Before you enter a Debt Relief Order (DRO), it can be useful to know what to expect after it comes to an end.
Most DROs last 12 months, after which time you’ll be released from your debts and will be free to move on with your life as long as your financial situation hasn’t improved.
What is a Debt Relief Order?
A Debt Relief Order (DRO) is a formal debt solution designed to give you temporary relief from your unaffordable debt. They are often considered a quicker and cheaper alternative to bankruptcy.
DROs are designed for people who are on a low income and have very few assets. Put simply, you must be able to prove that you have very little money to repay your debt to be approved for a DRO.
During a DRO, you don’t need to make any payments towards your debt and the people you owe money to (your creditors) won’t be able to take any action against you. However, you will be required to continue paying your household expenses as normal, such as mortgage, rent, and bills.
Once the DRO period has passed, your debt will be written off and you won’t be expected to make any more payments.
DROs can be used for a wide range of debts, including mortgage and rent arrears, credit card debt, benefit overpayments, and items bought on finance – these are called ‘qualifying debts.
How much debt do you have?
How long does a DRO last?
Most DROs last 12 months. Because you won’t be expected to make any payments towards the debt during this time, this is sometimes referred to as a ‘moratorium period’.
However, while you’ll technically only have a DRO for 12 months, it will be visible on your credit record and will continue to affect your credit history for six years. During this time, your credit score will be lowered and you’ll struggle to get lenders to agree to give you a loan or a mortgage.
DROs are also added to a public database from the Insolvency Service called the Individual Insolvency Register (IIR) and are removed three months after the DRO ends. The register can be accessed by anyone but it is usually only used by some lenders, employers, and landlords in the rare event that they need to check details of your insolvency.
Furthermore, if it’s discovered that you’ve lied in your application or purposely broken the rules of your DRO, the court may serve you with a Debt Relief Restrictions Order (DRRO). Debt Relief Restrictions Orders (DRROs) can extend the DRO restrictions you have to follow by up to 15 years.
How do I apply for a DRO?
The process of applying for a DRO is relatively similar across the board with just a few basic differences between providers.
We’ve outlined the application process for a DRO below:
Find a money adviser
The first step in the application process is finding a specialist money adviser or ‘approved intermediary’ to help you manage your arrangement. They will review your financial situation to determine whether you are eligible to apply for a DRO or if another debt solution would be better suited to your circumstances.
This can be done yourself or you will be assigned an authorised money adviser if you apply through a third party, such as a debt management company.
Submit an application
Once you have a money adviser to manage your arrangement, they will help you draft an application to send to the ‘official receiver’, who is an officer of the court responsible for administering the first stages of a DRO.
They will be responsible for reviewing your application and deciding whether or not to grant a DRO.
Wait for a decision
The official receiver will have three choices: approve your DRO, reject your DRO, or defer your DRO until they receive more information about you or your finances. They may ask you some follow-up questions before making a decision, which you must answer honestly and to the best of your ability.
Remember, if the official receiver believes you are purposely hiding or exaggerating certain information, they can apply for a DRRO against you to extend the restrictions of your DRO by up to 15 years.
“No fuss, just simple, honest advice. Communication is good and they make the process as easy as they can.”
How does a DRO affect my borrowing ability?
Because a DRO is an indication of past debt, there are certain rules you must stick to during your moratorium period – especially when it comes to borrowing more money.
For example, you can’t apply for credit of more than £500 without informing the lender that you’re in a DRO. This might make them change their mind about offering you credit and can make it challenging to find a lender willing to enter into a credit agreement with you.
Because of this, it’s important to consider any future plans you have (e.g. buying a home, starting a business, or getting married) before agreeing to a DRO. Generally, it’s better to wait until a DRO has been removed from your credit record before applying for further credit.
What happens after a DRO?
Whether you’re already in a DRO or are just considering a DRO, it can be useful to know what happens at the end of your arrangement.
