Debt Relief Order (DRO) England, Northern Ireland and Wales: A Guide

Are you struggling with unmanageable debt and unsure of how to move forward? A Debt Relief Order (DRO) could help you with your debts. This simple and affordable solution is designed to help individuals with low income and minimal assets who are unable to pay their debts. 

But how exactly does a DRO work, and are you eligible? In this comprehensive guide, we will walk you through everything you need to know about a DRO in England, Northern Ireland and Wales. Read on to find out if this could be the right step for your financial future.

What is a Debt Relief Order?

A Debt Relief Order is an agreement that allows an individual to stop making payments on qualifying debts for 12 months. During this time, creditors included in the DRO may not take any legal action to recover the debts. 

At the end of the 12 months, if the individual’s financial situation has not improved, the debts listed in the DRO might be potentially forgiven. 

DROs are particularly suited for those with:

• Low income, 
• Minimal assets, and 
• Qualifying debts of £50,000 or less.

Purpose and Benefits of a DRO

The primary purpose of a Debt Relief Order is to provide relief for individuals struggling with debt. Below are the key benefits of a DRO:

• After 12 months, any qualifying debts included in the DRO are potentially discharged, meaning the individual is no longer legally required to repay them. 
• Once a DRO is approved, usually the creditors cannot take further action against the debtor for the debts listed including enforcement actions. 
• Obtaining a DRO is generally simpler and can often be completed online through an approved intermediary without needing to go to court. 
• There is no application fee for a DRO in England and Wales. 
• The DRO lasts for only 12 months, after which qualifying debts are potentially forgiven. This allows individuals to regain their financial footing in a relatively short timeframe compared to other options like bankruptcy, which can have longer-lasting implications. 
• While a DRO will remain on an individual’s credit report for six years, it can provide a clearer path to financial recovery compared to ongoing debt payments that may lead to defaults and further credit issues. 

Drawbacks of a DRO

• To qualify, your total debts must be below £30,000 (in England and Wales), and your disposable income must be under £75 per month. If you exceed these limits, you won’t be eligible for a DRO.
• A DRO stays on your credit report for six years, making it difficult to get credit, loans, or a mortgage. Lenders may see you as high-risk even after the DRO ends.
  
• Your name is added to the Individual Insolvency Register, which is publicly accessible. This could affect job opportunities, especially in finance or law.
  
• During the DRO period (12 months), you cannot take out credit over £500 without informing the lender. You are also restricted from being a company director.
  
• A DRO only applies to unsecured debts like credit cards and loans. It does not cover student loans, child maintenance, court fines, or secured debts like mortgages.
  
• If your financial situation improves within the 12-month period, such as an increase in income or receiving a lump sum of money, your DRO may be revoked. This means you would have to repay your debts in full.

Need Help To Deal with Your Debt?

If you’re unsure which debt solution is right for you, fill out the online form below to get started. Once you submit the form, we’ll get back to you to help you find your options. 

We’re here to support you every step of the way. 

So, let’s get started…!  

Do you think DRO is the best debt solution for you? If “YES” you must check your eligibility before applying. How? Read the next section. 

Eligibility Criteria for a Debt Relief Order

To qualify for a Debt Relief Order (DRO), there are specific requirements you need to meet. Below are the criteria that you must meet: 

1. Your total qualifying debts must be £50,000 or less when you apply. This includes most unsecured debts like credit cards, personal loans, and utility arrears.
2. Your total assets should be worth £2,000 or less. This includes cash, savings, and anything of value (excluding essential household items). If you own a vehicle, it must be worth less than £4,000, unless it’s specially adapted for a disability.
3. After covering essential living costs like rent, utilities, food, and transportation, your disposable income should be £75 or less per month.
4. You must live in England or Wales when applying or have lived or run a business there in the past three years. 
5. Potentially, you can’t apply for a DRO if you’re currently bankrupt, in an Individual Voluntary Arrangement (IVA), or under a bankruptcy or debt relief restrictions order. Also, you can’t apply if you’ve had a DRO approved in the last six years unless it was revoked.
6. You need to show that you’re unable to pay your debts as they’re due, meaning your financial situation is causing significant hardship.

When you cannot apply

You can’t apply if you’re,

• Already bankrupt, 
• In an IVA, 
• Have an interim order protecting you from creditors, 
• If there’s a pending bankruptcy petition against you (unless a court refers you for a DRO) or
• If you’ve had another DRO in the past six years unless there’s a specific exception.

Qualifying Debts for a Debt Relief Order 

Below are the debts that qualify for a DRO:

• Credit Card balance.
• Personal loans, payday loans, and other unsecured loans.
• Any amounts you owe from bank overdrafts.
• Rent Arrears.
• Any arrears on gas, electricity, water, and other essential services.
• Unpaid council tax bills. 
• Debts from overpayments of benefits like Universal Credit.
• Phone and Broadband Bills. 
• Money owed from credit agreements with retailers.

All these debts together must not exceed £50,000 to qualify for a DRO. During the DRO period (which usually lasts 12 months), you won’t have to make payments towards these debts.

