What is Debt Relief Order (DRO)? | How to Apply for a DRO?

What is Debt Relief Order (DRO)? | How to Apply for a DRO?

In case you have few assets and the level of debt is relatively low, debt relief order (DRO) is the way to write off your debts. If you are eligible for it, you can get the insolvency service from the DRO team of experts. However, if you are from Scotland, the debt relief order is of no use to you.

For 12 months, your debt payments and interests can be frozen by a DRO. Also, it can write off all of your debts if your financial condition does not become stable after this period is over. 

But, you must go to an approved organization to get help before applying for a DRO. These people will let you know if you are eligible or not.

What is Debt Relief Order (DRO)?

In case, you owe less than £20000, Debt Relief Order (DRO) can be used to write off your debts. In short, you can deal with your debts if you are unable to pay them right away.

These orders are basically a kind of insolvency measures that are followed in the UK. So, if any person gets bankrupted or comes across any financial crisis due to some reasons, DRO can be very helpful.  

It is a procedure to clear out debts without attending any court session or facing any criminal charges. 

Advantages of a DRO

Various advantages are there if you apply for a DRO. Let’s discuss a few of them.

  • It relieves you from unnecessary stress and anxiety.
  • You do not have to deal with a court hearing.
  • After a year, you can start fresh with the help of it.
  • If it is included, you can write off your debts.
  • Apart from maximum debts, it also includes priority debts like council tax and energy debts.
  • Creditors cannot take further action without the permission of the court.
  • You can pay the application fee in installments, which is way cheaper than bankruptcy.
  • There is no need to pay your debts on a monthly basis.

Disadvantages of a DRO

Although, the procedure to apply for DRO is quite simple. But, there are certain limitations to it.

  • Your home will be counted as your asset. So, you can’t apply for a DRO if you have such assets.
  • You cannot write off all types of debts.
  • No provision to add the debt later if you forget about it somehow.
  • All the details of your DRO will be there in the Individual Insolvency Register.
  • On your credit reference file, the DRO will be there as a record. So, it might affect when you will apply for further credit.
  • You can face a “debt relief restrictions order”, in case you get it for being dishonest or “unfit conduct”.
  • If anyhow you supply any false information, the official receiver can take legal action against you.

What is the Procedure to Apply for a DRO?

You can apply for a DRO by following the steps below.

  1. First, you have to make sure if you are eligible for applying for a DRO. Hence, you must check your eligibility beforehand.
  2. You can also get help from the free debt advice providers. Besides, collect the necessary forms that can help to deal with your debt problem. You have to fill those forms and send them to the specialist DRO team.
  3. The DRO team will then prepare and submit your application. But before that, you have to pay a fee of £90 approximately to the Insolvency Service. 

You can pay the fee in installment if you are from England or Wales. The DRO team will submit the application right after you pay the fees.

How Long Does it Take to Process a Debt Relief Order?

The process begins right after providing all the debt information to the DRO approved intermediary. Your intermediary will then submit the DRO application to the Insolvency Service. 

To ensure the successful processing of your application, you have to pay the fee (£90). Within 10 days after it, they will make a decision on the basis of your application.

Debts Covered by the Debt Relief Order

DRO includes maximum debts, council tax, household utility bills and consumer debt like store and credit cards. Here are the debts that you can pay off with this debt relief order.

  • Overdrafts
  • Loans
  • Credit cards
  • Catalogs
  • Utility and phone bills
  • Benefit overpayments
  • Council tax, rent
  • Money towards HM revenue & customs (National Insurance Contributions or National Tax)
  • In-store credit agreements

Debts that the Debt Relief Order does not Cover

You might come across some debts called ‘excluded debts’. So, DRO does not include those ‘excluded debts’. Here are the debts that you cannot pay off with the debt relief order.

  • Social funds loan
  • Student loans
  • Confiscation orders
  • Magistrates’ court fines
  • Child support and maintenance arrears
  • TV license arrears
  • Criminal fines
  • Loans from DWP Social Fund (budgeting loans)
  • Fraudulent activities including benefit overpayments

Are you Eligible to Get a DRO?

If all the below conditions apply to your situation, you can go for a DRO.

  • You are allowed to pay debts.
  • £20000 is the maximum amount for your qualifying debts.
  • After you pay unnecessary household expenses, you get £50 leftovers or less than that every month.
  • You are not the owner of your home.
  • £1000 is the overall value of your assets or other savings. DRO does not include assets like basic tools to do your job or household things.
  • The value of your car is not more than £1000.
  • You are not under any formal insolvency procedure like an individual voluntary arrangement or bankruptcy. 
  • Your previous DRO was prepared at least 6 years back.
  • In England or Wales, you lived, had a property or worked for the last three years or more than that.

Things to Inform About your Recent Activity

To your DRO adviser, you must reveal certain things. For more clarity, go through these points to check if you have done any of these in the past two years.

  • Have given your assets away.
  • Have sold your assets less than the value of their worth. For example, you have sold your car to a friend for £500 that was worth £2200.
  • Gave priority to paying others over the creditors. As an example, you did not pay your creditor and have paid off a debt that you owed to a friend.

If any of these above things apply to you, the DRO application might not get the approval. Before making a final decision, they will go through these facts in your case if applicable.

How to Know if a DRO is Applicable for you?

A DRO shows you an easy way to manage your debts. However, before applying for it, you must know the impact a DRO will have on you. Here are a few things to remember.

  1. You may have to give back the goods, in case those were bought on hire or purchased with any debt.
  2. For six years, your DRO details are going to stay on your credit record. While getting credit in the future, this might affect your ability.
  3. DRO can affect your tenancy agreement, in case you have one. It can be checked by the DRO adviser working with you.
  4. Probably, you have to open a new account as your bank may close your old one.
  5. In case someone has an attorney over financial affairs for you or vice versa, it will end.
  6. The application that you have made for obtaining British citizenship might be affected. In such cases, you can get advice from an immigration specialist if you are not sure about it.

Some DRO Restrictions

When the DRO period is going on, you need to follow some rules called restrictions.

  1. Without letting the creditors know about the DRO, you are not allowed to borrow £500 or more than that.
  2. You need to take permission from the court if you are about to get involved in managing, promoting or setting up a company or be a director of it.
  3. It is mandatory to let everyone know that you do business with a different name, instead of the one you got the DRO in.
  4. Your details are going to be there on the Individual Insolvency Register of Insolvency Service. Hence, others can view the details when the DRO is in force and three months following it.

Can you Update a DRO or Remove it from your Report?

It is not possible to remove the DRO from your report. After the 12 months of the DRO period ends, check your report to know if the DRO has been updated as discharged. 

If you see it has not yet discharged, you have to tell the DRO team. Your DRO will include the accounts that will be marked as partially settled or satisfied. But, you should check it to ensure this.  You must contact the relevant company if you find any issue.

After the DRO gets clearance or becomes older, your credit rating can improve in a short time. Since your recent credit history is more important than the events that happened several years ago according to some company ratings.