Michael Agboh-Davison, debt advice co-ordinator at StepChange Debt Charity explains how a DRO might help if you have little income to pay debtors, don't own your own home and have few assets
What is a DRO?
A Debt Relief Order (DRO) is a type of insolvency aimed at people with debts under £15,000 and very few assets. It is a low-cost alternative to bankruptcy so it is legally binding and needs serious thought before you go head. But, if you fit the criteria for a DRO, it can give you the chance to be debt-free in just over 12 months.
How does it work?
You can’t apply for a DRO on your own. There are only 12 organisations – called Competent Authorities – who are approved by the Insolvency Service to submit a DRO application for you. You can view a list of these here.Your application will be considered by the Insolvency Service. If granted, there will be a ‘moratorium’ period of 12 months. During this time, you make no payments and your creditors are not allowed to take any action to collect the debt. If your circumstances have not changed once the 12 months is up, your debts will be written off. A DRO is available in England, Wales or Northern Ireland.
Is it the right thing for me?
The conditions for being granted a DRO are very specific. To be eligible, your debts must add up to less than £15,000, you cannot have any asset worth more than £300 and you can’t be a homeowner. If you own a vehicle, it must be worth less than £1,000. After paying your essential living costs and household bills, you must have no more than £50 left over each month, and you cannot be involved in any other insolvency proceedings. There may be other debt solutions that are more suited to your individual circumstances, so it’s always best to get free, independent debt advice from somewhere like StepChange Debt Charity (0800 138 1111) to make sure you’re aware of all your options.
What else do I need to know?
- Fees – There is a one-off fee of £90 to be paid to the Insolvency Service on applying for a DRO. This can be paid in six monthly instalments, but your DRO won’t start until it’s paid in full. There are no exceptions or discounts, and you won’t receive a refund even if your application is rejected.
- Restrictions – If your application is granted, there are certain things that you won’t be able to do during a DRO. Chiefly, you should not take out any new credit over £500 without informing the lender of your situation. It’s also really important that you inform the Official Receiver immediately if your circumstances change, even if that’s for the better (e.g. you receive a cash lump sum, or your income increases). It will then be their choice whether to continue the DRO.
- Public information – If your DRO is approved, your name will appear on a public database called the Individual Insolvency Register. Anyone can search this free of charge, although it’s very unlikely anyone you know will find your name here by accident.
- What’s included – You must declare all your debts on your DRO application. Most types of debt will be cleared by a DRO. This includes arrears on rent, utilities, telephone bills and council tax, unsecured debt on credit cards, overdrafts and personal loans, personal debts to friends or family, benefit overpayments, hire purchase agreements and items bought on finance. In most cases, you’ll have to hand back any goods you have on hire purchase, but if they’re essential items you may be allowed to keep them.
- What’s not included – Some debts won’t be cleared by a DRO and you’ll need to keep paying them. This includes student loans, criminal fines, Social Fund loans, child maintenance arrears, TV Licence and debts that are the result of fraud. You still need to declare these when you apply for a DRO.
- It’s not a ‘get out of jail free’ card – A DRO can only be applied for once every six years, and stays on your credit file for that time . If the Official Receiver discovers you were intentionally misleading in your initial application, they can immediately terminate the DRO. You’d then have to pay your debts, plus any interest that’s built up since your DRO started. So it’s crucial to make sure all the information you give is correct to the best of your knowledge – if you go through a DRO with an organisation like StepChange Debt Charity, they will help you prepare your application as fully as possible.
- For more information on DROs, click here.