In the UK, a Debt Relief Order is a form of debt relief that enables individuals with limited assets and income to manage their debt. Its objective is to assist debtors with limited capacity to repay their obligations in attaining financial relief via debt cancellation.

If you are in debt, this may be a good option if you have multiple debts in one go. This post will explain a debt relief order and how it can help you if you are in debt. 

Why is a debt relief order necessary?

In the UK, a debt relief order is a legal process that enables individuals with comparatively modest debts to address and resolve their financial challenges. This is an indispensable alternative for individuals lacking the essential surplus income to establish a voluntary arrangement or declare bankruptcy. 

Their assets are valued at or below £1000, their surplus income is modest, and their obligations amount to no more than £20,000. They are, therefore, ineligible for the remaining types of personal insolvency. The debt relief order furnishes an appropriate legal mechanism to address their predicament.

It alleviates the stress caused by legal action threats and harassment from creditors. Creditors appointed under a debt relief order are precluded from pursuing additional measures to recoup their funds without the court’s permission.

It grants the individual the opportunity to restart their life after 12 months. Although the debts are written off, most debt categories may be included.

Who is eligible to obtain a DRO? – Further useful information

To qualify for a DRO, each of the following requirements must be met:

  • You owe your creditors a total of £30,000 or less. All applicable fees, charges, and interest are included.
  • You possess assets with a value of £1000. Excluded from this are vehicles with a maximum value of £1000.
  • After reasonable living expenses, your monthly surplus income is £50 or less.
  • You are a resident of Northern Ireland, England, or Wales. DROs are not applicable in Scotland.
  • A DRO has yet to be imposed upon you within the last six years.
  • Currently, you do not face any bankruptcy-related restrictions or proceedings.
  • Student loans, fines, debts resulting from familial proceedings, or social fund loans do not comprise any of your liabilities.

What is the process of a debt relief order?

An eligible applicant will submit an application for a DRO via an authorised intermediary. This is typically a debt advisory organisation or an insolvency practitioner. 

1. Declaration on an application form that complete repayment of all creditors and debts is not possible
2. Payment of the £90 application fee for the Insolvency Service.
3. Your application must be submitted to the Insolvency Service through an authorised agent.

On approval, a moratorium of twelve months commences. Named creditors are prohibited from pursuing payment from you at this time. If all conditions are satisfied by the conclusion of the moratorium. In that case, your debts will be discharged, granting you legal release.

What are the pros and cons of a DRO?

Pros

  • It can thoroughly discharge unaffordable debts.
  • Precaution against creditor actions throughout the moratorium.
  • There are no assets subject to seizure by creditors.
  • Typically, this is a more expeditious resolution than insolvency.
  • Low-cost alternative with no recurring charges.

Cons

  • Your credit score will be adversely affected.
  • You might be required to make additional payments with your surplus income.
  • Debts have been written off formally for twelve months.
  • Approval of a DRO may be impeded by objections raised by creditors.
  • Afterwards, some lenders might be unwilling to lend to you.

Which obligations are consolidated in a DRO?

DROs protect against the majority of unsecured debts, including:

  • Credit accounts
  • Keep documents
  • Individual credit
  • Obtaining payday loans
  • The use of overdrafts
  • Bill’s delinquency for utilities
  • In arrears rent

Court fines, student loans, social fund loans, child support obligations, and fraudulent or criminal activity debts are excluded. While secured debts such as logbook loans and mortgages remain in effect, any subsequent actions may be temporarily ‘ stayed’ or halted.

In what circumstances is a DRO a viable option?

A DRO may present itself as a viable debt resolution option for individuals with limited assets, insufficient discretionary income, and an inability to repay timely debt. It allows for a new beginning to be established after 12 months. Nevertheless, it will hurt your credit score. 

It is essential to consult a professional debt advisor to determine whether or not the debt is appropriate, given your circumstances. Obtaining a Debt Relief Order is typically initiated by an authorised intermediary, a debt advisory organisation or an insolvency practitioner. They will evaluate your situation, ascertain that you satisfy the prerequisites, and proceed with the application submission on your behalf.

If circumstances change during the 12-month moratorium of a Debt Relief Order, such as acquiring assets or having your income exceed the £50 surplus limit, you must notify the Insolvency Service. Neglecting to do so may lead to the revocation of the DRO.

Final Thoughts

In conclusion, a Debt Relief Order grants individuals who cannot repay their debts a lawful avenue to have them discharged within twelve months. It is a less expensive alternative to declaring bankruptcy, but applicants must satisfy eligibility requirements regarding modest income and assets. 

As DROs affect credit ratings, alternative debt resolution strategies might be more suitable. Individuals in financial hardship ought to seek counsel before pursuing a DRO.