We’ve covered some of the things you can expect from life after a DRO below:
Your remaining debt is written off
One of the main advantages of a DRO is that you can write off a significant portion of your debt in as little as 12 months if your financial situation doesn’t improve within this time.
Once the debt has been written off, you no longer need to pay it and can put it behind you for good.
You can rebuild your credit rating
Rebuilding your credit rating should be the first thing on your mind after a DRO – especially if you want to get a loan or a mortgage.
This process requires some time and patience but by showing lenders that you’re a reliable borrower who is committed to improving your credit history, you can boost your chances of being approved for credit.
Your entry will be removed from the register
Having your details visible on a public register can make it difficult to get approved for most forms of credit, from a bank account to a phone contract.
However, your entry will be removed from the IIR within three months of your DRO ending, making it much easier to access credit if you need it.
Will I be notified when my DRO ends?
Unlike other debt solutions, you won’t receive any official notification to let you know that your DRO has come to an end.
This is why it’s recommended to keep a note of the start date of your DRO so you can know exactly when restrictions will be lifted.
How can I prove my DRO has ended?
Because you won’t be notified that your DRO has ended, some people like to print off a copy of their entry in their IIR to prove to lenders that their DRO has officially ended. This, however, must be done before your entry is removed, which typically happens within three months of your DRO ending.
Similarly, your credit report will be updated to show that your DRO is ‘complete’ with your debts marked as being ‘satisfied’. This marker will remain on your credit record for another five years before being automatically removed.
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 a DRO be stopped?
Because a DRO relies on your financial situation remaining unchanged for 12 months, your arrangement could be revoked if it’s discovered that you’ve come into money and no longer meet the criteria for a DRO.
For example, if your monthly disposable income increases to more than £75 due to an inheritance, pay rise, new job, or lottery win, you must inform the official receiver who will more than likely cancel your DRO. When this happens, all DRO protections will be lifted and you’ll be expected to find another way to repay the debt.
This can also happen if the official receiver finds out that you missed out key information on your application or you didn’t cooperate with the restrictions you were under.
How can I improve my credit score after a DRO?
There are various things you can do to improve your credit score after a DRO and it’s important to take action as soon as you exit your arrangement.
Here are some of the things you can do to improve your credit score after a DRO:
Keep up with payments
The best way to show lenders that you’re a reliable borrower is to keep up with all of your financial obligations, including existing bills and debts.
This can prove that you’re capable of making payments in full and on time and are no longer experiencing the financial difficulties that led to you requesting a DRO in the first place.
Register to vote
When you register to vote, your details will be added to your credit report and lenders will be able to cross-reference this information to confirm that you are who you say you are.
This automatically rules out identity fraud and boosts your credit score as a result, improving your chances of being approved for credit.
Check your credit report
Check your credit reference file from all of the main credit reference agencies after a DRO – and regularly thereafter – to ensure all the information listed is correct and up to date.
Some of the things you should look out for include a wrong address, old debts, and duplicate entries. These mistakes can be reported by contacting the relevant credit reference agency with proof of why the error should be removed.
Keep your credit utilisation low
‘Credit utilisation’ is the term used to describe the portion of your total credit limit that you have used – it is usually expressed as a percentage.
There is no exact percentage you should aim for but most lenders only consider applicants who have a credit utilisation of 30% or less. Generally, the lower your credit utilisation, the greater your chances of being approved for credit.
Consider a credit builder card
Seeking more credit might seem counterintuitive so soon after leaving a DRO but some credit cards are designed to help you rebuild your finances.
The key to using a credit builder card responsibly is using it regularly for small payments and paying the balance off in full each month. The longer you have a credit builder card, the more creditworthy you’ll be in the eyes of a lender.
Conclusion
Debt Relief Orders (DROs) are designed to give you some much-needed relief from the debts you can’t afford to pay for 12 months.
Once you’ve completed a DRO, you’ll be discharged from your debts and will no longer be required to make payments towards them.
Don’t hesitate to reach out to a debt adviser for free help and advice if you have any questions about life after a DRO.
