life During and After a DRO

During the 12-month period of a DRO, creditors listed in the order cannot pursue you for repayment. It’s an opportunity to reset your financial circumstances without the pressure of growing debts. However, it’s important to live within your means and avoid incurring new debts.

After the DRO period, if your financial situation remains unchanged, the debts included will be discharged, providing you with a fresh start. Remember, however, that a Debt Relief Order will impact your credit score and will appear on your credit file for six years, affecting your ability to obtain future credits.

Conclusion

While the prospect of applying for a Debt Relief Order might seem daunting, understanding the eligibility criteria and process can simplify your approach. Remember, assessing your situation with the help of a professional advisor is crucial in making the right decision for your financial health. A DRO isn’t the right solution for everyone, but for those who qualify, it can be a lifeline during a difficult time.