What is a Debt Relief Order?
If you don't qualify for an Individual Voluntary Arrangement (IVA) or a Debt Management Plan (DMP), it may be that you do qualify for a Debt Relief Order (DRO).
What Is A Debt Relief Order (DRO)?
Debt Relief Orders came into force on:
- 6th April 2009 in England and Wales.
- 15th December 2010 in Northern Ireland.
They have been introduced to provide a formal debt solution to those few people who have no ability to make any payments towards their unsecured debts, at any level.
DROs are available to debtors who owe less than £30,000 for those living in England and Wales or less than £20,000 for those living in Northern Ireland.
They must also have assets with no greater value than than £2,000 for those living in England and Wales, or £1,000 for those living in Northern Ireland, with the exception of a motor vehicle, which must have a value less than £2,000.
Applicants must also have a surplus income of less than £75 per month.
Applications for a DRO can only be undertaken by one of the special intermediaries vetted for the purpose by the Official Receiver's office (OR).
The role of the intermediary is to validate the personal circumstances of the DRO applicant and ensure they conform to the strict qualifying criteria before submission to the OR.
The DRO is then issued by the intermediary for a statutory administration fee of £90 which constitutes a huge saving when compared to bankruptcy fees.
After the £90 has been paid and the DRO granted, and assuming that the applicant's circumstances remain stable, no other payments are required to be paid towards the debts.
The DRO lasts for a fixed term of 12 months after which the applicant's unsecured debts are discharged and the applicant will be debt free.
Before a DRO can be issued, the applicant must satisfy these criteria:
The applicant must:
- Be insolvent;
- Not be homeowners;
- Owe their unsecured creditors £30,000 or less if resident in England or Wales;
- Owe their unsecured creditors £20,000 or less if resident in Northern Ireland;
- Own no assets with a monetary value of more than £2,000, if resident in England or Wales;
- Own no assets with a monetary value of more than £1,000 if resident in Northern Ireland;
- Not own a car worth more than £2,000;
- Have a disposable income of under £75 pm ;
- Been resident in England, Wales or Northern Ireland for the past 3 years;
- Not be currently Bankruptcy;
- Not currently be subject to a Bankruptcy Restrictions Order;
- Not be currently in an IVA;
- Have not been subject to a DRO within the past 6 years.
DROs have been introduced specifically to assist those people who vend themselves trapped by their financial circumstances. Those people whose financial means are so challenged that they haven't even the financial resources to make themselves bankrupt.
By simplifying the normal bankruptcy process, and thus reducing the associated charges, Thousands more people have been given the opportunity to rid themselves of overburdening debt and start afresh.
The DRO application process has protective measures in place to ensure each applicant makes a full and transparent disclosure of their true circumstances, with significant penalties for those applicants found to have been dishonest or fraudulent with their applications.
A DRO is a formal insolvency procedure.
As with all formal insolvency procedures, the DRO will be recorded on the Insolvency Register, the public register that is provided by the Government's department for insolvency, namely the Insolvency Service. It will be visible on the register for the full term of the Order and for up to 3 months after the Order has been completed.
This means that a DRO will have a profound impact on the applicant's credit rating as all Credit Rating Agencies monitor the Insolvency register.
As a result, the Debt Relief Order will be visible on the applicant's credit file for 6 years from the date the order is issued and during that time it will be very difficult for the applicant to obtain credit of any kind.