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DEBT RELIEF ORDER (DRO) : WHAT YOU NEED TO KNOW
If you are struggling to pay back your debts, a Debt Relief Order (DRO) could be a solution. A DRO is a cheaper alternative to bankruptcy. A DRO is usually simpler and less costly alternative to bankruptcy.
DRO stands for a Debt Relief Order. It is a way to have your unsecured debts written off if you don’t have many assets of any real value and have a relatively low level of debt. A Debt Relief Order is only available to people living in England, Wales and Northern Ireland.
If you are a Scottish resident, you can apply for a debt solution such as sequestration, debt arrangement scheme or a trust deed. However, it is important to know each debt solution has its own pros and cons, as well as risks and fees associated with it. It is highly advisable you consult someone first to know what your options are, we are happy to provide you free impartial advice on the matter.
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How Does a Debt Relief Order Work?
To be granted a Debt Relief Order, you must apply to the Official Receiver (a government employee who approves or rejects your DRO application). Legally, a Debt Relief Order can only be administered by an Approved Intermediary, who is usually a specialist debt advisor who has been permitted to verify your case details on behalf of the Official Receiver.
The Approved Intermediary will examine your financial situation to see if you qualify for a DRO. They will then make an online application to the Official Receiver. You will be required to pay a non-refundable fee of £90. You can choose to make the payment in instalments. However, you should know that your application will not be considered until you have paid £90 in full.
The Official Receiver will only consider your application, once the fee and the application from your Approved Intermediary have been received. If the DRO is approved, the Official Receiver will notify your creditors that you have been granted the DRO. Any charges or interest on the debts included in your DRO will be frozen for a period of 12 months.
If your financial situation changes during this period, for example, a lottery win, inheritance or a pay rise, you must inform the Official Receiver. They will then decide whether or not your DRO should continue.
While the Debt Relief Order is active, you will be required to continue paying your essential bills, such as utility bills mortgage/rent, council tax and any other debts that are not included in the DRO.
Our Simple 3 Step Process
How Do I Qualify for a DRO?
You may be able to get a DRO if all of the following things apply to you:
- You are unable to pay your debts.
- You have lived, worked or owned a property in England, Wales or Northern Ireland for the last three years.
- You have less than £50 a month left over after paying all your living costs.
- Your assets are worth less than £1,000. However, you can own a motor vehicle worth £1,000 in addition to this.
- You are not a homeowner.
- Your total unsecured debts are less than £20,000.
- It has been at least six years since your previous Debt Relief order was granted, and you are not currently in a formal insolvency procedure, such as (IVA) or bankruptcy.
If you have done any of the following in the last TWO years before applying for a DRO, you must inform your Approved Intermediary.
- Prioritised paying one credit at the expense of the others. For instance, if you paid a debt you owe a family member and never paid other creditors.
- Sold your belongings for less than their value. For example, if you sold a car worth £3,000 to a friend for £300.
- Given away belongings.
Your application may be refused if any of these apply to you. However, in some cases, the Official Receiver may still proceed to grant you a DRO. They will examine the facts of your case before making the final decision.
What Debts Will be Included in My DRO?
Debts that are included in a DRO are known as Qualifying Debts. They include:
- Business Debts.
- Loans, overdrafts and credit cards.
- Buy now-pay later agreements.
- Conditional sale agreements or hire purchase.
- Benefit overpayments.
- Arrears with your income tax, council tax, telephone bills, utility bills and rent.
If you obtained any of your debts by fraud, you’ll still be required to pay for them after the DRO term is over. If you are behind on rent, your landlord can still take action to recover their property, even if the rent arrears are covered by your Debt Relief Order. This means you may be required to pay for these even after your DRO is granted.
We offer debt solutions to UK residents who are looking to take back control off their finances, we firstly assist you by finding out more about your current situation before recommending to you the most appropriate debt solution for your circumstances.
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Benefits Of A DRO
What Debts Cannot Be Included in My DRO?
Debts that cannot go into your Debt Relief Order include:
- Social fund loans.
- Student loans.
- Child support and maintenance.
- Magistrate court fines and confiscation orders.
- Compensation for injuries or death.
I am Eligible for a DRO, What Should I Do?
If you think you may be qualified and that a Debt Relief Order is a good debt solution for you, follow the steps below to apply for DRO:
Step 1:Find an Accredited Intermediary, also known as a DRO adviser. If your DRO adviser confirms that you are indeed qualified for a DRO, they will help you make an application.
Step 2: Pay the Fee. You will be required to pay a non-refundable setup fee of £90. Note that your application will not be considered until you have paid this fee in full.
