A Debt Relief Order (DRO) deals with personal debts you cannot pay and helps you make a fresh start, with some restrictions. It normally lasts 12 months, after which you will not have to pay the debts listed in it. You apply through an approved debt adviser, and you will not need to go to court.
Key points
✓A DRO normally lasts 12 months, and once it ends you will not have to pay the debts listed in it.
✓There is no application fee.
✓You are eligible if you owe less than £50,000, have savings or valuable items worth less than £2,000 in total, and own a vehicle worth less than £4,000.
✓Child maintenance, student loans, budgeting and crisis loans from the Social Fund, debts secured against your possessions and unpaid TV licence fees stay payable.
✓If you live in Scotland or Northern Ireland you cannot apply for this DRO.
What is a Debt Relief Order?
A Debt Relief Order (DRO) is a way to deal with personal debts you cannot pay and make a fresh start, with some restrictions.
A DRO normally lasts 12 months, and you stop making payments towards the debts, and interest, listed in it during that time
After the 12 months, you will not have to pay these debts anymore
You will not need to go to court
There is no application fee
A DRO stays on your credit reference file for 6 years from the date it was approved
You have to contact an approved debt adviser to apply for a DRO, and you cannot complete the application on your own. The adviser checks whether you meet the eligibility criteria free of charge. GOV.UK lists National Debtline, Citizens Advice, AdviceUK, Payplan, Christians Against Poverty, Community Money Advice and Shelter (England) as organisations who can help you get a DRO. You cannot apply for a DRO if you live in Scotland or Northern Ireland. Northern Ireland has its own Debt Relief Order, which nidirect says lasts for 12 months and is not suitable for homeowners.
Do you qualify for a DRO?
GOV.UK says you are eligible for a DRO if you:
✓Yes: Owe less than £50,000 in total
✓Yes: Have savings or valuable items worth less than £2,000 in total
✓Yes: Own a vehicle worth less than £4,000 (if you were to sell it today)
✓Yes: Do not have enough money left at the end of the month to make your debt repayments
✓Yes: Have lived or worked in England and Wales in the last 3 years
✓Yes: Are not currently bankrupt, have an interim order or an individual voluntary arrangement
✓Yes: Have not had a DRO in the last 6 years
You cannot apply for a Debt Relief Order if:
✗No: Your creditors have applied to make you bankrupt but the hearing has not yet taken place, unless your creditors agree that you can still apply
✗No: You have been given a Bankruptcy Restrictions Order or Undertaking
✗No: You are currently bankrupt
✗No: You have an Individual Voluntary Arrangement or are applying for one
✗No: You have had a Debt Relief Order in the last six years
✗No: You have been given a Debt Relief Restriction Order or Undertaking
GOV.UK's options guide describes a DRO as one way to deal with debts if you do not have much spare income, usually less than £75 per month, and do not own your home. MoneyHelper says £75 or less left at the end of each month after essential household expenses. GOV.UK guidance for debt advisers adds that if the debtor owns any property, they may be in breach of the asset parameter and they may be ineligible to apply. If you own a motor vehicle worth up to £4,000, MoneyHelper says you will be able to keep it. The £4,000 limit for vehicles does not apply to vehicles adapted for disabled people, which should be declared as an asset. You must pay off your debts equally and must not give away or sell valuable items for less than they are worth. Preferential payments and undervalue transactions can affect your eligibility for a DRO.
What debts are included in a DRO?
The debts a DRO can include are called qualifying debts.
Qualifying debts include:
✓Yes: Credit cards, overdrafts and loans
✓Yes: Rent arrears and utilities (gas, electricity, telephone)
✓Yes: Council and income tax
✓Yes: Buy now pay later agreements
✓Yes: Benefit overpayments
✓Yes: Debts to friends and family
Debts you will still have to pay:
✗No: Child maintenance or anything you owe under family proceedings
✗No: Student loans
✗No: Budgeting and crisis loans from the Social Fund
✗No: Debts secured against any possessions you own
✗No: Damages for personal injury or death a court has ordered you to pay
✗No: Unpaid TV licence fees
✗No: Fines imposed for criminal offences, and an obligation under a confiscation order
Debts that result from fraud are not discharged at the end of a DRO, so you still have to pay them. Once a DRO has been approved, no other debts can be added to it. You can include rent arrears, but a landlord can start or continue possession action during the DRO period. MoneyHelper says you may be advised to carry on paying rent arrears, and that your tenancy agreement may contain an Insolvency Clause, which would make a Debt Relief Order a breach of the agreement.
What happens during the DRO period?
