Debt Relief Orders What You Need To Know

Introduction: What is a Debt Relief Order?

A Debt Relief Order (DRO) is a form of debt relief that is available to individuals in England, Wales, and Northern Ireland who are struggling with unmanageable debt. It is a legally binding agreement that allows eligible individuals to have their debts written off after a period of time, usually 12 months. It is an alternative solution to bankruptcy and is designed for those who have a low income, few assets, and a relatively low level of debt. This article will provide a comprehensive guide to DROs, including what they are, who is eligible, the application process, and the pros and cons of using this debt relief option.

Who is Eligible for a Debt Relief Order?

In order to qualify for a DRO, you must meet certain criteria set by the Insolvency Service. First and foremost, you must have a total debt amount of no more than �20,000. This includes all unsecured debts such as credit cards, personal loans, and overdrafts. Additionally, your total assets must be valued at less than �1000, and you must have less than �50 left over each month after paying for essential living expenses. You must also be a resident of England, Wales, or Northern Ireland and not have been subject to a DRO in the past six years. Finally, you must not be involved in any other formal insolvency procedures, such as bankruptcy, an Individual Voluntary Arrangement (IVA), or a Protected Trust Deed in Scotland. If you meet all of these requirements, you may be eligible for a DRO.

How to Apply for a Debt Relief Order

The application process for a DRO can be completed online through the Insolvency Service website. You will need to gather all necessary information and documentation, including a list of your creditors, your income and expenses, and details of your assets. It is important to provide accurate and up-to-date information to avoid any delays or complications with your application. You will also need to pay an application fee of �90, although this fee may be waived in certain circumstances, such as if you receive certain benefits or have a low income.

Once your application has been submitted, it will be reviewed by a Debt Relief Order team. If everything is in order, you will be granted a DRO for a period of 12 months. During this time, your creditors will not be able to take any legal action against you to recover their debts. If your financial situation does not improve after 12 months, your debts will be written off and you will be free from the burden of these debts.

The Pros and Cons of Debt Relief Orders

Debt Relief Orders can provide much-needed relief for individuals who are struggling with unmanageable debt. However, as with any debt solution, there are both pros and cons to consider before deciding if a DRO is the right option for you.

Pros:

• Low cost: Unlike other debt solutions that may involve fees and payments to a third-party, a DRO only requires a one-time application fee of �90. This makes it a more affordable option for those on a tight budget.
• No monthly payments: During the 12-month DRO period, you will not be required to make any payments towards your debts. This can provide some breathing room for those with limited income.
• Debts written off: If your financial situation does not improve after the 12-month period, your debts will be written off, allowing you to start fresh without the burden of unmanageable debt.
• Legal protection: Once a DRO is granted, your creditors will not be able to take any legal action against you to recover their debts.

Cons:

• Damaging to credit score: A DRO will negatively impact your credit score and will remain on your credit report for six years, making it difficult to obtain credit in the future.
• Limited eligibility: Not everyone will qualify for a DRO, and there may be alternative debt solutions that could be more suitable for your specific financial situation.
• Debt exclusion: Some debts, such as child support, court fines, and student loans, cannot be included in a DRO and must still be paid.
• Restrictions on borrowing: During the 12-month DRO period, you will not be able to borrow more than �500 without disclosing your DRO status.

Conclusion

In conclusion, DROs can be a valuable debt relief option for individuals who have a low income, minimal assets, and a relatively low level of debt. It is important to carefully consider the pros and cons of a DRO before applying to ensure it is the best solution for your specific financial situation. If you are struggling with unmanageable debt, it is recommended to seek professional financial advice to explore all available options and make an informed decision. Remember to conduct thorough research and consult with a qualified debt advisor before making any decisions about your debt.