Debt Relief Order (DRO): All You Need To Know
Everything You Need To Know About a Debt Relief Order (DRO)
A DRO (Debt Relief Order) is a convenient way of dealing with debts for those people with few assets or have relatively low levels of debt. However, some debts may not be covered by a Debt Relief Order.
Before deciding whether a DRO is right for you, it is important to confirm your eligibility with a DRO adviser. With a DRO, you will not have to make payments towards some type of debt listed in your DRO and your creditors cannot force you to clear the debts.
Your debts will be written off at the end of the DRO period which is usually about a year. However, you are still responsible for paying off any debt not included in your DRO because Debt Relief Orders do not cover all debts.
A DRO basically freezes your debt repayments including interest for a period of 12 months and if your financial situation has not improved by the end of the DRO period then all your debts included in the Debt Relief Order will be written off.
You do not have to pay off your debts for one year and after this period they will be written off. A DRO is a low-cost alternative to bankruptcy.
How To Apply For a (DRO) Debt Relief Order
When applying for a DRO, you will pay a one-time service fee of £90 to the Insolvency Service. You will also have to work with an approved intermediary or a DRO adviser since you cannot submit your own application. A DRO adviser can be found at a local Citizens Advice Bureaux. Before making your application you must declare some recent activities that you have done two years before the application. These include the following:
– If you have given away belongings or sold them for less than their value
– If you have prioritised paying off a debt to one creditor over others
Your application may not go through if any of these apply to you.
Eligibility For a Debt Relief Order
Anyone who is unable to pay off their debt is eligible to get a DRO. Your debts should be worth less than £20,000 and a surplus income of £50 or less i.e the amount left over every month after payment of the usual household expenses. You may also be able to get a Debt Relief Order if you do not own your home and you have assets that are worth less than £1,000 although some assets can be ignored when calculating the value of things you own. Homeowners are not eligible for a Debt Relief Order.
You are also eligible for a DRO if you do not own a car worth more than £1,000 unless the car is specially designed because you have a disability. If it has been six years since your last Debt Relief Order was made and you are not going through a formal insolvency procedure such as an individual voluntary arrangement (IVA) or bankruptcy and you have worked, lived or had a property in England, Wales or Northern Ireland, you are also eligible for a DRO.
Debts That a Debt Relief Order Covers
A DRO may not cover all debts and is limited to credit cards, loans, overdrafts, utility bills, income tax, council tax, telephone bills, rent arrears and benefits over-payments. Other qualifying debts include hire purchase/conditional sale agreements, business debts as well as buy now-pay later agreements. In case you obtained any of these debts by fraud, you are entitled to paying them off when your DRO has ended. It is also important to note that if you have any rent arrears, the landlord can still claim their property back even if the arrears are included in the DRO which means that you must continue paying these arrears after a Debt Relief Order is made.
Debts Not Covered By a DRO
Some of the debts that cannot go into a DRO include compensation for injury or death, social fund loans, student loans, confiscation orders, magistrates court fines, child support and maintenance. All these debts do not count towards the limit but if you are not sure whether your debt can be covered by a DRO, you can always consult with your DRO adviser.
Factors To Consider Before Getting a DRO
A Debt Relief Order is a solution to be considered when trying to get support with your debts, but it may have a significant impact on your credit rating as well as lifestyle in many ways. For instance, if your debts are as a result of goods bought on hire purchase, then you may be required to give these goods back. A DRO may also make it difficult for you to find a new home or even get credit in the future since it will remain on your credit records for 6 years. There are also certain restrictions or rules that must be adhered to during the DRO period. For example, you must inform your creditor about the DRO if you intend to borrow £500 or more.
You can also not get involved in setting up, managing or promoting a limited company or even become a director without authorisation from the court. In case you have a different business from the one under which you got your DRO, you must inform everyone you do business with the business name you used to get your DRO. During the duration of your DRO and 3 months
Before applying for a DRO, it is important to understand its implications