Debt Relief Order. What is it?

Debt Relief Orders

A debt relief order (DRO) can help you to write off debt that you’re unable to repay in a reasonable amount of time.

Debt relief orders (DROs) are not available if you live in Scotland. In Scotland, a minimal asset process (MAP) is a similar solution, but it’s important to note that it has different benefits, risks and fees associated with it.

DROs are usually suited to people with a fairly low amount of debt (under £30,000 in England/Wales & Northern Ireland £20,000) and who have little to no assets, with a disposable income of £75 or less (£50 or less in Northern Ireland).

Am I eligible for a DRO?

To apply for a DRO you need to meet the following criteria:

  • You need to reside in England. Wales or Northern Ireland, or have done business in one of these countries in the last three years
  • Your debts add up to less than £30,000 (£20,000 in Northern Ireland)
  • You’re not a homeowner
  • Your assets are worth less than £1,000 – though you can own a motor vehicle worth up to £1,000 in addition to this
  • You have less than £75 (£50 in Northern Ireland) a month left over after you’ve paid all of your living costs.

How does a DRO work?

You need to apply for a DRO through one of the organisations approved by the Insolvency Service, of which we are one.

If your DRO is approved, payments to your debts are put on hold for 12 months and your creditors cannot take any action to collect the debts during this time, although interest and charges can still be added. If after the 12 months your circumstances haven’t improved, then all of your debts included in the DRO are written off.

If during the 12 month period your DRO is cancelled (revoked), your creditors can pursue the debt again, with interest and charges added. You would then need to consider what other repayment options are available to you. Should this happen, we can help you look into what you can do next.

 

 

 

How much does a DRO cost?

A DRO costs £90. You pay the fee directly to the Insolvency Service and you can’t submit your application until the fee is completely paid.

How assets affect a DRO

A debt relief order (DRO) is designed for people with few assets. An asset is something of value you own that can be sold to raise money.

If you live in England, Wales or Northern Ireland and your assets total more than £1,000, you can’t apply for a debt relief order. Examples of assets could include:

  • Property
  • Antiques
  • Shares
  • Savings
  • Money other people owe you
  • Jewellery
  • Computers

These assets are valued by how much you would get if they were re-sold in their current condition, not the amount you purchased them for.

Which assets aren’t included in a DRO?

When totalling up how much your assets are worth, there are certain assets the official receiver dealing with your DRO won’t count.

These items include:

  • Essential household items like bedding, clothing and furniture
  • Tools or other equipment that are essential for your job

Can I keep my car on a DRO?

To qualify for a DRO, your total assets cannot be worth more than £1,000 if you live in England, Wales or Northern Ireland, but you can also own one domestic vehicle worth up to £1,000 on top of this.

You’ll need to provide details of your vehicle including the make, model and registration number. Your vehicle’s value will be checked and if it appears to be worth more than £1,000, you’ll need to provide valuations from two independent motor dealers.

If you own a vehicle that’s used for business purposes only, it’ll be counted as part of the total assets you’re allowed. This means that if your business vehicle is worth more than £1,000, a DRO won’t be possible.

If your vehicle has been specially adapted to help you with a physical disability, the £1,000 limit doesn’t apply.

How is my home affected by a DRO?

If you own your home, you cannot apply for a debt relief order even if your home is in negative equity.

What debts are included in a DRO?

Only certain types of debts, called qualifying debts, can be included in a debt relief order (DRO). These qualifying debts must not be more than £20,000 in value if you live in England, Wales or Northern Ireland.

Debts written off under a DRO

All of your debts need to be declared when you apply for a debt relief order (DRO).

If you forget a debt, you can’t add it after the DRO has started. You’ll have to pay it yourself, and in some cases your DRO might be revoked if the debt you forgot took your total debt over the permitted limit.

The following types of debt will be written off 12 months after your DRO is approved, if your situation hasn’t improved:

  • Arrears on household bills such as rent, gas, electric, telephone and council tax
  • Consumer debts such as credit card debt, payday loans, overdrafts, catalogues or store cards
  • Benefit overpayments, unless they were due to fraud
  • Hire purchase (HP) or conditional sale agreements
  • Items bought on finance, including anything bought on a buy-now-pay-later agreement
  • Loans from friends or family

During the 12 months of your DRO, known as the moratorium period, you won’t make any payments to the debts included.

What debts aren’t included in a DRO?

Some types of debt won’t be written off by a DRO and you have to keep paying them.

The following ‘excluded’ debts don’t count towards the permitted limit:

  • Criminal fines
  • Student loans
  • Child Maintenance Service arrears (or CSA)
  • TV licence arrears
  • Social Fund loans
  • Damages for personal injury ordered by a court

Fraudulent debts are treated differently. They won’t be written off at the end of the DRO, but they docount towards the maximum debt limit.

Hire purchase (HP) items and DROs

Hire purchase or conditional sale items are not legally yours until you pay for them in full. If you’re starting a DRO, you may have to return the item, or transfer ownership to someone else who can make the payments for you.

In some cases you may be able to continue paying a hire purchase agreement and keep the goods. This will only be possible if:

  • The goods are ‘essential’, for example household appliances you couldn’t do without
  • The payments are up to date and you have no arrears

Are loans from family and friends included in a DRO?

Loans from friends or family must be included in a DRO, just like other debts.

This means the person who lent you the money can’t take any action to collect it from you, and you can’t make payments to them after the DRO starts.

If they’re happy to treat the loan as a gift, you can go ahead with the DRO. Alternatively, for small sums, you may be able to come to an agreement to pay it off in kind – for example, instead of paying them back in cash could you do some chores like gardening or babysitting for them instead.

If you owe money to a friend or family, don’t be tempted to pay it off quickly before your DRO starts. This could be seen as showing them preferential treatment, and your DRO could be refused as a result.

What debts are excluded from a DRO?

A debt relief order (DRO) is a debt solution suitable for people living in England, Wales or Northern Ireland who aren’t home owners, are on a low income, have few assets and debts less than £20,000.

When you enter into a DRO, your debts are written off after 12 months, which is known as the ‘moratorium period’, if your financial situation hasn’t improved.

Some debts are excluded from a debt relief order. You must continue to pay any of the debts that aren’t included while you’re on a DRO.

Debts that are excluded from a DRO include:

  • All student loans (old and new styles)
  • Debts to the Child Maintenance Service
  • Social fund loans
  • Criminal fines (including debt incurred under the Proceeds of Crime Act)
  • Claims against you for damage or personal injury
  • TV Licence arrears

Debts arising from fraud, for example fraudulent benefit claims, won’t be written off at the end of the DRO. However, these will count towards the maximum debt limit.

Most other debts can be included in a DRO.

Considering a Debt Relief Order?

Debt Relief Orders are a specialised area of UK debt advice. If you haven’t already received advice from us, make sure it’s the best solution for you by contacting us. We’ll provide you with a tailored budget and the best solution to help you deal with your debts.

See our Frequently Asked Questions on Debt Relief Orders