Excluded Debts

There are certain debts that cannot be included in a DRO. These excluded debts remain payable and don’t count towards the £50,000 limit. Some common examples are:

• Student Loans.
• Child Maintenance Arrears.
• Court Fines. 
• Damages for Personal Injury.
• Loans from the Social Fund. 
• Debts related to confiscation orders issued by courts.

Note: When you apply for a DRO, it’s important to disclose all your debts, even the ones that can’t be included. This helps your debt adviser understand your full financial situation and offer the best advice.

How to Apply for a Debt Relief Order in England, Northern Ireland and Wales

Applying for a Debt Relief Order (DRO) in England, Northern Ireland and Wales is a straightforward process, but it needs to be done through an approved intermediary. 

Here’s a simple breakdown of the steps you’ll need to follow to apply for a DRO:

Step 1: Find a DRO Adviser

The first thing you’ll need to do is find an approved intermediary, also known as a DRO adviser.

Step 2: Check If You’re Eligible

Your DRO adviser will go over the eligibility requirements with you. To qualify, you need to meet the following criteria:

• Your total qualifying debts are £50,000 or less.
• You have assets worth £2,000 or less (excluding essential items).
• Your disposable income after living costs is £75 or less each month.
• You’ve lived or worked in England or Wales within the last three years.

Step 3: Complete the Application

Once you’ve been confirmed as eligible, your adviser will help you fill out the DRO application. You’ll need to:

• Gather Financial Info: Be ready to provide details about your income, expenses, debts, and assets. It’s important to be accurate and honest to avoid issues later.
• Submit the Application: Your adviser will submit your completed application online to the Official Receiver at the Insolvency Service.

Step 4: Pay the Application Fee

As of April 6, 2024, there’s no fee to apply for a DRO in England and Wales. In the past, a £90 fee was required, which could be paid in instalments. If you’re in Northern Ireland or Scotland, check with local debt advice providers about any fees.

Step 5: Wait for a Decision

Once your application is submitted, the Official Receiver will review it. During this time, make sure to respond to any additional requests from the Official Receiver.

What Happens After Applying? 

Once you have submitted your application for a Debt Relief Order (DRO), it enters the review process conducted by the Official Receiver. Here’s how it works:

• Verification of Information

The Official Receiver will check the details in your application against records from credit reference agencies. This is to make sure everything about your debts, income, and assets is correct and complete.

• Eligibility Check

They’ll also check if you meet the key eligibility requirements for a DRO, like the debt limits, asset values, and whether your disposable income fits the criteria.

• Request for More Information

If anything isn’t clear or additional details are needed, the Official Receiver might contact you or your adviser for more information. It’s important to respond as soon as possible and provide everything they ask for to avoid delays in processing your application.

Possible Outcomes

After the review, the Official Receiver will decide one of three things:

1. Approval of the DRO:
   If you meet all the requirements, your DRO will be approved. You’ll get a confirmation letter saying that your DRO has been granted.  At this point, your creditors will also be notified and usually can’t take any action to recover the debts listed during the 12-month moratorium period. You won’t have to make any payments on those debts during this time.
2. Deferral for More Information:
   If something is unclear or missing, the Official Receiver might put the decision on hold and ask for more information.  In this case, you need to get back to them as soon as possible with what they need. If you don’t, your application could be refused.
3. Refusal with Reasons Given:
   If your application doesn’t meet the criteria or there’s an issue, the Official Receiver might refuse your DRO. You’ll get a letter explaining why it was refused. 

Knowing the reasons can help you decide if you want to reapply or look into other debt solutions.

Duration and Effects of a DRO

Once your DRO is approved, it usually lasts for 12 months, known as the “DRO moratorium.” During this period, several key things happen:

No Payments Required

You won’t have to make any payments on the debts included in your DRO. This covers both the original debt and any interest that might have built up.

Protection from Creditors

Potentially, the creditors listed in your DRO can’t take legal action to recover their debts. They also can’t contact you for payments or try to sue you during this time.

Post-DRO Effects on Your Credit Rating

While a DRO can take away a lot of financial stress, it can impact your credit in the following ways:

• Credit File Impact: A DRO will stay on your credit report for six years from the approval date. During this time, getting new credit may be difficult, as lenders often see a DRO as a negative sign.
• Public Record: Your DRO will also appear on the public Individual Insolvency Register for 15 months. This includes the 12-month DRO period plus an additional three months after it ends.
• Credit Applications: Once your DRO is over, you can apply for credit again, but many lenders may still be cautious because the DRO will still be on your credit file. However, with responsible financial habits like paying bills on time and managing your money well, you can slowly rebuild your credit. 

How does a Debt Relief Order work? Are there any restrictions and legal duties? Read the next section for answers. 

Legal Duties and Restrictions During the DRO Period

When your Debt Relief Order (DRO) is approved, you need to follow certain legal rules and restrictions during the 12-month period. Understanding these responsibilities is key to staying compliant and avoiding penalties.

