Last updated: 23/07/2020 | Estimated Reading Time: 5 minutes
Debt relief orders (DROs) explained
One option you have when you cannot afford to pay back your debts is a Debt Relief Order (DRO). While you have a DRO, you don’t have to pay anything towards the debt included in the DRO. After the DRO period ends, your debts will be written off and you won’t have to pay them. But a DRO won’t cover every type of debt you might owe, and there are a set of criteria which must apply to you for you to be eligible for a DRO. Find out more below.
In This Guide:
- Am I eligible for a DRO?
- How do I apply for a DRO?
- Are there any important declarations I must make to my debt advisor?
- What kind of debt does a DRO include?
- Are there any restrictions whilst I have a DRO?
- How do I know if a DRO is right for me?
Am I eligible for a DRO?
If the following situations apply to you then you may be eligible for a DRO:
- You’re on a low income which means you cannot afford to pay your debts
- You owe debts of £20,000 or less
- You are not a homeowner
- After paying your utility bills, tax, national insurance and household expenses, you only have £50 or less left over each month
- Your assets (the value of any things you own and your savings) are worth less than £1,000
- You haven’t had a DRO in the last 6 years and you aren’t involved in any other debt relief actions such as an individual voluntary arrangement or bankruptcy
- You have worked, lived or owned property in England or Wales in the past 3 years
How do I apply for a DRO?
You cannot apply for a DRO yourself - you must go to a DRO advisor (an approved intermediary) who will help you submit your application. You can ask them any questions, discuss if a DRO is right for you and check your eligibility. Once you have completed the application together your debt advisor will send it to the official receiver.
It costs £90 to apply for a DRO but if this is something you cannot afford, there are charities which offer grants to help you pay this fee.
If your DRO is granted, your official receiver will let you know if you’ve been successful. They will also inform all your creditors that a DRO is in place and that they cannot ask you, or force you, to make any payments to them.
Are there any important declarations I must make to my debt advisor?
Any financial activity two years before your application may influence your DRO application. It is possible that your DRO may be refused if you have:
- Given away anything you own
- Focused on paying a certain creditor over another e.g. a relative
- Sold any of your belongings for less than they were worth
What kind of debt does a DRO include?
Not all types of debt qualify to be covered by a DRO. A DRO will cover:
- Credit card debt (including overdraft and loans)
- Benefits overpayments
- Business debt
- Late payments for rent, council and income tax and utility and telephone bills
- Buy now-pay later agreements
- Hire purchase and conditional sale agreements
You must continue to pay your rent and household bills while you have a DRO. The debts that a DRO will not involve include:
- Child maintenance payments
- Student loans
- Budgeting and crisis loans from the Social Fund
- Unpaid TV license payments
- Debts against one of your assets
- Drug offence fines
- Fines issued by a court
- Compensation for death and injury
- Debts incurred after the DRO has started
Debt that you build up after the DRO has been issued may lead to a bankruptcy order or prosecution if you run up debt without informing your creditor about your DRO.
Although most debts are written off at the end of the DRO period, any debt you have obtained through fraud, you will have to continue paying after the DRO has finished.
Are there any restrictions whilst I have a DRO?
Most of the rules you need to follow whilst under a DRO involve informing your creditor of any changes in your financial situation. You must not:
- Become the director of a company
- Borrow more than £500 without informing the lender of your DRO
- Form, manage or promote a company without permission from a court
- Manage a business without informing colleagues and clients about your DRO
- Open a bank account without telling the bank about your DRO
If your finances recover and you become able to pay back some (or all) of the debt covered by your DRO, your DRO can be revoked. If you break any of the restrictions or do not follow the guidelines set out by your Official Receiver, then your DRO can also be cancelled.
Although these restrictions usually only last the time period for which you have a DRO, they can be extended for up to 15 years in special circumstances. If you are at fault for your financial situation or you have been irresponsible or dishonest about anything to do with your DRO, the restrictions can be extended.
How do I know if a DRO is right for me?
The best thing you can do is discuss it with your authorised debt advisor. Although a DRO can get rid of your debt it can also have a negative impact on your credit score. The DRO stays on your credit profile for 6 years which means you are more likely to be refused credit for important payments in the future such as mortgage payments.
The restrictions can have an impact on your lifestyle, especially if you were involved in managing, directing or promoting a company. It is important to know that if any of your debts were created by hire purchases then you will probably have to give these items back.