If a debtor has no means to pay or settle their debt, Debt Relief Order (DRO) is a way of a payment break for a certain type of debt. DROs usually last for a year, and once the DRO is done, these debts would be written off.
DROs are available in Wales, Northern Island, and England, and these are cheaper alternatives instead of bankruptcy.
Advantages of DROs. As mentioned, the greatest highlight for DROs is that your specific debts are frozen for 12 months, and would be written off after the time period. Also, during that period, your creditors aren’t allowed to pursue legal actions against you. Though DROs are formal debt solutions, you’re not required to appear in court. For England and Wales, the fee can ba paid in instalments over a six month period.
Disadvantages of DROs. DROs are not available in Scotland. Also, you’d be paying a non-refundable fee of £90 to the Insolvency Service. If you’re a homeowner, you’re not eligible for the DRO, and DROs will have a huge impact on your credit report as your details will be put on the register.
Am I Eligible for a DRO?
A debtor must meet these guidelines for them to be able to get a DRO:
- Outstanding debt should be less than £20,000
- After paying taxes, national insurance, and household expenses, the debtor has less than £50 to spend
- Lived or worked in England or Wales for 3 years or more
- Debtor’s asset value is less than £1,000
- For the past 6 years, a debtor hasn’t had a DRO
Can I apply for a DRO myself? DROs applications must only be processed by an authorized debt adviser. Once the application is done, your debt adviser will then submit it to an official reviewer, which would decide whether to approve or reject your application.
Once approved, the official review will then lay out the restrictions and duties that you’d have to follow during this period. They would also notify creditors that are listed in the DRO, and they would be barred for asking payment for the debts.
Debts covered by DROs:
- Criminal fines
- Child maintenance
- TV licence arrears
- Loans from the DWP Social Fund, such as budgeting loans
- Debts that have been taken out fraudulently, including benefit overpayments that have occurred as a result of fraud
Debt you’d still have to pay even with a DRO:
- child maintenance, or anything you owe under family proceedings
- student loans
- budgeting and crisis loans from the Social Fund
- debts secured against an asset you own
- fines for drug offences
- damages or fines a court has ordered you to pay
- unpaid TV licence fees
- any debts you incur after the DRO is granted
Note: If a new debt would occur, you could face bankruptcy order or legal actions
On the other hand, DROs have certain restrictions that when broken, are considered criminal offenses. These are the restrictions when you’re on DRO:
- Borrowing more than £150 without notifying your lender of your RDO
- Work as a director for a company without the court’s permission
- manage a business without telling anyone you do business with about your DRO
- apply for an overdraft without telling your bank about your DRO
- write cheques that are likely to bounce
Can my restrictions be more than a year? Restrictions can be extended to 2 or even 15 years. This is called a Debt Relief Restrictions Order. The official receiver can apply this to the court. If the receiver determined that the debtor has been dishonest about something that’s related to their DRO, their receiver could apply for one.
Can I keep my car if I’m on a DRO? Eligibility includes debtors that only have £1,000 worth of assets. You can own one domestic vehicle worth up to £1,000 on top of this.
You’d have to provide details of your vehicle including the make, model and registration number. Your vehicle’s value will be determined and if it is to be worth more than £1,000, you’ll need to provide price evaluations from two independent motor dealers.
Vehicles that are used for business are also counted as part of your asset. So if your business vehicle is way more than £1,000, you’d be ineligible to apply.
Can I keep my house? Since houses usually cost more than £1,000, even if the house is on a negative equity, the debtor’s application would still be denied.
Factors that would change my DRO. Since the standard for a DRO includes debtors who have £50 or less to spend a month, improvement of income could disqualify a debtor from their DRO. This includes having a job with a higher pay, salary increase or receiving extra benefits.
Receiving cash or assets could also affect your DRO, but if the value of the cash or asset that you received is less than £1,000, worth less than 50% of the total debt you own, or you’ve notified to the Insolvency Service within 14 days, you shouldn’t be automatically cancelled for your DRO.
If the cost of what you received is from £1,000 to £1850, the Insolvency Service would make a decision based on your circumstances, and if it’s more than £1850, the DRO would normally be revoked.
The End of DRO. Even if your DRO is done, you won’t get notified from the Insolvency Service or your debt adviser, but you could always check your status on the Individual Insolvency Register.
You could get proof that your DRO is done through printing a copy on the Individual Insolvency Register. Public records for your DRO will be available after 3 months from your completion date.
Once in a blue moon, a creditor could attempt to collect a debt that was included on your DRO. If this happens, you can provide them with proof that your DRO is done, and you don’t have to pay them.
If a creditor is persistent on their demand for a payment, you could file a complaint to their regulator or directly to the ombudsman.
With Getting out of Debt UK, we’ll help you determine if a DOR is best for you, and you’d still avoid economic challenges. Contact us today to arrange a free consultation.