Below are the legal duties you must follow:  

1. Provide Accurate Information
   You must give all the correct details during your application. If you provide false information or leave anything important out, it can lead to criminal charges—even if your DRO doesn’t get approved.
2. Cooperate with the Official Receiver
   After your DRO is granted, you’re required to give any additional information requested by the Official Receiver. This cooperation helps them manage your case properly.
3. Report Changes in Your Situation
   If your financial situation changes during the DRO period, like an increase in income or receiving new assets, you must let the Official Receiver know. Failing to report these changes can result in your DRO being revoked.
4. Notify of Any Errors
   If you realize that there’s an error in your application after it’s been submitted, you need to inform the Official Receiver as soon as possible.

Restrictions

1. You can’t borrow more than £500 without telling the lender that you have a DRO. This applies even if you’re borrowing with someone else.
2. If you’re involved in any business, you can’t use a different name than what’s listed on the insolvency register without disclosing your DRO status. Also, if you’re a company director, you must step down before applying for a DRO, and you can’t act as a director during the DRO period unless a court allows it.
3. You can’t write cheques if you don’t have enough funds to cover them during the DRO period.
4. Once your DRO is approved, you can’t add any new debts or those you didn’t mention in your original application.
5. Your details will be listed on the publicly accessible Individual Insolvency Register while your DRO is active and for three months after it ends. This means anyone can check your insolvency status.
6. Breaking these rules can lead to serious consequences, like fines, prosecution, or even prison. You could also face a Debt Relief Restrictions Order (DRRO), which can extend these restrictions for up to 15 years.

Revocation of a Debt Relief Order

If your Debt Relief Order (DRO) gets revoked, it means you no longer have the protections it provided. 

There are several reasons why a DRO can be cancelled:

• Not Meeting the Eligibility Criteria
• Change in Your Financial Situation
• Incomplete or Incorrect Information
• Failure to Report Changes
• Fraudulent Activity
• Lack of Cooperation

What Happens When Your DRO Is Revoked?

• If your DRO is revoked, it’s like it never existed. All your debts come back into play, and creditors can start chasing you for payments again. 
• Any interest or charges that were frozen during the DRO will become payable again. 
• If your DRO gets revoked, you won’t be able to apply for another one for six years. This means you’ll need to explore other debt solutions, like bankruptcy or an Individual Voluntary Arrangement (IVA).
• If your DRO is cancelled because of fraud, you could face legal consequences like fines or even jail time.
• Once your DRO is revoked, you’ll need to figure out another way to manage your debts. This might involve negotiating with your creditors, declaring bankruptcy, or seeking help from a debt adviser for other options.

Other Debt Solutions

Below are some alternatives to DRO available in England, Northern Ireland and Wales: 

• Individual Voluntary Arrangement (IVA): An Individual Voluntary Arrangement (IVA) is a formal agreement between an individual and their creditors to repay all or part of their debts over a set period, typically five to six years.
• Debt Management Plan (DMP): A Debt Management Plan (DMP) is an informal agreement between an individual and their creditors to repay debts at a pace that suits their financial circumstances.
• Bankruptcy: Bankruptcy is a legal process that provides relief for individuals unable to pay their debts.

The above debt solutions are not suitable for everyone and they may have long-term impacts such as lowering the credit score. Hence it’s better to seek professional advice before opting for a debt solution. 

In Summary

If you’re struggling with debt and meet the eligibility criteria, a Debt Relief Order could be helpful. It provides protection from creditors, a manageable application process, and the potential to write off debts after just 12 months depending on the agreement terms.

However, there are potential consequences such as the negative effects on the credit report. A DRO isn’t the only debt solution available, so it’s essential to consider all your options before making a decision. Seek professional advice to ensure you’re choosing the right path for your financial recovery and long-term stability.

Disclaimer: This guide is for informational purposes only and should not be considered legal or financial advice. Always consult a qualified debt adviser or financial professional to determine the most suitable debt solution for your circumstances. 

Key Points 

1. A DRO is a legal agreement that stops debt payments for 12 months. If your situation hasn’t improved after this period, the debts are written off.
2. A DRO is suitable for individuals with low income, few assets, and qualifying debts ofr £50,000 or less.
3. Once approved, creditors can’t take legal action against you for debts included in the DRO.
4. There is no fee to apply for a DRO in 2024, making it a low-cost solution.
5. To qualify, your qualifying debts must be under £50,000, assets worth less than £2,000, and disposable income of £75 or less.
6. Qualifying debts include credit cards, loans, rent arrears, and utility bills, but not student loans or child maintenance.
7. A DRO will affect your credit score for six years, but it may provide a clearer path to financial recovery compared to continued defaults.
8. During the 12-month DRO period, you must report changes in your financial situation and cannot take on new credit over £500 without disclosing your DRO.
9. Your DRO can be revoked if you fail to meet eligibility, provide false information, or commit fraud.
10. Consider alternatives like an Individual Voluntary Arrangement (IVA), Debt Management Plan (DMP), or bankruptcy if a DRO isn’t the best fit.

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