A debt relief order (DRO) is a method available in the UK to help individuals who have relatively low levels of debt, few assets, and little disposable income to address their debt problems without resorting to bankruptcy. DROs offer a more affordable alternative to bankruptcy for those who qualify, allowing them to have their debts written off after a specific period.
Debt relief order eligbility
To be eligible for debt relief, there are certain criteria an individual must meet:
- Debt level: The total unsecured debts must not exceed a set limit, which, as of writing, was £20,000. It’s worth checking the most recent guidelines as this figure can change.
- Disposable income: Your disposable income, after regular household expenses, should not be more than £50 per month.
- Assets: You should not own property (like a house or a flat) and your assets, excluding some essential items like a modest vehicle worth less than a specified value, should not exceed a certain total.
- Residency: You should be a resident in England or Wales, or have been a resident or had a business in England or Wales at some point in the last three years.
- No recent DROs: You must not have been subject to a DRO within the last six years and should not be involved in another formal insolvency procedure at the time of application.
Applying for a DRO
The application process for a DRO is straightforward but must be made through an approved intermediary, usually a debt advisor, who will guide you through the process. There is a fee associated with the application, but it is much lower than the cost of declaring bankruptcy.
Once a DRO is approved, the individual will be protected from any further action by their creditors for a period, usually 12 months. During this period, they won’t have to make any payments towards the debts listed in the DRO. If the individual’s circumstances don’t change during this time, the debts included in the DRO will be written off at the end of the 12-month period.
Implications to consider
However, there are implications to consider. A DRO will impact your credit rating for six years from the date it’s approved, making it harder to get credit in the future. It’s also worth noting that not all debts can be included in a DRO, such as student loans or magistrate court fines.
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In summary, a debt relief order provides a lifeline for individuals in the UK with minimal assets and low income, offering a structured, affordable means to address overwhelming debts. However, it’s crucial to seek advice from a professional debt advisor before deciding if a DRO is the right path.
