What is a DRO (Debt Relief Order)?
If you’re struggling with debt, a Debt Relief Order (DRO) could be a potential solution to help you get back on track. It is a form of debt solution designed for individuals who have low income, few assets, and are unable to repay their debts.
While a DRO can offer significant relief, it's important to fully understand what it is, who qualifies, and the pros and cons before deciding if it's the right option for you.
What is a DRO?
A DRO is a legal process that helps people who are struggling with debt to have their debts written off. It is designed for individuals who are in a situation where they cannot afford to repay their debts and have very limited assets. A DRO typically lasts for 12 months, during which time creditors are unable to take any action against you.
Once the 12-month period ends, and if your financial situation hasn’t improved, your qualifying debts are legally written off. This means you can start fresh without the burden of your previous debts hanging over you.
Who Qualifies for a DRO?
To qualify for a DRO, you must meet certain criteria. These include:
- Debt under £50,000
Your total unsecured debt must not exceed £50,000. This includes debts such as credit cards, personal loans, payday loans, and overdrafts. - Assets worth less than £2,000
Your total assets (including savings, property, and possessions) must be worth less than £2,000. Certain things like essential household items (e.g., furniture and clothing) are not included in the value calculation. - You cannot be a homeowner
You must not own property, as owning a home would affect your eligibility for a DRO. If you’re a homeowner, a different solution such as an IVA might be more appropriate. - Your vehicle must be worth less than £4,000
If you own a car, it cannot be valued at more than £4,000. If your vehicle is worth more than this, you would not qualify for a DRO. - Less than £75 disposable income
After deducting your essential living costs (rent, utilities, food, etc.), you must have less than £75 in disposable income per month. Essentially, this means you’re in a position where you cannot afford to make regular payments toward your debts. - No major change in your circumstances expected
If you’re expecting any significant changes to your financial situation in the near future—such as returning to work or a significant pay rise, a DRO may not be suitable for you.
Benefits of a DRO
There are several key benefits to a DRO that make it a popular option for those who meet the criteria:
- Debts are written off at the end of the 12 months: After the 12-month period, any remaining qualifying debts are legally written off, leaving you debt-free.
- Legal protection from creditors: Once your DRO is approved, creditors are legally prevented from contacting you, taking legal action, or pursuing any further enforcement actions during the 12 months.
- Affordable solution: A DRO is designed for people who cannot afford to repay their debts. Since you won’t be required to make payments, it’s often a more manageable alternative to other debt solutions like bankruptcy.
- Less formal than bankruptcy: Compared to bankruptcy, a DRO is often less complicated, involves less paperwork, and is generally quicker to process.
Cons of a DRO
While a DRO can offer significant relief, there are some downsides to consider:
- Credit score impact: Like bankruptcy, a DRO will negatively affect your credit score, and it will stay on your credit file for 6 years from the date it’s approved. This will make it harder to obtain credit, and you may face higher interest rates if you can secure a loan or credit in the future.
- Possible bank account changes: In some cases, you may be required to change your bank account, particularly if you have an overdraft or other debts linked to your account. You may be advised to open a basic bank account that is not linked to any creditors.
- Impact on future tenancy or mortgage applications: A DRO may affect your ability to rent property, as some landlords carry out credit checks. Similarly, it could impact your ability to obtain a mortgage in the future.
- Limited eligibility for certain jobs: Some jobs, particularly those in finance or related sectors, may not be available to individuals who have a DRO on their record. This is something to consider if you’re planning to work in certain fields.
- Cannot include certain debts: Not all debts are eligible for inclusion in a DRO. For example, certain government debts (like student loans or court fines) cannot be included. If you have debts that are not covered by the DRO, you may still need to make payments towards them.
Is a DRO Right for You?
A DRO can be a helpful solution for individuals who are struggling with significant debt but meet the specific criteria. It offers a legal way to write off debt in a manageable way, without the need for repayment, providing much-needed relief for those with little disposable income.
However, it’s important to consider the longer-term impact, particularly on your credit score, future financial opportunities, and employment prospects.
Talk to an Expert
At Stop My Debts, we understand that deciding which debt solution is right for you can be overwhelming. Whether you’re considering a DRO, IVA, or another option, our experienced advisors are here to guide you through the process and help you explore the best solution for your situation.
Contact us today for a free, no-obligation consultation. We’ll help you understand all of your options. Let’s take the first step toward a debt-free future together!