A Debt Relief Order (DRO) is a legally binding debt solution that gives you temporary relief from the people you owe (your creditors) before wiping your debts clean. It’s often considered a cheaper version of bankruptcy or a ‘mini bankruptcy’.
However, like most debt solutions, a DRO is only available if you meet certain qualifying criteria and live in England, Wales, or Northern Ireland. If you’re considering a DRO to help you deal with your unaffordable debt, it’s important to do your research to know whether it’s an option in the first place.
In Scotland, the Minimal Asset Process (MAP) is perhaps the closest alternative that you’ll qualify for if you’re eligible for a DRO
What is a Debt Relief Order (Scotland)?
A Debt Relief Order (DRO) is a formal debt solution that gives you a break from your unsecured debts and the people you owe for a fixed period (12 months). If your financial situation doesn’t improve within this time, your debts will be written off and you’ll be free to start rebuilding your credit.
It can be used to deal with a variety of ‘qualifying’ debts, including credit cards, overdrafts, income tax, benefit overpayments, council tax, and sometimes rent arrears. It can’t be used for criminal fines, social fund loans, compensation for death and injury, and student loans.
During a DRO, your creditors won’t be able to contact you, ask for payment, take legal action against you, or add interest and charges to the debt. The person or organisation handling your DRO (usually called your trustee or approved intermediary) will communicate with your creditors on your behalf.
Generally, a DRO will be suitable for you if you’re unable to pay your debts as they’re due, you owe less than £50,000, you have less than £75 in disposable income after your essential costs have been met, and you have less than £2,000 worth of assets.
How much debt do you have?
How does a Debt Relief Order work?
The process of getting a DRO is fairly straightforward. We’ve outlined the steps you’ll typically follow below:
Contact a money advisor
The first step in the DRO process is reaching out to an approved money advisor. This can be an individual or a company, but is usually a debt adviser who is authorised to initiate and manage the DRO process.
They will review your financial situation to determine if you’re eligible for a DRO or if another solution would be better suited to your circumstances. For example, they must consider how a DRO would potentially impact your credit rating, lifestyle, and job.
Complete your application
If your money advisor decides that a DRO is right for you, they will work with you to complete your application. This will involve you working out your income, outgoings, debts, assets, investments and savings.
The application will then be sent to an ‘Official Receiver’ (OR) at the Insolvency Service. It’s important to be honest and give your money advisor as much information as possible to help them get a clearer picture of your financial situation.
Wait for a decision
Once your application has been received, the OR will have 10 working days to review the information provided and make one of three decisions: grant the DRO, defer the DRO until they find out more information, or refuse the DRO because you’re ineligible or you’ve provided false information.
The more information you submit at this stage, the less likely the OR will be to request follow-up information and the quicker your application will be processed.
How will a Debt Relief Order affect me?
Like most debt solutions, a DRO will affect you in a number of ways. We’ve outlined some of the different ways a DRO is likely to impact you below:
Your credit score
Unfortunately, a DRO will be listed on your credit file from each of the main credit reference agencies for six years from the day it’s approved. During this time, your credit score will be damaged and you’ll struggle to get approved for most types of credit, including a personal loan, bank account, phone contract, and a mortgage.
It will also be visible on a public register called the Individual Insolvency Register (IIR) until three months after your DRO ends. This is an online database of every individual in an insolvency solution and is usually only used by lenders, employers, and landlords when you apply for credit.
Your bank account
If your DRO includes bank debts, your bank might freeze your account once they find out you’re in an insolvency solution. The OR is unlikely to directly inform your bank that you’re in a DRO, but some banks perform automatic checks.
This will leave you unable to access your money and you might struggle to afford regular bills or daily expenses as a result. Because of this, it’s often recommended to ask your money adviser to help you open a new bank account after your DRO has been approved.
Your job
In most cases, your job will remain unaffected by a DRO and you’ll be able to continue working as normal for the duration of your arrangement.
However, some employment contracts contain clauses that state that you can’t be employed or work as a company director if you’re insolvent. This is common in industries where you’ll be required to handle other people’s finances, such as the finance and legal sector.
Your home
Some landlords might increase your rent or refuse your application for a property if they know you have a DRO because it means you could potentially struggle to afford your rent payments.
If you’re planning to buy a home, you might also find it difficult to get a mortgage while a DRO is still visible on your credit report. However, by waiting six years, lenders won’t know you had a DRO and you should be free to apply for credit as you please.
“No fuss, just simple, honest advice. Communication is good and they make the process as easy as they can.”
What rules do I need to follow in a Debt Relief Order?
During a DRO, there are certain rules or ‘restrictions’ you must abide by to ensure your arrangement is a success and you’re discharged from your debts as expected. For example, you can’t:
- Borrow more than £500 without informing the lender that you have a DRO
- Be involved in promoting or setting up a limited company without permission from the court
- Have a business under a different name from the one in which you got a DRO without telling everyone you do business with that your former business had a DRO
- Be a company director without permission from the court
If the trustee handling your case discovers that you’ve been dishonest or purposely provided false information on your application, you will be subject to serious consequences.
