A DRO is a formal solution that can help you deal with your unaffordable debt if you’re on a low income and have few assets. During a DRO, you don’t have to make payments towards any of the debts included.
If you’ve recently entered a DRO, you might be wondering what will happen after 12 months. This might seem like a lifetime away from where you’re currently at, but knowing what to expect can help you be more prepared as you navigate the debt repayment journey.
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What is a Debt Relief Order?
A Debt Relief Order (DRO) is a formal insolvency procedure that can be used to deal with debts you can’t afford to repay. It’s often described as a cheaper and less formal alternative to bankruptcy, as it works in a similar way but doesn’t require an application fee and has a lesser impact on your credit score.
DROs are only available in England, Wales, and Northern Ireland. In Scotland, a Minimal Asset Process (MAP) is a similar solution that you might qualify for if you’re eligible for a DRO.
There are certain eligibility criteria you must meet to qualify for a DRO. For example, your total debt level must not exceed £50,000, your savings or valuable items must be worth less than £2,000, your vehicle must be worth £4,000 or less, you must not own your home, and you must have little to no spare income to make debt repayments.
While you’re in a DRO, you won’t have to make payments towards any of the included debts and all the creditors listed will be told not to contact you, take legal action against you, or add interest, charges, and fees to your balance. If your creditor requests payment at any point, send them a copy of your DRO that lists them as an included creditor.
In most cases, you should be able to stay living in your rented property without any problems during a DRO. However, it’s always worth checking your tenancy agreement to confirm this is the case before proceeding as some tenancy agreements contain a clause that gives the landlord the right to begin the eviction process if the tenant enters into an insolvency solution.
Which debts can be included in a DRO?
Like most debt solutions, only certain debts can be included in a DRO. These are known as DRO debts or qualifying debts.
Here are some common debts that can be included in a DRO:
- Credit cards
- Loans
- Rent arrears
- Telephone bills
- Overdrafts
- Utility bills
- Council tax
- Income tax
- Conditional sale agreements
- Buy Now, Pay Later (BNPL) agreements
- Benefit overpayments
- Debts to friends and family
- Business debts
It’s important to note that not all debts can be included in a DRO. During your arrangement, you’ll need to deal with the following debts separately:
- Budgeting and crisis loans
- Family proceedings
- Student loans (both old and new styles)
- Child maintenance
- Criminal fines
- Unpaid TV licence fees
- Social fund debts
- Secured debts (debts secured to an asset, such as your home or car)
How much debt do you have?
How does a DRO work?
Knowing how a DRO works can help you know what to expect from the process.
We’ve outlined the steps usually involved in a DRO below:
Contact a DRO adviser
Before requesting a DRO, you must contact an approved debt adviser to help you complete your application. They will review your monthly expenses and determine if you can get a DRO or if another option would be more closely suited to your circumstances.
Unlike some other debt solutions, you can’t set up a DRO yourself.
Submit your DRO application
The DRO adviser will submit your application to an Official Receiver at the Insolvency Service, which is a government agency that administers insolvency proceedings for individuals and companies.
There is no longer a fee required for a DRO, meaning it’s free to apply for and you won’t have to pay anything during your arrangement.
Begin your DRO
If your application is successful, the Insolvency Service will write to you to confirm that your DRO has been made. They will also explain what restrictions you’ll be placed under for the duration of your arrangement and inform the creditors of the included debts.
During a DRO, you won’t be able to manage or promote a company without the court’s permission, manage a business with a different name, write cheques when you don’t have sufficient funds, apply for another DRO, or act as director of a company.
How long does a DRO last?
A DRO period usually lasts 12 months from the date it is approved to the date you’re discharged. This is sometimes referred to as the ‘moratorium period’, which is essentially a legally approved period of non-payment or deferral on a debt.
During a DRO, you’ll be exempt from making payments towards the debt and your creditors won’t be able to contact you, take legal action against you, or add to your outstanding balance without a court order.
However, if you’re found to have broken the terms and conditions of your arrangement, you could be ordered to stick to your DRO restrictions for another two to 15 years. This is known as a Debt Relief Restrictions Order (DRRO) and can happen if it’s believed that you made your debt situation worse before applying for a DRO or you acted dishonestly or recklessly.
It’s also important to note that you won’t be notified when your DRO ends. Because of this, it’s recommended to keep all related paperwork and check your entry on the Individual Insolvency Register to find out this information.
What happens if my financial situation changes during my DRO?
If your circumstances change at any point during your DRO, you must inform the Official Receiver as soon as possible.
