What debts can be included in a debt relief order (DRO)?
Which debts are written off with a debt relief order (DRO)? And which debts can’t be included in a DRO? Neil Dingley, an Insolvency Practitioner and Partner of Moore Recovery in Stoke on Trent, explains the criteria when applying for a DRO.
What is a debt relief order (DRO)?
A debt relief order (DRO) is a personal debt solution option available to individuals who meet the specified criteria. They were introduced in 2009 following a government consultation which identified the disproportionate nature of bankruptcy for individuals with little income or assets.
How long does a debt relief order last for?
The way this debt solution works is that you do not have to pay certain debts for a specified period, usually 12 months. It covers credit card debt, overdrafts and telephone bills.
After 12 months, or when the DRO comes to an end, the debts included in the DRO will be written off or discharged ad you will not have to pay off those debt
How do you apply for a debt relief order (DRO)?
A DRO application must be made via an authorised debt advisor, who will check the individual meets the criteria set out above. A fee of £90 payable to the Official Receiver, the government body who deals with DROs.
Once the application is made the Official Receiver reviews the same and will either accept or reject the DRO.
Assuming it is accepted, the Official Receiver will notify the individual that the DRO has been made and will notify any creditors who are covered by the DRO. The Individual Insolvency Register will also be updated with details of the DRO
What are the alternatives to a debt relief order (DRO)?
A debt management plan requires the individual to make agreed monthly payments to their creditors. However, it is not binding on creditors, which could lead to action being taken against the individual by their creditors.
An IVA is similar to a debt management plan in that monthly payments are made into the arrangement, but it is a formally binding agreement which may offer comfort to the individual as creditors cannot pursue them. However, the terms of the IVA must be met, and are monitored by an IVA supervisor. Should they not the arrangement may fail which could result in renewed pursuit by creditors.
If the individual has significant assets, creditors may pursue bankruptcy as a final option to ensure all aspects of the individual’s financial status are considered. An individual can also apply for their own bankruptcy if they consider it to be the best/only option.
Benefits of a DRO
A debt relief order can be a low-cost alternative to bankruptcy.
You don’t pay anything towards your debts for 12 months, after that they’ll be written off.
Your creditors can’t pursue you for your debts during the 12 month period.
Although a DRO is a formal debt solution, you don’t need to appear in court.
Risks of a DRO
A DRO is only available if you owe less than £20,000 and live in England, Wales or Northern Ireland.
You’ll need to pay the Insolvency Service a one-off fee of £90. If you qualify, our specialist team can help you apply.
You can’t apply if you’re a homeowner.
A DRO will appear on a public register and will affect your credit report negatively.
Useful numbers to call
For more information please contact us on 03338803165 to arrange to speak with one of our specialist advisers.