Debt Relief Order

What Is a Debt Relief Order (DRO)?
A Debt Relief Order (DRO) is a formal insolvency solution designed for individuals with low income, minimal assets, and debts of £50,000 or less. It provides legal protection from creditors and allows debts to be written off after 12 months, provided your financial situation does not improve during that time.

DROs are available in England, Wales, and Northern Ireland and are administered by the Insolvency Service. While a DRO can offer relief, it comes with strict eligibility criteria and financial restrictions that must be followed.

Once a DRO is approved, creditors included in the order cannot take action against you, but you must ensure you meet the qualifying conditions and adhere to restrictions during the 12-month period.

Benefits of a Debt Relief Order 

• Debt Write-Off After 12 Months – If your financial situation does not improve, debts included in the DRO are legally written off. 
• Legal Protection from Creditors – Once approved, creditors cannot take legal action or demand repayment. 
• No Application Fee – There is no cost to apply for a DRO, making it more accessible for those struggling financially. 
• No Ongoing Payments Required – If you meet the eligibility criteria, you do not need to make monthly repayments toward the debts included in the DRO. 
• Less Impact on Personal Assets – Essential household items and a vehicle worth up to £4,000 are protected.

Considerations of a Debt Relief Order

Strict Eligibility Criteria

• A DRO is only available if you meet specific financial conditions, including:
• Your total debt must be £50,000 or less.
• Your disposable income must be £75 or less per month after essential living costs.
• Your assets must not exceed £2,000 (excluding your vehicle). If you own a vehicle, it must be worth £4,000 or less.
• You must not have had a DRO in the past six years.

If you do not meet these criteria, you may need to consider alternative debt solutions.

Impact on Credit Rating
A DRO remains on your credit file for six years, which can affect your ability to obtain credit, loans, or a mortgage during this time. You are also legally restricted from borrowing more than £500 without informing the lender about your DRO.

Bank Account Restrictions
If you have an existing overdraft debt, your bank may freeze or close your account after your DRO is approved. However, many banks allow customers to keep a basic bank account, which provides essential banking services like receiving wages and making payments but without overdraft facilities.

If you are concerned about how a DRO may affect your bank account, it may be worth speaking to your bank or a debt advisor for guidance on the best steps to take.

Change in Financial Circumstances Can Affect Your DRO
If your financial situation improves within 12 months, your DRO may be revoked, meaning you would become responsible for repaying your debts again. This could happen if:

• You receive a lump sum of money (e.g., inheritance, lottery winnings, or compensation).
• Your income increases above the £75 disposable income threshold.
• You acquire new assets worth more than £2,000 (excluding your vehicle).
• If your DRO is cancelled, you would need to explore alternative debt solutions.

Restrictions on Business and Financial Activities
During the 12-month DRO period, you face certain legal restrictions, including:

• You cannot act as a company director.
• If you run a business, you must trade under your own name and inform customers about your DRO.
• You cannot apply for credit over £500 without disclosing your DRO to the lender.

Not All Debts Are Included
While a DRO covers most unsecured debts, some debts cannot be included, such as:

• Court fines
• Child maintenance arrears
• Student loans
• Secured debts (e.g., mortgages or car finance)

If you have debts that cannot be included, you may need to consider alternative debt solutions.

How to Apply for a Debt Relief Order

1. Speak to a DRO-Approved Debt Advisor – You cannot apply for a DRO yourself; it must be done through an approved intermediary.

2. Check Eligibility – Your advisor will assess whether a DRO is suitable based on your financial situation.

3. Application Submission – Your intermediary submits your application to the Insolvency Service.

4. Decision by the Official Receiver – The Insolvency Service typically processes applications within 10 working days.

5. 12-Month Moratorium Period Begins – If approved, your debts are legally frozen for 12 months, and creditors cannot take action against you.

6. Debt Write-Off – If your situation has not improved after 12 months, your included debts are legally written off.

Alternative Solutions to a Debt Relief Order

A DRO is not suitable for everyone, and if you do not meet the eligibility criteria, other debt solutions may be more appropriate, including:

• Individual Voluntary Arrangement (IVA) – A formal arrangement that allows you to repay debts in affordable instalments, with remaining debt written off at the end.
• Debt Management Plan (DMP) – An informal arrangement to repay debts at a manageable rate.
• Bankruptcy – A more comprehensive form of debt relief for those with higher debts or assets, but with stricter consequences.

Speak to an Experienced Debt Advisor
A Debt Relief Order is a serious financial decision, and it is important to understand all of your options before proceeding. Our experienced debt advisors can assess your situation, explain the pros and cons of each solution, and help you make an informed decision.

If you’re considering a DRO or want to explore other debt solutions, speak to one of our friendly advisors today for free, confidential advice.