What is a Debt Relief Order?

A Debt Relief Order is a way to write off what you owe providing you have few assets and a relatively small amount of debt. Still, as you may expect, a solution such as this does come with a few caveats. To find out more, read on.

What is a Debt Relief Order?

A Debt Relief Order (DRO) should only really be considered if your financial situation will not improve for at least a year. Assuming your position didn’t change over this period, any debts included on the DRO are written off.

While the Debt Relief Order is active, interest rates are frozen and your creditors cannot send demands for repayment. Furthermore, over the year, you won’t pay anything towards your debts.

It’s worth knowing that a DRO will harm your credit score and, for the foreseeable future, you’ll struggle to obtain loans and other financial products.

At National Debt Service, we specialise in IVAs and don’t offer Debt Relief Orders. Still, to find out just about everything about this option – as well as how an IVA may be better for you, continue reading.

What are the Debt Relief Order criteria?

To qualify for a Debt Relief Order, you’ll need to adhere to the following criteria:

  • You must owe less than £20,000
  • You must not be a homeowner
  • You must have few assets
  • Your spare income is limited

Between 2018 and 2019, more than 27,000 Debt Relief Orders were taken out. On the other hand, almost 78,000 IVAs were approved.

How can I apply for a Debt Relief Order?

As well as the qualifying criteria mentioned above, a Debt Relief Order is only suitable for those who cannot realistically pay their debts, aren’t going through another form of insolvency, and reside in England or Wales.

To apply for a Debt Relief Order, it must be obtained from an authorised person - usually an ‘official receiver’. They will assist you in making the application and charge £90 for their services.

The Debt Relief Order lasts for 12 months. However, if your financial situation improves during this period, it might be cancelled.

This restriction, as well as other requirements, means that Debt Relief Orders are not a suitable solution in all cases. After all, few can accurately predict what will happen in 12 months. For example, an unexpected windfall or change in job could all lead to the order being terminated.

How long does a Debt Relief Order take to process?

Although the Debt Relief Order lasts for a year, the process to approve a DRO should take around two weeks. During this time, your application will be assessed and a verdict will be reached as to whether it was successful.

However, this timescale isn’t set in stone and – in some situations – a Debt Relief Order can take longer than ten working days to process.

Can a Debt Relief Order be refused?

A Debt Relief Order can be refused for the following reasons:

  • You didn’t meet the qualifying criteria.
  • You failed to provide additional information concerning your application when asked.
  • Your application didn’t contain correct – or complete – information.

If your application is refused, the fee cannot be refunded. As a result, it’s vital to ensure the DRO is accurate being submitting. Furthermore, if you feel your application was refused in error, you could challenge the decision.

Between 2009 and 2019, it’s estimated that Debt Relief Orders have written off around £2.3billion worth of debt.

Is a Debt Relief Order the same as an IVA?

One possible alternative to a DRO is an IVA. Although a Debt Relief Order is not the same, they share a few similarities. For example, those on either solution will be added to the insolvency register and creditors cannot take legal action against you in most cases.

However, there are several key differences. For example:

  • An IVA remains active for longer than a DRO. Generally, a Debt Relief Order remains active for a year while an IVA lasts for five years.
  • An IVA allows you to have larger assets, such as a home or car. Typically, assets on a Debt Relief Order must total less than £1,000.
  • An IVA is generally a better choice if you’re earning. Usually, those on a Debt Relief Order must have less than £50 spare income per month.

Generally, a Debt Relief Order can be a preferred solution if you cannot afford to make any monthly payments and have limited assets. However, as everyone’s circumstances are different, it’s essential to seek specialist debt advice before committing to one solution.

Get in touch and see how we can help you

A Debt Relief Order can help you control your finances – especially if you think your situation won’t improve within the year. However, get in touch today for a no-obligation chat and we’ll help determine if it is the right option for you.

Simply get in touch with our advisors through the contact form below and we’ll do our best to help.

   

Why choose us?

  • We help more than 500 people every day.
  • On average, we write off £13,500 per client.
  • 120 staff members are here and ready to support you.

Debt Relief Order FAQs

Can a Debt Relief Order stop bailiffs?

Can a Debt Relief Order stop bailiffs?

A Debt Relief Order won’t stop bailiffs if you’ve made a previous arrangement with them – for example, through a controlled goods agreement. Furthermore, bailiffs can be used if you owe something on a hire purchase agreement. In the event of a DRO, creditors could still employ these individuals to reclaim goods.

How long does a Debt Relief Order last?

How long does a Debt Relief Order last?

A Debt Relief Order lasts for 12 months. If your financial situation hasn’t improved while the DRO is active, any debts included are written off.

How to get a Debt Relief Order

How to get a Debt Relief Order

To get a Debt Relief Order, you’ll need to make an application through a specialist DRO advisor and pay the accompanying administration fee. You can find one of these individuals at the following organisations.

What will my life be like after a Debt Relief Order?

What will my life be like after a Debt Relief Order?

Upon completion of a Debt Relief Order, any funds owed will be written off. This effectively leaves you in a position to rebuild your finances. However, your credit rating will be severely affected for at least six years.

During this time, you’ll probably be unable to secure loans or additional lines of credit.