The main eligibility criteria for a DRO is not having enough money at the end of the month to pay anything towards your debt. Therefore, if you come into money during your arrangement (e.g. you inherit a lump sum or get a pay rise), you’ll no longer qualify for a DRO and it will be revoked.
Failure to disclose a change of circumstances during a DRO could lead to you being served with a DRRO, which will have a disastrous impact on your finances in the long run.
How does a DRO affect my credit rating?
A DRO will be listed on your credit file by the three main credit reference agencies and will have a negative impact on your credit rating for six years. This is because it’s a marker that you’re in debt and you might not be able to handle another credit agreement.
Some companies might consider the risk of lending to someone with a DRO too high while others might agree to it but only on the condition that a higher interest rate is applied.
There are also certain restrictions you’ll need to stick to during your DRO. For example, you’ll be limited in the amount you can borrow while you have a DRO. If the DRO is still on your credit report, for example, you can’t apply for more than £500 without informing the lender that you have a DRO.
The good news is, there are many things you can do to improve your credit score after a DRO. If you haven’t already, register to vote at your current address, review your creditor reference file for mistakes, and pay your bills in full and on time.
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What happens after 12 months in a DRO?
In most cases, a DRO will come to an end after 12 months. Here are some things that will happen after 12 months of a DRO:
The debts listed will be written off
The purpose of a DRO is to help you write off the debts you can’t afford to pay if your financial situation doesn’t improve within 12 months.
Once these debts are not listed in your DRO anymore, you won’t be asked to pay them again.
You can rebuild your credit score
Because your DRO will be removed from your credit record after 12 months, you can start to rebuild your credit score after this date. This might take time, but it’s worth doing.
To do so, make an effort to pay all your other payments in full and on time (e.g. bills, credit cards) and avoid further credit unless absolutely necessary.
Your entry will be removed from the Individual Insolvency Register
In most cases, your DRO will be removed from the Individual Insolvency Register around three months after your arrangement ends.
Before this happens, it’s recommended to print off a copy of your entry in the event you’re asked to prove your DRO has ended.
What are alternatives to a DRO?
A DRO can be a lifeline if you’re struggling with debt and you’re on a low income but it might not be the only debt solution you’re eligible for.
Here are some alternative debt relief options to a DRO:
Individual Voluntary Arrangement (IVA)
An Individual Voluntary Arrangement (IVA) is a formal agreement between you and your creditors to repay your debt at a rate you can comfortably afford over five to six years. It is available in England, Wales, and Northern Ireland.
The amount you’ll pay back each month will be worked out based on a review of your income and expenses. During your IVA, your creditors can’t contact you or add interest, charges, or fees to your outstanding balance.
Once you’ve made your final monthly payment, any remaining debt not repaid through the IVA will be written off.
Debt Management Plan
A Debt Management Plan (DMP) is a way for you to repay your debt in a way that’s more manageable for you. It starts with a debt management company calculating your monthly payments based on your income and expenses and distributing these payments among them on a set date each month.
DMPs are available throughout the UK (England, Scotland, Wales, and Northern Ireland).
Unlike IVAs, DMPs are informal debt solutions. This means that you won’t be legally protected from your creditors and the arrangement can be cancelled at any time.
Bankruptcy
As previously mentioned, DROs are often referred to as a cheaper and less formal alternative to bankruptcy. However, depending on your circumstances, bankruptcy might be a more suitable option for you.
For example, your assets will likely be sold in a bankruptcy to pay your creditors while a DRO requires you to have few assets so they shouldn’t be affected. DROs are also only designed for people who don’t own their home while bankruptcy is available to both homeowners and non-homeowners.
Bankruptcy is available in England, Scotland, Wales, and Northern Ireland.
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From writing off a large portion of your debt, to readjusting your budget, we’ll find a solution that suits you.
Where can I get further advice on DROs?
Living with debt can be isolating, but you don’t have to face it alone. There is always help available.
A DRO can help you deal with your unaffordable debt and work towards a brighter financial future, but it can be difficult to know where to begin – even if you’ve done your research.
At UK Debt Expert, we can review your financial situation and advise on the best option for you going forward, whether that’s a formal solution like a DRO or better budgeting advice.
Conclusion
DROs usually last 12 months, during which time you won’t have to deal with your unaffordable debt. Once your DRO period ends, all of the debts included in the arrangement will be written off and you won’t be asked to pay them again.
A DRO will stay on your credit reference file for six years after your arrangement begins. This can make it difficult to get approved for most types of credit, such as a loan, mortgage, bank account, and even a phone contract.
For more advice on DROs and how to begin the process, don’t hesitate to reach out for free debt advice. A debt adviser will be able to review your financial situation and guide you towards the best solution for you.
