According to The Money Charity, people in the UK owed £1.637 trillion at the end of April 2019. The Office for Budget Responsibility’s forecast is for household debt to reach £2.425 trillion in 2023-24.
If you are in financial difficulties and your options seem limited, then one form of insolvency you could consider is the Debt Relief Order (DRO).
However, to have your debts written off by a DRO you must qualify for it. Debt Relief Orders are right for some people, but not for everyone.
Who is a DRO For?
The DRO is suitable for people who are struggling to repay small debts but are on a low income with relatively few assets.
If you owe more than £20,000 you are not eligible for a DRO.
- To qualify, you must have a low level of disposable income. It is not open to you if, at the end of the month, you have more than £50 in spare cash.
- You cannot have sufficient capital to pay off your creditors. This includes possessions totalling more than £300 or a vehicle worth £1,000 or more. Pension funds can be an exception to this, if you have not yet retired.
- You must not currently own your own home.
- During the past three years, you must have lived in, had a property or owned a business in England or Wales.
What Debts Does a DRO Not Cover?
There are certain forms of debt that a debt relief order will not cover.
- Court fines and confiscation orders
- Student loans
- Social fund loans
- Child support and maintenance payments.
How Does a Debt Relief Order Work?
You must first pay the official receiver a one-off fee of £90.
Once your Debt Relief Order is agreed, it freezes your debt for a year, and, if your circumstances have not changed after this period, it writes your debts off.
Because of this, your creditors are only going to agree to a DRO in the first place if you are unlikely to ever pay off your debts.
Therefore, the benefit of the DRO is that it protects you from the creditors whose debts are included in it. Also, you will not have to appear in court, even though the DRO is a formal debt solution.
It is not, however, an easy way of getting out of debt, because there are certain restrictions and consequences which come with it.
The Consequences of Having a DRO
A DRO will remain on a public register for six years after it has ended. It may, therefore, make it difficult for you to obtain credit in the future.
During the period of your DRO, you must notify any bank should you wish to open a new account. You must also let anyone you do business know about it if you are managing a business. You cannot act as the director of a company.
You must first ask the court’s permission if you want to create, manage or promote a company during your DRO.
If you want to borrow more than £500, you must tell the lender about your DRO.
Once you have a DRO, you cannot obtain another one for six years.
Should You Apply for a Debt Relief Order?
A DRO may seem like the right solution, but you should seek professional insolvency advice first. For more information, please call us on 0800 009 3173 or complete our online contact form, and we will be in touch as soon as possible.