If you’re struggling with unaffordable debt but are worried about how a solution like a Debt Relief Order (DRO) could affect your partner, you’re not alone.
The good news is, that a DRO will only affect your partner if they are listed as a co-borrower or guarantor on any of the debts included.
This guide will go into further detail about how a DRO can affect your partner, and to what extent, so you can know what to expect from your arrangement.
What is a Debt Relief Order?
A Debt Relief Order (DRO) is a formal and legally binding debt solution where you stop making payments towards your debt and your creditors stop contacting you for a set period (typically 12 months).
If your financial situation hasn’t improved after 12 months, your remaining debts will be written off and you won’t be asked to make any more payments towards them.
DROs are often considered a cheaper and less financially invasive alternative to bankruptcy. This makes them a suitable option for low-income individuals with few assets.
DROs can be used to deal with most types of debt, including priority debts, such as rent arrears, personal loans, utility bills, conditional sale agreements, council tax, income tax, overdrafts, and credit cards.
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How does a Debt Relief Order work?
There are various stages to a DRO. We’ve outlined them in more detail below:
Speak to a DRO adviser
The first step in the DRO process is finding and speaking to a DRO-approved money advisor. They will review various aspects of your finances, such as your income, assets, and debts, and let you know if you’re eligible for a DRO.
There is no fee to contact or receive advice from a money adviser. Even if you decide to apply for a DRO, you won’t be asked to pay an application fee or make any payments towards your debt for the duration of your arrangement.
Complete a DRO application
The next step is working with your money advisor to complete a DRO application, which will require a thorough understanding of your income, expenses, assets, and debts. Typically, you’ll need to include all your credit debts in a DRO.
The application will then be sent to an ‘Official Receiver’ (OR) at the Insolvency Service, who makes the final decision on whether you should be in a DRO and manages the first stage of your arrangement.
Await a decision from the OR
Once the OR has received your application, they will review it and inform you of their decision. They will usually respond in one of three ways: issue you with a DRO, defer the DRO because they need more information, or reject the DRO because you’re ineligible or provided false information.
If, for any reason, your DRO is refused, you can ask the OR to reconsider their decision and look at your application again.
Start your DRO
Once a DRO is made, you’ll enter a period of relief from your debt for 12 months. This is sometimes referred to as a ‘moratorium period’.
During this time, you’ll stop making monthly payments towards the included debts but will continue to pay ongoing payments and financial obligations, such as excluded debts and normal household expenses (e.g. rent, mortgage, and utility payments).
How will a Debt Relief Order affect my credit score?
DROs stay on your credit file from each credit reference agency for six years from the date of approval – even if the DRO itself only lasts 12 months.
This will hurt your credit score, which will make it difficult to find a lender willing to give you a personal loan, mortgage, phone contract, or bank account.
Additionally, if you want to borrow more than £500, you must inform the lender that you’re in a DRO and this may cause them to change their mind about giving you credit.
This is because a DRO proves that you’re experiencing financial difficulty and may struggle to afford another credit agreement if you can’t afford your existing repayments.
DROs are also added to a public database called the Individual Insolvency Register (IIR) until three months after they end. This is an online register that contains details of all individuals in insolvency solutions in England and Wales.
How much debt do you have?
Will a Debt Relief Order affect my partner?
We’ve discussed how a DRO can negatively affect your credit score, but it’s also important to know how it could potentially affect your partner and their finances.
In most cases, a DRO should have little to no impact on your partner and their credit score should remain unaffected. However, if your DRO includes a joint debt with your partner, the rules differ slightly.
In this case, the protections only apply to the person named in the DRO while your partner will remain liable for payment of the debt. This means creditors can still chase them for payment of the debt while you’re in a DRO.
Before applying for a DRO, it’s important to consider how it could potentially affect your partner and their finances. If a DRO is likely to put strain on your relationship or stop you from buying a home together, for example, it may be worth researching alternative options, such as an Individual Voluntary Arrangement (IVA).