Is a Debt Relief Order right for me?
If you’re struggling with your finances and looking for a way out, it’s important to research all your available options to ensure you’ve chosen a solution that’s most suited to your circumstances.
Generally, a DRO will be right for you if you have a relatively low debt level (£50,000 or less), minimal assets (less than £2,000), and little to no disposable income (£75 or less after your essential costs have been met).
It’s also important to think about how a DRO might affect other areas of your life, including your personal and professional life. For example, if you’re a company director in the legal sector, you might not be able to continue working in your current role.
Remember, a DRO will also impact your credit score for each credit reference agency for six years. During this time, you’ll find it difficult to access most credit products, including a loan, mortgage, phone contract, and bank account.
Similarly, you’ll only be able to apply for a DRO if you live in England, Wales, or Northern Ireland. If you’re eligible for a DRO but live in Scotland, the Minimal Asset Process (MAP) is the closest alternative.
What is a Debt Relief Restrictions Order?
If your OR believes you have supplied false information on your application or you’ve broken the rules of your DRO, you could be subject to a Debt Relief Restrictions Order (DRRO).
A DRRO is essentially an extension of the restrictions already placed on you during your DRO and can be applied for an additional two to 15 years, depending on the situation. In serious cases, you could be taken to court.
Some of the situations that could trigger a DRRO include:
- Providing false information to obtain credit
- Not cooperating with the OR
- Taking out loans you know you can’t repay
- Selling assets for less than their worth
- Prioritising some creditors over others
- Intentionally committing fraud
- Failing to disclose certain assets
Remember, your details will be kept on the public register until three months after your DRO ends. If you have a DRRO, this could mean your details are visible for over 15 years.
Debt help tailored to you
From writing off a large portion of your debt, to readjusting your budget, we’ll find a solution that suits you.
Can you get a Debt Relief Order in Scotland?
DROs are only available in England and Wales. However, Scotland is home to a number of alternative debt solutions that are similar to a DRO and might be suitable for you. We’ve outlined them in more detail below:
Trust Deed
A Trust Deed is a formal agreement between you and your creditors to repay your debts through a series of manageable monthly payments over a set period (usually four years). Once you’ve made your final repayment, all the debts included in your arrangement will be written off.
If the majority of your creditors are happy with the proposed terms of your Trust Deed, it will become a ‘Protected Trust Deed’. This means that it’s legally binding on all creditors and they can’t take any steps to recover the money owed (including legal action).
Sequestration
Sequestration is the Scottish term for bankruptcy. It works in the same way as bankruptcy in that it gives you a period of protection from your creditors (12 months) before writing off your debts if your financial situation doesn’t improve.
Once you’ve been sequestrated, your finances and assets will be controlled by a ‘trustee’, whose job it is to deal with your creditors on your behalf and, if necessary, sell your belongings to make up the money owed.
Minimal Assets Process
The Minimal Assets Process (MAP) is a type of sequestration that might be able to help you deal with your unaffordable debts if you have a low income and little assets. It’s essentially a shorter and simpler version of sequestration and is considered the closest alternative to a DRO in Scotland.
There are certain eligibility criteria you must meet to be able to apply for the MAP. For example, your total assets must be worth less than £2,000, a single asset must not be worth more than £1,000, and a vehicle must be ‘reasonably required’ and valued at £3,000 or less.
What are the similarities between a Debt Relief Order and the Minimal Asset Process?
Entering into either a DRO or the MAP is not a decision that should be taken lightly. Both are considered formal debt solutions, which means that you and your creditors will be legally bound to the terms of the arrangement and must stick to certain rules throughout.
Court hearings
There is no need to attend court at any stage of the debt repayment process regardless of whether you have a DRO or the MAP.
The only time you’ll be required to attend a court hearing is if the OR disputes your DRO application and applies to the court for a DRRO to extend your restrictions.
Debt write-off
The aim of a DRO and the MAP is to discharge you from your unaffordable debts.
This will automatically happen after 12 months of a DRO and six months of the MAP if your financial situation doesn’t improve within this time.
Credit impact
Unfortunately, a DRO and the MAP will be listed on your credit record and impact your credit score for several years, making it difficult to get approved for most forms of credit.
However, once you’ve been discharged from your arrangement, there are various steps you can take to improve your credit score and make a fresh financial start.
Conclusion
A Debt Relief Order (DRO) is a way for you to better manage your debt repayments and make a fresh financial start. It works by giving you 12 months of protection from your creditors before writing off all included debts after this time if your financial situation doesn’t improve.
DROs are only available in England, Wales, and Northern Ireland. However, Scotland is home to a number of similar debt solutions that might be able to help you if you qualify for a DRO.
If you’re struggling with debt and wondering whether a DRO could help you, don’t hesitate to seek free debt advice. When you reach out, a debt expert will review your financial situation and determine whether a DRO or another solution would be best suited for your circumstances.
