Entering a Debt Relief Order (DRO) is a significant milestone that can help you kickstart your debt repayment journey. The process can differ slightly between providers, but it’s still helpful to know the basic steps involved before you apply.
From reaching out to an approved insolvency adviser to receiving a final decision, it usually takes no more than a few weeks from start to finish.
What is a Debt Relief Order?
A Debt Relief Order (DRO) is a formal insolvency procedure designed to give you temporary relief from your unaffordable debt in England, Wales, and Northern Ireland. Usually, a DRO is only granted if you meet the eligibility criteria and you can prove that you’re unable to repay what you owe.
DROs are sometimes referred to as a cheaper and less formal version of bankruptcy as they follow a similar process but don’t tend to have as much of a negative impact on your credit.
During a DRO, you won’t have to deal with the people you owe money to and all interest, fees, and court action will be stopped for 12 months. If your financial situation still hasn’t improved after this time, all debts included will be written off and you’ll be free to move on with your life.
However, if your circumstances change (e.g. your income increases) during this time, your DRO will be revoked and you’ll be expected to deal with the debt. A DRO also won’t stop bailiffs from taking control of your possessions with a controlled goods agreement if it was already in place when the DRO was approved.
A DRO might be the right solution for you if you have debts of £50,000 or less, spare income of less than £75 a month after national insurance and tax, assets worth £2,000 or less, and a vehicle worth £4,000 or less if you were to sell it today.
How much debt do you have?
Will a Debt Relief Order affect my credit rating?
A DRO stays on your credit report for a total of six years from the day it begins – even if the DRO itself only lasts one year.
This will negatively affect your credit rating and you’ll find it difficult to access further credit as it tells lenders that you’ve fallen short of your debt repayments in the past and could potentially default on a future credit agreement.
When you apply for credit, the first thing a lender will do is check your credit record for signs of anything that might indicate that you’re not likely to pay back anything borrowed. Even if you get approved for credit with a DRO, you’ll face higher interest rates and stricter terms to cover the extra risk to the lender.
However, if you want to borrow £500 or more, you’ll need to inform the lender that you have a DRO. They will then base their decision on this information.
DROs are also added to a public register called the Individual Insolvency Register (IIR) until three months after they end. The IIR is an online database containing details of everyone in a DRO, IVA, or bankruptcy.
How long does a Debt Relief Order take to process?
There is no one-size-fits-all answer to how long it takes to process a DRO. It ultimately depends on your individual circumstances and how prepared you are when you start your application.
For example, if you gather copies of your wages, outgoings, and debts readily available before reaching out for debt help, the process is likely to run much more smoothly and your application could be complete is as little as a couple of days.
Once you’ve completed your application form and submitted it, you can expect to receive a response in no longer than two weeks (10 working days). Overall, you can expect the entire DRO process to take around four to five weeks from application to approval.
What are the different stages of a Debt Relief Order?
Though they can differ slightly, there are a number of key stages involved in the DRO process.
Here is what you can expect when you apply for a DRO:
Seek expert debt advice
The first thing you should do before you apply for a DRO is to reach out for impartial debt advice from an approved adviser or approved intermediary. They will review your debt situation to determine if it’s the right solution for your current financial situation.
Even if you qualify for a DRO, another debt solution may be better suited to your circumstances and make more financial sense in the long run.
Gather all relevant paperwork
Once you’re confident a DRO is right for you, it can be useful to gather all the documents you’re likely to need ahead of time, such as bank statements, wage slips, bills, and letters from creditors.
This will speed up the application process and allow you to have a better picture of your financial situation, making it easier to discuss your income and expenses with your adviser.
Reach out to an approved debt adviser
Because a DRO is a formal debt solution, you can only apply through an authorised debt adviser who will confirm that you’re eligible to apply and help you complete your application. You can find a debt adviser yourself or contact a debt management company who will assign one to you.
Once your application is complete, it will be submitted to an official receiver at the Insolvency Service. They will then review the information provided and inform you of the outcome within 10 working days.
Await a decision
You’ll typically receive a response to your DRO application within 10 working days of it being submitted, but it can take longer if you’re asked to provide additional information (e.g. if you’ve forgot to complete an important section of the application form or extra clarification is needed).
However, if the official receiver discovers that you’ve been dishonest in your application or purposely made your financial situation worse prior to applying, you could be taken to court and issued with a Debt Relief Restrictions Order (DRRO) which can extend your DRO restrictions for up to 15 more years.
Start your DRO
Once your DRO is officially approved, you won’t have to make payment towards your debt for 12 months.
However, you’ll need to continue paying your normal household expenses from your surplus income as well as any other debts not included in the DRO. This includes things like your rent, mortgage, utility bills, and council tax.
