Debt Relief Order

A Debt Relief Order (DRO) is a UK debt relief solution available to individuals overwhelmed by unmanageable debts. DROs are designed to help people regain control of their finances. DROs help those with overwhelming debt but limited income and assets.

Summary

• There are strict eligibility criteria, including on debt levels, assets, and disposable income
• Once qualifying debts are included, creditors can't pursue you for them
• The application process involves working with an approved DRO adviser
• If you use a DRO, it will be listed on your credit report for a period of six years

What is a Debt Relief Order?

A Debt Relief Order (DRO) is a formal and legally-binding debt solution available in England, Wales, and Northern Ireland. It's designed for individuals facing overwhelming debt, but with little income or assets to their name.

Once approved, a DRO will give you a temporary reprieve from your debts. You will be protected from legal action by your creditors, which can provide you with the breathing space you need to regain financial stability.

At the end of the 12-month DRO period, if your financial situation remains unchanged, any debts included in the DRO will be written off.

How much does a DRO cost?

There is no fee to apply for a Debt Relief Order (DRO) in England, Wales and Northern Ireland.

Previously, you would have been required to pay a £90 application fee. However, the rules changed in April 2024.

Restrictions during a DRO

There are several restrictions that will impact your life and finances while taking part in a DRO. You need to pay towards any secured debts, like mortgages or car loans, during the arrangement, as DROs only cover unsecured debts.

Employment restrictions prevent you from acting as a company director or working within specific industries without disclosing your DRO to your employer. You will also need permission from the court to set up a limited company while you're in an active DRO - this helps to prevent potential mismanagement of a new company while your existing debts remain unresolved. 

If you fail to cooperate with any of these DRO restrictions, or you do not provide information that accurately reflects your financial circumstances upon entering the DRO, it’s possible for creditors to request a Debt Relief Restriction Order (DRRO) extending restrictions for up to 15 years.

Does a DRO affect your credit rating?

Using a Debt Relief Order (DRO) will significantly impact your credit rating. When you enter a DRO, it is recorded on your credit report and remains there for six years. This negatively affects your credit rating and makes it challenging to access credit or financial services during this period.

Potential lenders may view you as a higher credit risk, making it more difficult to secure loans or credit agreements, and those that are available might come with higher interest rates in order to reduce the risk to the lender.

That said, if you have successfully completed your DRO, your credit rating should gradually improve once this six-year period passes, allowing you to gradually rebuild your financial standing.

Who is eligible for Debt Relief Orders in the UK?

To be eligible for a Debt Relief Order (DRO) in the UK, you must meet specific criteria, including:

Residency: You must be a resident of either England, Wales, or Northern Ireland. DROs are not available in Scotland.

Debt level: Your unsecured debts should be below £50,000 in total.

Assets: You should have very limited assets and possessions. Your assets, excluding items essential for daily living (such as clothing and household items), should be valued at no more than £2,000. Your car must also be valued at £4,000 or less. 

Disposable income: Your disposable income (the money left after covering essential living expenses) should be low, typically under £75 per month.

Previous DROs: You should not have had another DRO within the last six years.

If you’re unsure whether you meet the above criteria, it's important to consult with a debt advisor or Insolvency Practitioner who can assess your unique financial situation and guide you through the DRO application process.

Debts included in your Debt Relief Order (DRO)

The debts that it's possible to include in a DRO are called 'qualifying debts'. Once these debts are added to your arrangement, your creditors can't force you to repay them.

Qualifying debts for a DRO include:

• Credit cards
• Payday loans
• Overdrafts
• Council tax arrears
• Income tax arrears
• Unpaid national insurance contributions

Debts excluded from your Debt Relief Order (DRO)

There are some debts that can't be included in your DRO, which means they will remain your responsibility.

Debts that are excluded from a DRO include:

• Secured loans arrears (Loans that are secured against an asset like your home)
• Mortgage arrears
• Rent arrears
• Criminal fines
• Student loans
• Child Maintenance Payment arrears

How to apply for a Debt Relief Order (DRO)

The process of applying for a Debt Relief Order will usually involve the following steps:

Seek debt advice

Start by seeking professional debt advice. Make sure to consult with a qualified debt adviser, a debt advice company, or an organisation like StepChange debt charity. They will help you understand if a DRO is the right solution for your financial situation.

Work with a DRO adviser

Your next step is to work with a DRO adviser. These are approved intermediaries who are skilled debt advisers. They will guide you through the application process and ensure that a DRO is the right choice for you.

Start a formal insolvency procedure with the Insolvency Service

Your DRO adviser will help you initiate the formal insolvency procedure by submitting your application to the Insolvency Service. There is no longer an application fee required to apply.

Moratorium on your debts

Once your DRO application is approved, there is a 12-month moratorium, during which your creditors cannot take any legal action to recover their debts. This period offers you a breathing space to deal with your financial situation.

Discharge from DRO

If your financial circumstances haven't improved by the end of the 12-month period, you will be discharged from the DRO, and the included debts will be written off.