Five Possible Solutions for Tackling Crippling Debt – Part Four: Debt Relief Orders

This series covers five possible solutions for tackling crippling debt.

Part one looked at Debt Management Plans, part two explored Administration Orders, and part three covered Individual Voluntary Arrangements.

In this post, I’ll explain Debt Relief Orders.

I’ll explain what they are and for whom they’re suitable. You’ll find out what you’d need to do to apply for one, and what having one may mean for you.

For a brief explanation of Debt Relief Orders, watch this video from debt charity Stepchange.

Debt Relief Orders - Five Possible Solutions for Tackling Crippling Debt: Part Four - Bunchy the Budgeteer (Hand in the victory sign)

What Is a Debt Relief Order?

Debt Relief Orders (or DROs) may be suitable for people with total debts of under £20,000, with little chance of repaying them.

Although a Debt Relief Order is another form of insolvency and is legally binding, you won’t need to go to court.

Once granted, a Debt Relief Order freezes your debt for 12 months (known as the moratorium period). During that time, your creditors (people you owe money to) cannot take any further action against you. They can still add interest and charges. They shouldn’t contact you during those 12 months either.

Once the 12 months are over, if your finances aren’t improved, the debts included in the DRO get written off, cancelling them.

To be eligible for a Debt Relief Order, you must have little to no assets and little surplus income left over after covering your basic living costs.

There are other criteria to meet to apply for a Debt Relief Order.

Debt Relief Orders - Box files on shelves
Photo by Samuel Zeller on Unsplash

Full Criteria for Applying for a Debt Relief Order

To get considered for a Debt Relief Order, you must:

  • Not have debt above £20,000.
  • Be left with less than £50 a month left over after covering basic living costs.
  • Not own a property.
  • Have lived (or run a business) in England, Wales, or Northern Ireland in the last three years.

For people living in Scotland, look at the Minimal Asset Process (or MAP), which has different criteria and fees. You can read more on MAPs here.

  • Not have been involved in any other insolvency proceedings or applied for a DRO within the past six years.
    If any of your creditors have asked a court to make you bankrupt, you can ask the creditor if you could instead apply for a DRO.
  • Own less than £1000 worth of assets. Besides this £1000, you can also own one motor vehicle, as long as it’s not worth more than £1000. If the vehicle has been adapted for any disability of yours, then the cost of the vehicle doesn’t matter.

Assets that get counted towards the limit of £1000 include:

Jewellery (though not wedding rings).
Computers
Property/land.
Antiques
Savings and shares
Money owed to you (unless you’re unable to get it back from whoever owes you).

The worth of these assets is what you’d expect to get if you sold them, not the cost of what you paid for them.

Debt Relief Orders - Flat lay view of pink laptop computer
Photo by Majo Villalón on Unsplash

Assets that aren’t counted towards the limit of £1000 include:

Furniture
Bedding
Clothes
Items required for your job or business and essential household appliances you couldn’t manage without (e.g. a cooker).

A debt adviser will tell you which assets are or aren’t included.

Which Debts Can I Include in a Debt Relief Order?

Debts You Can Include in a Debt Relief Order:

  • Credit card debts
  • Store card debt
  • Catalogue debt
  • Loans
  • Overdrafts
  • Rent arrears
  • Buy now – pay later agreements
  • Business debt
  • Council tax arrears
  • Benefit overpayments (unless caused by dishonest behaviour)
  • Money owed to HM Revenue & Customs (e.g. National Insurance Contributions or Income Tax)
  • Utility bill arrears
  • Phone bill arrears
Debt Relief Orders - credit card
Photo courtesy of Dreamstime

Which Debts Can’t I Include in a Debt Relief Order?

Debts You Can’t Include In a Debt Relief Order:

  • Magistrate court costs
  • Student Loans
  • Child maintenance and child support payment arrears
  • Social fund loans
  • Confiscation orders
  • Compensation for injury or death
  • Television licence arrears

A debt adviser will tell you which debts are or aren’t included.

How Do I Get a Debt Relief Order?

Only an authorised debt-management adviser can organise a Debt Relief Order for you.

Only the Insolvency Service can grant Debt Relief Orders.

Debt Relief Orders - Silhouette of woman at window
Photo by Spencer Pugh on Unsplash

Does It Cost to Set up a Debt Relief Order?

To get a Debt Relief Order you must pay a fee of £90. You may be able to get help from a charity to cover the cost.

Are Joint Debts Included in a Debt Relief Order?

On your application, you must include the full amount of any debts you share with another person. This will count towards the limit. Once your Debt Relief Order ends, your responsibility for the debt gets cancelled. The other person will still be responsible for the debt.

Can My Debt Relief Order Get Cancelled?

Your Debt Relief Order could get cancelled if your finances improve and you have more than £50 a month after covering basic living costs. There are several other reasons for having your DRO revoked, which you can find here.

Debt Relief Orders - Cartoon figure stood behind a large red x

Other Considerations Before Applying for a Debt Relief Order

There are restrictions you must adhere to while under the Debt Relief Order.

These restrictions mean you can’t:

  • get credit for more than £500 without telling the lender you have a DRO
  • act as the director of a company

For a full explanation of restrictions, look at this page by Citizens Advice.

During your Debt Relief Order, you still must pay your rent, bills and any debts not included in the DRO.

Your Debt Relief Order gets added to the Individual Insolvency Register. It’s removed three months after the DRO ends.

Your Debt Relief Order will stay on your credit record for six years. You may find it difficult to get credit during this time.

Citizens Advice have more information on DROs.

I hope this post was helpful for you. Is a Debt Relief Order something you’d consider? Have you ever been under a Debt Relief Order? What’s been your experience?
 
In the final part of this series, I’ll be covering bankruptcy.
Debt Relief Orders - Road sign with the word bankruptcy on it

Remember, the information on my blog isn’t financial advice.

You should consult a dedicated professional when making important financial decisions.

If you find yourself overwhelmed with money worries, please seek help from any of the following organisations:

Debt Advice Resources:

The Money Charity
National Debtline
Citizens Advice
StepChange

I love hearing from you and want to grow this community. Don’t be shy! Comment, contribute to the Facebook page, send me a private message or all three! I will always try to help you.

Lisa aka ‘Bunchy’

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