Creditors listed in your DRO cannot ask you for payments during the DRO period, though they can send you statements and general correspondence
A creditor must stop all bailiff enforcement action, any attachment of earnings deductions and any proceedings against you
A creditor cannot start insolvency proceedings against someone in a DRO without a court's permission
You still have to keep paying regular commitments during the DRO period, like rent and bills
You must tell the Insolvency Service about any increase in your regular income, and about money or possessions of value you receive, such as property or vehicles
Your DRO is added to the Individual Insolvency Register, which removes it 3 months after it ends
Restrictions once you are granted a DRO, you cannot:
✗No: Borrow more than £500 without telling the lender about your DRO
✗No: Write cheques when you do not have sufficient funds
✗No: Apply for another DRO for 6 years from the date your DRO is approved
✗No: Act as a director of a company
✗No: Create, manage or promote a company without the court's permission
✗No: Manage a business with a different name without telling anyone you do business with about your DRO
Breaking any of the restrictions could lead to prosecution, and the restrictions can then be extended for 2 to 15 years. The Insolvency Service can cancel your DRO if your finances change and you no longer meet the eligibility criteria. If that happens you have to start paying the debts that were listed in it, plus any interest that built up during your DRO.
Creditors may still send you balance statements of any outstanding amount for up to 12-18 months. A creditor can still recover a debt from a guarantor or joint debt holder. After a DRO has been approved, your bank may stop letting you use your current bank account. Your DRO ends automatically at the end of the DRO period, and all the debts listed in it, including interest, penalties and charges, are discharged.
How to apply for a DRO
1
Contact an approved debt adviser
You have to contact an approved debt adviser to apply for a DRO. The adviser checks whether you meet the eligibility criteria free of charge.
2
Go through your situation
The adviser will calculate your total debt, the value of your possessions and how much money you have left over each month. They will look at what you paid your creditors over the past 2 years and ask about any possessions you gave away or sold in the last 2 years.
3
No fee to pay
There is no application fee.
4
Your adviser submits the application
If you are eligible, the adviser completes an online application for you and submits it to the Insolvency Service.
5
If it is successful
The Insolvency Service confirms your DRO has been made, explains the restrictions you must follow, tells you about any actions you need to take, and informs all the creditors listed in your DRO.
DRO vs bankruptcy vs IVA, which is right?
Debt Relief Order
Bankruptcy
IVA
Cost
There is no application fee.
A debtor has to pay a fee of £680 before the application is submitted.
There are usually 2 fees: a set up fee and a handling fee each time you make a payment.
How long
A DRO normally lasts 12 months.
Most types of debt are written off when discharged from bankruptcy, normally after a year.
An IVA lasts a set amount of time, usually five or six years.
Your assets
If you own any property you may be ineligible to apply.
You might be told to use your assets to pay off your debts first.
An IVA can give you more control of your assets than bankruptcy.
Payments
You stop making payments towards the debts listed in the DRO.
You can usually keep some essential assets, but might need to replace them with cheaper alternatives.
You agree to make regular payments to an insolvency practitioner, who divides the money between your creditors.
Scotland has 2 types of bankruptcy: the Minimal Asset Process (MAP) for people with few assets or no disposable income, and Full Administration for those who do not qualify for MAP.
For MAP you must:
✓Yes: Owe less than £25,000
✓Yes: Not own property or land
✓Yes: Not own a single asset worth over £1,000
✓Yes: Not own assets over £2,000 in total, except for a vehicle up to the value of £3,000 you cannot do without
✓Yes: Have no disposable income, proven by a financial assessment
✓Yes: Live in Scotland, or have lived in Scotland within the last year, and not have been bankrupt in the last 5 years or through MAP in the last 10 years
You apply through an approved money adviser, because you cannot apply yourself. The adviser applies online to Accountant in Bankruptcy (AiB), which decides if you should go bankrupt. You are bankrupt for 6 months if you apply through MAP, and your details stay on the Register of Insolvencies for 18 months from the date of bankruptcy.
You are eligible for a DRO if you owe less than £50,000 in total. Some debts stay payable: child maintenance, student loans, budgeting and crisis loans from the Social Fund, debts secured against any possessions you own and unpaid TV licence fees.
How much does a DRO cost?
There is no application fee. GOV.UK points to the MoneyHelper website for organisations that offer free debt advice.
Does a DRO affect my credit rating?
A DRO stays on your credit reference file for 6 years from the date it was approved, and debts listed in it will not show as paid or settled during that time. It is also added to the Individual Insolvency Register, which removes it 3 months after the DRO ends. While you have a DRO you cannot borrow more than £500 without telling the lender about it.
Can I get a DRO if I own a car?
GOV.UK lists owning a vehicle worth less than £4,000, if you were to sell it today, as one of the eligibility conditions. MoneyHelper says that if you own a motor vehicle worth up to £4,000, you will be able to keep it. The £4,000 limit does not apply to vehicles adapted for disabled people, which should be declared as an asset.