If you’re considering a Debt Relief Order (DRO) to help you deal with your unaffordable debt, it’s important to know what impact it can have on any ongoing enforcement action.
A DRO is a debt solution that can help you write off the debts you can’t afford to pay by giving you protection from your creditors for a set period.
If your financial situation doesn’t improve after this time, your debts will be written off.
What is a Debt Relief Order?
A Debt Relief Order (DRO) is a formal debt solution designed to give you breathing space from your unaffordable debts by pausing all creditor contact, legal action, and fees for 12 months (sometimes called a ‘moratorium period’). It is only available in England, Wales, and Northern Ireland.
During a DRO, your creditors can’t contact you or take you to court over the debt.
They also can’t add extra fees or charges, meaning your balance will remain the same for the duration of the DRO period and you won’t have to worry about increasing interest.
Once 12 months have passed, your debts will be written off and you’ll be free to start afresh if your situation hasn’t improved.
This also means that if your situation improves at any point, your DRO will be revoked and you’ll be expected to start paying the debt.
The types of debts covered by a DRO include rent arrears, credit cards, payday loans, overdrafts, benefits payments, and loans from friends and family.
However, some types of debt (known as excluded debts) can’t be included, such as criminal fines, student loans, and child maintenance arrears.
How does a Debt Relief Order work?
There are several steps involved in getting a DRO, which we’ve outlined in more detail below:
Speak to a debt adviser
The first step to getting a DRO is discussing your financial situation with a debt adviser or money adviser (also called an ‘approved intermediary’).
They will review your circumstances and discuss your available options to determine if a DRO is right for you. Generally, you should be able to apply for a DRO as long as your debts don’t exceed £50,000, your assets are worth less than £2,000, and your disposable income is below £75 a month.
Apply for a DRO
If a money adviser thinks you’re a suitable candidate for a DRO, they will work with you on your application. This will include calculating your income and outgoings and adding up your total debt and assets.
The application will be sent to an ‘Official Receiver’ (OR) at the Insolvency Service, who will make the final decision on your DRO and manage the first few stages of your arrangement.
It’s important to be honest and give your DRO adviser as much information as possible. If you’re caught lying or withholding key information, you could be issued with a Debt Relief Restrictions Order (DRRO) which extends the restrictions placed on you during a DRO by up to 15 years.
Wait for a decision
The OR will get back to you with a decision within 10 working days. This will usually be one of three decisions: grant the DRO, defter the DRO while they ask for more information, or refuse the DRO because you’re ineligible or provided false information.
If your DRO is refused and you disagree with the outcome despite being given a written reason explaining why, you might be able to challenge the OR’s decision.
Complete your DRO
If 12 months have passed and your financial situation hasn’t changed, you’ll be discharged from your DRO and released from the debts listed in your arrangement.
In other words, the debts will be written off and you won’t be required to make any more payments towards them.
However, you won’t be informed that your DRO has ended so you must keep a note of when it started and work out your end date from there.
Can a Debt Relief Order stop bailiffs?
One of the main advantages of a DRO is that your creditors can no longer demand payment. However, the rules differ slightly when it comes to enforcement action.
For example, while you’ll more than likely have to continue paying an existing controlled goods agreement, bailiffs will stop trying to recover a debt if it’s included in your DRO, the DRO has been approved, and no goods have been taken into control.
A DRO also won’t stop bailiffs from collecting excluded debts, such as criminal fines or child maintenance arrears.
How do bailiffs operate?
Bailiffs (officially called enforcement agents) usually follow a set process when they’re hired to recover an unpaid debt. We’ve outlined each step in more detail below:
Notice of enforcement
The first thing that will happen when your creditor takes enforcement action against you is that you’ll receive a document called a ‘notice of enforcement’ in the post.
This is a letter warning you that bailiffs will visit your home within seven days unless you pay the debt or make an arrangement to pay it.
Bailiff visit
If you don’t come to an agreement over how to pay the debt within seven days, bailiffs will visit you at home.
They will ask you to pay the debt in full, which you should always do if you’re in a position to do so, or work with you to come up with a payment schedule where you repay the debt in regular instalments.
Controlled goods agreement
One of the first things bailiffs will do when they visit you is to create a list of items they can sell at auction to make enough money to repay the debt. This is called a ‘controlled goods agreement’.
The aim of a controlled goods agreement is to let you keep your belongings in exchange for paying something towards the debt.
If you stop making payments towards the debt, the bailiffs will return and seize the items listed in the controlled goods agreement.
How will a Debt Relief Order affect me?
Entering into a debt solution is not a decision that should be made lightly and it’s important to know all the different ways it can impact your life before signing anything.
Here are some of the ways a DRO can affect you:
Your credit score
From the date your DRO is approved, it will be added to your credit report for six years and will damage your credit score.
This means that, if you were to apply for credit at any point during these six years, lenders would see you had a DRO – even if it ended almost five years ago.
Your creditworthiness
One of the first things lenders will assess when you apply for credit is your ‘creditworthiness’, which is a measure of how likely you are to repay any money you borrow.
However, having a DRO on your credit file will affect your creditworthiness and make lenders wary of wanting to lend to you.
This is because a DRO indicates that you’ve struggled with debt and could potentially default on any future credit agreements.
Your assets
DROs are designed for individuals with assets worth £2,000 or less. If your assets are worth £2,000 or more, you can’t apply for a DRO and will be told what other debt solutions you qualify for.
Some of the items that are classed as assets for a DRO include property, antiques, vehicles, jewellery, computers, savings, and shares.
However, any essential household items, such as bedding, clothing, and fixtures and fittings, won’t be included.
What happens if my circumstances change during a Debt Relief Order?
If your circumstances change at any point during a DRO, you must tell the OR handling your case as soon as possible. This should happen if:
- You suddenly realise that you made a mistake on your application or omitted key information
- Your income increases or decreases (e.g. you lose your job or get a pay rise)
- You’ve inherited money or valuables
If you don’t inform the OR of any changes in your circumstances, there could be serious consequences and your DRO could be revoked, which means you’ll have to find another way to deal with the debt.
It could also lead to a DRRO being made against you or, in extreme cases, you being sent to prison.
Is a Debt Relief Order right for me?
A DRO may be the right option for you if you owe £50,000 or less in unsecured debt, have less than £2,000 in assets, and can’t afford to pay anything towards your debt each month.
However, a money adviser will be able to review your income, expenses, and debts and discuss all your available options with you to ensure you choose the best solution for your financial situation.
Even if you fit the eligibility criteria for a DRO, you may be better suited to another debt solution, such as an Individual Voluntary Arrangement (IVA).
Conclusion
Debt Relief Orders (DROs) are a type of debt solution that can give you temporary relief from your unsecured debts and creditors for 12 months.
DROs only stop bailiffs if the debts included have not been subject to any controlled goods agreements.
If bailiff action has already begun, you may have to continue making monthly payments and bailiffs could still visit.
If you have any questions about DROs and how they affect any ongoing enforcement action, don’t hesitate to reach out for expert advice.