Do I have to tell my partner about my Debt Relief Order?
It’s normal to worry about how your partner might react to the news that you have a DRO – especially if they didn’t know you were in debt and you were planning to get married or move in together.
However, while you’re not legally required to tell your partner that you have a DRO, it’s recommended that you have an open conversation about your finances before taking such a big step. By opening up about your debt, you can get the help and support you need to do something about it before the situation gets worse.
If you are planning to tell your partner about your DRO, there are some things you should remember. For example, it’s a common misconception that your partner will automatically become liable for your debts once you move in together or get married, but this isn’t true.
The only way your partner can be affected by your DRO is if they took out the debt with you as a joint debt or they are listed on the credit agreement as your guarantor.
How will my assets be dealt with in a Debt Relief Order?
DROs are only suitable for individuals with assets of £2,000 or less. For a DRO, assets include high-value items like jewellery, electronics, and antiques, as well as any savings and shares you have.
However, certain things you need to live aren’t classed as assets, such as bedding, clothing, equipment needed for work or education, and most kinds of pension funds. This means that, if you have any of these items, they won’t be taken into consideration when creating your DRO.
The rules for vehicles are slightly different and depend on what you use the vehicle for and how you pay for it. If your vehicle is adapted for a disability or you’re paying it on a hire purchase or conditional sale agreement, for example, it’s not classed as an asset.
Even if you’re not behind on your hire purchase payments, your lender can still repossess your vehicle. This is because some agreements contain a clause that automatically gives your lender the right to take control of your vehicle if you enter any kind of insolvency solution, such as a DRO.
What happens if my financial situation changes during a Debt Relief Order?
If your financial situation changes during a DRO, you should be able to alter your payments to ensure they match your new circumstances. This may happen if you receive a pay rise or lose your job after you qualify for a DRO.
However, it’s crucial you report any income increases to the OR as soon as possible – failure to do so could lead to you being issued with a Debt Relief Restrictions Order (DRRO), which extends your DRO restrictions by up to 15 years.
This is because any increase in your income could put you in a position where you’re able to make contributions towards your debt and this could mean you’re no longer eligible for a DRO.
What happens at the end of a Debt Relief Order?
If you’ve stuck to the terms and conditions of your DRO and your financial situation hasn’t improved in 12 months, you’ll be freed from all the debts included.
However, you won’t receive any official notification that your DRO period has ended so you must ensure you keep track of the date it started. If you’re unsure, your entry in the IIR will contain the date of your DRO and can be used as proof that you’ve exited the solution.
In rare cases, creditors may still try to collect all the debts included in your DRO after it ends. When this happens, you must present proof that you’ve had a DRO and, as a result, you no longer need to pay them.
Advantages of a Will a Debt Relief Order affect my partner?
Disadvantages of a Will a Debt Relief Order affect my partner?
Is a Debt Relief Order right for me?
If you’re considering an insolvency solution like a DRO, you must seek free debt advice from a financial professional. They will be able to assess your situation and determine if a DRO is the right option for you.
Rushing into something as serious as a formal and legally binding debt solution without the proper research and guidance can lead to further debt, which can make your financial situation worse than it was in the beginning.
Even if you’re eligible for a DRO, there may be another debt solution better suited to your circumstances. Some alternatives to a DRO include an Individual Voluntary Arrangement (IVA) and a Debt Management Plan (DMP).
Conclusion
Debt Relief Orders (DROs) can give you temporary relief from your unaffordable debt and give you some much-needed breathing space from your creditors for 12 months.
DROs are designed for individual debts and should have no impact on your partner or their finances. The only time a DRO could affect your partner is if any of the included debts are joint debts you took out together.
Before agreeing to a DRO, you must ensure you’ve discussed all your available options with a money adviser. Whether you have credit card debt or council tax debt, there may be another debt solution better suited to your circumstances.
