A brief guide to debt relief orders

What is a debt relief order and when might it be suitable for someone with debt problems? David Kirk of Kirks explains what the benefits and risks are of DROs.

What is a debt relief order (DRO)?

A debt relief order, also known as a DRO, was first introduced in April 2009. It was created to offer a cheaper and simpler process than bankruptcy for a person who needed to write off the debts they could not afford to repay.

The criteria to apply for a DRO are:

you cannot be bankrupt
you can only do a DRO every six years
you must owe in total less than £20,000
you must not have assets over £1,000 (excluding basic household items and a car)
you must not own a car worth over £1,000, unless adapted due to disability
you have very little surplus income and less than £50 a month
you cannot own a freehold property

What are the benefits of a debt relief order?

Once you have obtained a DRO it will last for 12 months. The benefits of a DRO are:

You do not need to pay anything each month and if your circumstances have not improved after 12 months the DRO ends and your debts are all written off.
Your creditors are not allowed to contact you once you have the DRO in place. This can remove a lot of the stress of being in debt.
The cost to obtain a DRO is £90 and this is the fixed fee charged by the Insolvency Service. This is in comparison with the cost to be made bankrupt, which is currently £680.

However, it should be noted that a DRO will affect your credit rating as it appears on a public central register.

What debts are covered by a debt relief order?

DRO’s were designed for those individuals who just have credit card debt and personal loans and who get trapped into a spiral of debt where they cannot afford to make themselves bankrupt.

Debts that can go into a DRO are called ’qualifying debts'. Debts that are covered by a DRO include:

credit cards, overdrafts and loans
arrears on household bills such as rent, gas, electricity, telephone and council tax
benefit overpayments
hire purchase (HP) or conditional sale agreements
buy-now-pay-later agreements
loans from friends and family

However, not all debts are covered by a DRO. You will still need to pay:

criminal fines
Child Maintenance Service arrears
TV licence arrears
student loans
social fund loans
compensation for personal injury ordered by a court

What are the alternatives to a debt relief order?

There are alternatives to a DRO if you do not comply with the conditions, including:

personal bankruptcy
individual voluntary arrangements (IVAs) are legally binding agreements with your creditors to pay back some of what you owe
debt management plans allow you to manage your debts and pay them off at a more affordable rate

How can I get a debt relief order?

If you believe a DRO may be suitable for you then the first point of contact should be your local Citizens Advice Bureaux or a registered debt advisor, such as National Debtline or PayPlan. Remember that you should only be charged £90 to arrange a DRO and no more. You can find a debt advisor over at Gov.uk.

David Kirk