Other rules you must stick to during a DRO include not being able to promote, manage, or set up a limited company or become a company director without permission from the court.
“No fuss, just simple, honest advice. Communication is good and they make the process as easy as they can.”
Which debts can be included in a Debt Relief Order?
Most unsecured debts can be included in a DRO, including:
- Credit cards
- Overdrafts
- Telephone bills
- Income tax
- Rent arrears
- Business debts
- Payday loans
- Benefits overpayments (unless they were due to fraud)
- Conditional sale agreements
- Buy Now, Pay Later (BNPL) agreements
- Debts owed to friends and family
These are known as qualifying debts.
However, it’s important to note that if you fall behind on your rent payments, your landlord could still take action to evict you from the property – even if the rent arrears are included in the DRO. Always check your tenancy agreement to find out if you’re at risk of this.
Furthermore, you can’t add new debts accrued after the DRO or debts you forgot to include after your DRO officially starts and must find a way to pay these outside of your arrangement. Other debts that can’t be included in a DRO include TV licence arrears and criminal fines.
How long do Debt Relief Orders last?
Under a DRO, you won’t need to make payment towards your debt for 12 months – this is known as the ‘moratorium period’.
During this time, the creditors included in the DRO won’t be able to ask you for payment, take you to court, or add further interest or charges to the debt. They will, however, still be allowed to contact you to remind you how much you owe if they want to.
Remember, if you’re dishonest in your application or break the rules while your DRO is in force, the official receiver can ask the court to file a DRRO against you – extending your DRO restrictions for up to another 15 years.
The kind of things that can cause you to be issued with a DRRO include committing fraud, being uncooperative, lying about or selling your assets for less than their value, or paying off some creditors but not others.
Furthermore, while a DRO only lasts 12 months, it will remain on your credit file for a total of six years. This means that your DRO will likely still affect your for another five years after it ends.
What happens after a Debt Relief Order ends?
Aside from the debts listed in the DRO being written off, it can be useful to know what’s likely to happen when a DRO ends. We’ve outlined the main things that will happen after a DRO here:
Your entry in the IIR will be removed
Firstly, it’s worth noting that you won’t be notified that your DRO is coming to an end so it can be useful to make a note of your start date by checking your entry in the Individual Insolvency Register (IIR).
This can then be printed off and used as proof of your DRO end date, but this must be done within three months of your DRO ending as your entry will be removed after this time.
You can apply for credit
Once your DRO period ends, you’ll be free to apply for as much credit as you like without having to inform the lender of your past financial problems.
However, while your DRO is over, it will still be visible on your credit file so you may still find it difficult to get a lender to approve you for a loan. Most experts recommend waiting until your credit rating has improved before applying for credit as rejected applications can cause further damage.
You can rebuild your credit score
Rebuilding your credit score after a DRO can be challenging, but it certainly isn’t impossible. With time and patience, you can get your credit back to its pre-DRO level and enjoy the freedom that comes with a healthy credit score.
Start by keeping up with your monthly payments and regularly checking your credit file for errors. The more things you can do to prove you’re financially responsible, the quicker you can rebuild your credit score.
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.
What are alternatives to a DRO?
A DRO is a way to deal with your unaffordable debt, but it’s not the only option available.
Here are some other debt solutions that might be better suited to your circumstances:
Individual Voluntary Arrangement (IVA)
An IVA is a formal agreement between you and your creditors to repay your debt in fixed instalments over a set period (usually five years). It might be a better option for you if you have some money left at the end of the month and can afford to pay something towards the debt.
During an IVA, you’ll be protected from creditor contact and no further interest and charges will be added to the debt.
Once you’ve made your final payment, all the included debts will be written off and you won’t need to pay anything towards them.
Bankruptcy
Bankruptcy is a legal process that allows you to write off the debts you can’t afford to pay. It works in a similar way to a DRO in that it gives you a period of relief from your debts before writing them off if your financial situation doesn’t improve within a set time.
However, the big difference between a DRO and bankruptcy is that your assets will be at risk with bankruptcy, meaning there is a possibility that you could lose your own home or vehicle.
Bankruptcy is known as sequestration in Scotland. There is also another version available, called the Minimal Asset Process (MAP), which is designed for people who are on a low income and have few assets.
Conclusion
A Debt Relief Order (DRO) is a formal debt solution that can give you relief from your unaffordable debt and your creditors for 12 months.
The time it takes to process a DRO depends on your individual circumstances but you can expect to wait 10 working days for a response once your application has been submitted.
Once your DRO has been approved, you won’t need to pay anything towards the debt and will be protected from further interest and charges for 12 months, after which time your outstanding balance will be written off.
