What’s a debt relief order?

If you do not qualify for an Individual Voluntary Arrangement (IVA) or a Debt Management Plan you may qualify for a Debt Relief Order (DRO). Debt relief orders (DRO’s) are a form of insolvency procedure designed to assist those who have no assets and minimal excess income. They came into force on 6th April 2009 and can be obtained without the use of the courts.

A DRO offers those with less than £15,000 of debt and no more than £300 total gross assets a form protection from their creditors and the opportunity to become free from their debts within one year. Debt relief orders provide a good solution for those who are cannot repay their debts within a reasonable period of time and when their circumstances are unlikely to improve.

Who can get a debt relief order?

A debt relief order is a potential option for a large number of debtors who would not normally qualify for the alternative debt solutions, such as bancruptcy, or an individual voluntary agreement.
A person applying for a debt relief order has to meet the following criteria:

• Repayment of the debt in full is not possible and is unlikely to be in the foreseeable future.
• The debtor’s total unsecured debts must not exceed more than £15,000.
• The debtor’s total assets are no greater than £300.
• The debtor’s total disposable income is no more than £50 per month (income minus living expenses).
• The debtor is lives in England or Wales, or has been within the last 3 years.
• The debtor has not received a D.R.O within the last 6 years and is not currently in receiving another form of insolvency procedure, such as bankruptcy or an IVA.

How can I apply for a debt relief order?

You will only be able to apply for a debt relief order after seeking professional financial advice from a debt advisor. An approved intermediary, which could be the same person or company from whom you originally sought advice from, will then assist you with your DRO application. The intermediary may charge a fee for this service but this cannot exceed £100.
You cannot apply for a DRO without the assistance of an intermediary.
Upon receipt of the application and payment of the fee, an official receiver is able to make the order. This is done without the involvement of the court if it appears that the applicant meets the relevant requirements.

How does a debt relief order work?

During the time of a debt relief order you are protected from any enforcement action by creditors that are named in the application (note that some debts cannot be included in a D.R.O). This will usually last for a period of 12 months although a creditor may apply to the court to extend either the order or the restrictions placed on a debtor as a result of the order.

Throughout the lifetime of the order, you’ll be expected to co-operate with the official receiver and, should your financial situation improve, you will be expected to arrange to repay your creditors.

A number of restrictions will also be placed on a debtor during the life of the DRO (and in some cases, after the DRO has expired). These include:

• The debtor must not obtain credit of £500 or more, either alone or jointly with another person, without disclosing that they are subject to a DRO to the lender.
• The debtor may not carry on a business (directly or indirectly) in a different name after being granted a DRO without telling all those with whom they do business with under the previous name.
• The debtor may not be involved (directly or indirectly) with the promotion, management or formation of a limited company, and may not act as a company director, without the court’s permission.
• The debtor will only be able to obtain a DRO once every six years.

These restrictions could be extended should the official receiver deem that the debtor has acted improperly or dishonestly. This extension could last for up to 15 years.