If you’re struggling to manage your repayments, you may have wondered whether a Debt Relief Order (DRO) could help you get a handle on your finances and take the first step towards a life free from debt.
DROs are designed to provide some much-needed breathing space to individuals on low incomes who are overwhelmed by debt by stopping all payments and contact for a set period. But how do they work? And how do you apply?
What is a Debt Relief Order?
A Debt Relief Order (DRO) is a formal and legally-binding debt solution available to individuals in England, Wales, and Northern Ireland. It is most suitable for people with low debt levels and minimal assets.
Once a DRO has been approved, you’ll enter into a period of relief from your debts (sometimes called a moratorium period). This means you won’t be required to pay them and your creditors can’t ask you for payment or take legal action against you.
If you’re in a DRO for 12 months and your financial situation still hasn’t improved, all the debts included will be written off. However, you won’t be informed of the end date of your DRO so you must keep a note of the date you entered it and look ahead 12 months to know what date you can expect it to be complete.
“No fuss, just simple, honest advice. Communication is good and they make the process as easy as they can.”
How will a Debt Relief Order affect my credit score?
If you have a DRO or have recently had a DRO, your credit score will be affected. This could make it difficult to get approved for credit and you may struggle to access a loan, mortgage, phone contract, or even a bank account for several years.
From the date your DRO is approved, it will be added to your credit reference file for six years. If you were to apply for credit during this time, lenders will see a DRO on your credit file and know you’ve struggled with debt in the past, making them less likely to let you borrow more money.
Some employers, landlords, and utility companies even check credit scores when reviewing candidates, which can cause problems if you were to apply for a job, rent a property, or switch suppliers.
Even if you can get a lender to agree to let you borrow money, you won’t be able to borrow more than £500 without informing them of your DRO. This could make them reject your application or they may add higher interest rates or stricter terms to lower the risk in the event you default.
How to apply for Debt Relief Order
The most important thing to note about the DRO application process is that you can’t apply on your own. Instead, an approved intermediary must complete and submit an application for you.
We’ve outlined the various steps involved in the DRO application process in more detail below.
Find a DRO adviser
The first step in the DRO application process is finding an approved intermediary to manage your case on your behalf. This is usually a skilled debt money adviser or debt adviser who is trained and authorised to complete the necessary forms and give advice on DROs.
They will review your situation, check if you’re eligible, and inform you of your next steps.
Complete an application
Once an adviser has determined a DRO is the right option for you, they will work with you to complete your application. This will involve working out your income, expenses, and assets and adding up your total debts.
The application will then be sent to the ‘Official Receiver’ (OR) at the Insolvency Service, who is responsible for managing the first stages of your DRO and making the final decision about whether your DRO should go ahead.
It’s important to be honest when providing information to your DRO adviser. If you’re found to have supplied incorrect or outdated information, you could be subject to further legal action in the form of a Debt Relief Restrictions Order (DRRO), which extends DRO restrictions by up to 15 years.
Await a decision
Once your application has been received, the OR will do one of three things: serve you with a DRO, defer the DRO if they need more information, or refuse the DRO if you’re not eligible or have provided false information.
It’s important to cooperate with the OR by answering any questions they have and providing any further information they ask for promptly and efficiently. Similarly, if your income goes up or down or you receive an inheritance, you must let them soon as soon as possible.
If your DRO application is refused, you’ll be given a written explanation of the reason why and may be able to challenge the decision.
How much debt do you have?
How is my financial situation assessed for a Debt Relief Order?
Your income
When you apply for a DRO, your money adviser will work out how much spare income you have each month. To do this, they will first calculate how much money you have coming from your salary or wages, benefits, pensions, rental income, and any other contributions.
They will then deduct a certain amount for your household expenses (e.g. rent or mortgage, groceries, and transport). If the amount left over is less than £75 – and you meet the other eligibility conditions – you can apply for a DRO.
Your debts
Although it can speed up the application process if you know how much you owe and who to, your money adviser will work with you to put together a complete list of your debts. We’ve outlined the various types of debt that can be included in a DRO later in this article.
If your total debt comes to £50,000 or less (including joint debts), you should be able to apply for a DRO. Typically, DROs are better suited to individuals with low debt levels.
Your assets
To be eligible for a DRO, you must have less than £2,000 in assets. In this case, assets refer to anything of value you own, including antiques, jewellery, vehicles, and electronics. It also includes cash, savings, shares, and money in your bank account.
Certain things can’t be classed as assets, such as household equipment (e.g. bedding, clothing, furniture), items needed for work or education, and most kinds of pension funds.
How long does a Debt Relief Order stay on my credit file?
A DRO stays on your credit file from each credit reference agency for six years from the date it’s originally issued – even if the DRO itself only lasts 12 months. This is because your credit report usually contains information from the last six years.
If you were to apply for credit during these six years, companies will be able to see that you have a DRO and this may impact their decision to lend to you as it proves that you’ve struggled to make repayments in the last few years and could do so again.
If you want to apply for credit of £500 or more during this time, you must also inform the lender that you have a DRO and you may need permission from the OR.
However, it’s worth noting that some lenders place more importance on your recent credit history than others. So while some will refuse to lend to you while you still have a DRO on your credit file, others may be happy to offer you credit at a higher interest rate if you’re nearing the end of your DRO.
What debts can be included in a Debt Relief Order?
Like most debt solutions, only certain debts can be included in a DRO. These are called ‘qualifying debts’ or ‘DRO debts’ and include:
- Rent arrears
- Utility arrears (gas, electricity, and phone bills)
- Credit cards
- Overdrafts
- Personal loans
- Council tax
- Income tax
- Benefits overpayments
- Money owed to friends and family
The types of debt that can’t be excluded in a DRO are known as ‘excluded debts’ and include:
- Child maintenance arrears
- Student loans
- Secured debts (loans secured against anything you own, e.g. car loans, mortgages)
- Criminal fines
It’s important to have a clear picture of your debts before applying for a DRO. This will let you know whether you’re eligible or if another debt solution would be better suited to your circumstances.
Advantages of a How to apply for Debt Relief Order (DRO)
Disadvantages of a How to apply for Debt Relief Order (DRO)
Is a Debt Relief Order right for me?
Even with all the information at your fingertips, it can be difficult to know whether a DRO is the right option for you. Don’t worry if you don’t know how much you owe in personal debts or how much you earn, your money adviser will carry out a full review of your income and expenses to check if you meet the eligibility criteria before starting your application.
Generally, a DRO will be suitable for you if you:
- Owe less than £50,000 in total
- Have savings and assets worth less than £2,000
- Own a vehicle worth less than £4,000
- Can’t afford to pay anything towards your debt after your essential costs
- Have lived or worked in England, Wales, or Northern Ireland in the last three years
- Aren’t bankrupt or subject to any bankruptcy restrictions
- Haven’t had a DRO in the last six years
Remember, there are various debt solutions available to people living in the UK. Depending on your situation, you could be better suited to an Individual Voluntary Arrangement (IVA) or a Debt Management Plan (DMP).
If you have more questions about DROs or are curious about what solutions you’re eligible for, don’t hesitate to reach out for free debt advice and support.
Conclusion
Debt Relief Orders (DROs) are designed to give you temporary relief from your unaffordable debt by pausing all payments and creditor contact for 12 months. If your financial situation doesn’t improve during this time, your debt will be written off.
To be able to apply for a DRO, you must contact a DRO-approved money adviser who will assess your financial situation and determine if it’s the right solution for you. They will then work with you to complete your application.
There are various debt solutions available and a DRO might not be the most suitable option for you. If you’re unsure, always seek free debt advice.
