With the Citizens Advice Bureau reporting a significant rise in the amount of people coming to them with serious debts problems, what do you do if you have debts that you simply cannot afford to pay and you are on a low income? There are a few options out there, such an IVA’s and even bankruptcy, but a little known solution for people who have little or no income is a Debt Relief Order or DRO. A DRO, is an order granted by the Insolvency Service and it is specifically for people who are struggling or unable to pay their debts who live in England & Wales.
You can apply for a DRO if you are on a very low income and have no more than £300 worth of assets. A DRO is cheaper than bankruptcy and doesn’t involve going to court. But there is a strict criteria for those are eligible and they are not suitable for everyone. A DRO is helpful if you have unsecured debts such as:
- Unsecured Loans
- Credit cards and Store cards
- Catalogue debt
- Rent, utilities, telephone and council tax
- Hire purchase or conditional sale agreements
But certain debts cannot be included in a DRO, these are:
- Court fines and confiscation order
- Child support and maintenance
- Student loans
Basically, to be able to apply for a DRO you have to prove that you are on a low income, and show that your disposable income, after tax, national insurance & living expenses, is less than £50 per month. Your unsecured debts cannot total more than £15,000, you must not be involved in any other insolvency procedure, such as an IVA or bankruptcy, or have had a DRO within the last 6 years. The total value of your assets should not be more than £300 and your total private pension fund should be less than £300.
You are allowed to have some assets which are not considered for inclusion in the total valuation of your net worth. You can own a car, although its value must be less than £1,000 unless it has been adapted for a disability, you are entitled to have the normal items found in a household such as furniture, bedding and clothing, and tools of your trade, books and other equipment you need for work are allowed.
If you are allowed to take out a DRO, all your unsecured debts included in the DRO will be cleared (written off) after 12 months. However, there are some things you need to consider; your DRO will remain on public record for 15 months (or 3 months after your discharge) and your credit record for 6 years. You may not be involved with a limited company or act as a director without court permission. You have to continue to repay priority debts such as household bills and any secured loans and keep up with utilities such as gas and electricity.
You may not be able to obtain credit during the DRO and may have to return any goods bought with hire purchase or a conditional sale agreement. And if you want to obtain credit for over £500 you have to tell the lender that you have a DRO.
So if you have decided to apply for a DRO, what do you do next? You get a DRO from the Official Receiver (an officer of the bankruptcy court), but you must apply through an authorised debt adviser. They’ll help you fill in the paperwork. To find an authorised debt advisor contact The National Debt Helpline, Citizens Advice Bureau or StepChange Debt Charity.
A DRO costs £90 and you can pay in installments or all in one go, but the DRO will not go ahead until you have made the final payment. If the DRO is issued, there will then be what is called a ‘Moratorium’ period which usually lasts 12 months where upon your creditors can take no enforcement action against you to reclaim debts. Once the order is made the OR will inform all your creditors of this for you.
After the 12 months have passed, if the OR is satisfied you have cooperated with the order you will be discharged. All the debts listed in your DRO will be written off.
You have a duty to be as honest with information that you are passing to the OR as failure to declare certain assets can result in the DRO being revoked, and even court action.
For more help with debt solutions, contact your local Citizens Advice Bureau.