A Debt Relief Order (DRO) is a legally binding alternative to Bankruptcy and Individual Voluntary Arrangement. It
is aimed at individuals who have less than £15,000 of debt and have found themselves in a position that they can no
longer afford to pay their creditors.
A DRO can only be granted by the Insolvency Service and is often a cheaper alternative to some other solutions,
with a fee of just £90, which can be spread out over 6 months. A DRO usually lasts 12 months, during which time
the debtor does not have to pay any monthly instalments to their creditors, nor may the creditors chase the
debtor for payments. Furthermore, once the DRO is complete, provided the individual’s circumstances have not
changed, the debt will be written off.
While a DRO sounds like an ideal solution, there are strict criteria that need to be met before it will be
granted. It is also important to remember that not all debt may be included.
In order to qualify, and individual’s qualifying debt must be less than £15,000 and unsecured. It can include
Credit Cards, Overdrafts, loans, unpaid rent and bills, benefit overpayment, hire purchase and store credit
agreements. It will not cover student loans, and fines associated with criminal activity or child support. The
applicant cannot have assets of more than £300, nor own a vehicle worth more than £1000. Furthermore they can’t
own any property. To apply for a DRO, the individual must also have disposable income of £50 or less after all
essential outgoings have been paid. An individual cannot apply for a DRO if they have already had one in the
last 6 years, they have been declared bankrupt or their creditors have petitioned for bankruptcy, or are
currently in or have applied for an Individual Voluntary Agreement.
The DRO is aimed at those on lower incomes or unemployed who really are struggling to pay back their debt and
there are some points that need to be considered. As with many debt solutions, an individual with a DRO will
be entered into the Insolvency Register, and the details will be recorded on the individual’s credit record.
This could have implications when applying for credit in the future. A DRO is a legally binding agreement, so
if there are any changes to circumstances the Official Receiver must be notified immediately. If they are not,
or if the information given at the time of application is incorrect, then this would be deemed as a breach of
the agreement and it would no longer apply. This may also lead to civil and criminal proceedings.