Step 3: Wait for the Official Receiver to review your application. The Official Receiver will make one of the following decisions:
- Grant you the Debt Relief Order if you are qualified and your application has been filled in correctly.
- Defer the Order, if they feel they need more information to make a final decision.
- Reject the Order, if they feel you are not qualified or if you have given false information.
After applying for a DRO, you must cooperate with the Official Receiver. This means you must answer their questions and provide any additional information they may ask for. In case your application is rejected, the Official Receiver will give you written reasons why it has been turned down. You are allowed to challenge this decision.
How Much Does A DRO Cost?
In order to apply for a DRO, you must pay a non-refundable fee of £90 to Insolvency Service. The fee must be paid via an approved outlet. Your Approved Intermediary will give you details on where to find the nearest outlet. You can choose to pay this fee in instalments over a 6-month period. However, you should note that your application will not be considered until the Official Receiver has received the full amount. There are no exemptions from paying the fee.
How Long Does A Debt Relief Order Last?
A Debt Relief Order only lasts for 12 months. After this period has come to an end, all the unsecured debts included in your DRO are discharged, meaning that you will no longer be liable or responsible for them.
In some cases, the Official Receiver (the government person in charge of approving or rejecting your DRO) may issue a Debt Relief Restrictions Order. If you are given this document, your Debt Relief Order will be prolonged for another 15 years.
Note the Debt Relief Restrictions Order can also be given if it is found that you were dishonest or lied about financial affairs. So, it is important you work closely with the Official Receiver and make sure that you always give the correct information about your financial condition. If anything changes during the time your Debt Relief Order is active, ensure you inform your adviser and the Official Receiver.
How Will a Debt Relief Order Affect my Credit Rating?
A Debt Relief Order will lower your credit rating. Your DRO will be added to the Individual Insolvency Register. Unlike bankruptcy, your Debt Relief Order will not be advertised in the London Gazette or in your local newspaper. The details of Debt Relief Order will remain in the Individual Insolvency Register for three more months after your DRO has come to an end.
In addition, the details of your Debt Relief Order will be added to your Credit report and will remain on there for 6 years from the time your DRO was approved. This means anyone searching for your credit information will see you were on a Debt Relief Order and may deny your application for credit.
You may also be prevented from opening banks accounts during this time.
IVA or DRO: Which Is The Better Option?
If you are looking for a debt solution, both Debt Relief Orders (DROs) and Individual Voluntary Arrangements (IVAs) are both ways of dealing with unmanageable unsecured debts. But, which one is a better option for you? It all depends on your individual circumstances. Here is a comparison of an IVA and a DRO.
- Minimum Debt Requirement
Debt Relief Orders are designed for those who only have small debts and simply cannot pay them back. As such, your DRO application will not be approved if your debts are more than £20,000. With an IVA your total unsecured must total up to £7,000 or more.
A Debt Relief Order only lasts for 12 months, after which all the unsecured debts covered in the DRO are written off. An IVA typically lasts for 5 years.
With an IVA after 5 years or the agreed term, any remaining debt will be written off.
You will be required to pay a non-refundable fee of £90 for your DRO application to be considered. This fee can be paid in instalments, but remember your DRO application will be considered after the Official Receiver receives the whole amount.
The fees for an Individual Arrangement vary from one Company to another. All fees are included in your monthly repayments.
You can apply for a Debt Relief Order if your total assets are £1,000 or less. In an IVA, your assets are protected, which means you do not need to sell any assets such as your car or home.
- Court Involvement
A Debt Relief Order does not require a court approval to be binding. It only requires the approval of the Official Receiver. An Individual Voluntary Arrangement, on the other hand, may need to be registered with the court for it to become binding.
- Public Register
When your IVA application is approved, your details will be added to the Insolvency Register, which accessible to the public. A Debt Relief Order is added to the Insolvency Register, but it is not published in the London Gazette or your local newspaper.
What Are The Pros and Cons of a Debt Relief Order?
Pros of a Debt Relief Order
- All the unsecured debts listed in the DRO are written off after 12 months.
- A DRO is cheaper than bankruptcy.
- You will be protected from your creditors.
- You do not have to go to court.
- Your DRO will not be published in the London Gazette or your local newspaper.
Cons of a Debt Relief Order
- Not all types of debts are included.
- You cannot apply for a DRO if you have a home as it would be counted as an asset.
- The details of your DRO will be added to the Individual Insolvency Register.
- Your DRO will show up on your credit report for 6 years..
These are just some of the most important details to know about a Debt Relief Order. It is imperative you consult a professional while considering a DRO as your preferred debt solution. If you need help get in touch with us here at your debt advisor, Contact Us.
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