A Guide to the Debt Relief Order (DRO)

A Debt Management Solution for People With Low Incomes

Sep 4, 2009 Carol Finch

Many people on low incomes find it hard to get a debt management solution. The Debt Relief Order may offer an alternative that could solve their debt problems.

Although there are many different debt management solutions that consumers can use to get their finances back in order not all options will suit everyone. People on low incomes have, for example, often found it hard to get a workable solution that allows them to pay off their debts quickly and effectively.

For this reason, the Government led Debt Relief Order was set up to help. This debt management solution may give many people with lower incomes and debt problems a viable option.

How Does the Debt Relief Order Work?

A Debt Relief Order is managed by the Insolvency Service and must be set up with the help of an approved debt management specialist. Individuals cannot set one up on their own. It currently costs £90 to set up a DRO although paying in instalments is possible.

An individual that is granted a Debt Relief Order will have to stick with its conditions for the time it is set to last (usually a year). During this period creditors must not hassle the individual or try to get any of their money back. At the end of the period the individual's debts are considered to be cleared. If the individual comes into extra money during the DRO period then they may be asked to repay some of their debts.

A DRO can be used for many debts. There are, some debts, however, that have to be handled separately. So, for example, debts such as child maintenance, student loans and court fines cannot be included in this solution.

Who Qualifies for a Debt Relief Order?

To qualify for a Debt Relief Order an individual must be able to show that they:

• Owe less than £15,000.
• Have less than £300 worth of assets and/or savings.
• If a car owner that their car is worth less than £1,000 unless adapted for disability.
• Have £50 or less spare a month after paying essential living costs.
• Have not applied for a different DRO in the last six years.
• Are not being declared bankrupt at that point in time.
• Are not applying for/in the midst of an IVA.

People considering taking out this kind of solution may be able to get further advice on whether they qualify for the scheme from their chosen debt management advisor.

The Advantages and Disadvantages of a Debt Relief Order

Like any debt management solution a Debt Relief Order has its pros and cons. The advantages include:

• An individual with a low income can become debt free in 12 months.
• They can stop making repayments on their debts.
• This is a low cost debt management solution.
• Creditors cannot continue to chase the individual for their money.

Before deciding on this option, however, it is also important to consider the disadvantages to taking out a Debt Relief Order. These include:

• The DRO will show up on the individual's credit record for up to six years. This can make it hard to open up new financial accounts or to get credit.
• Creditors can apply to have the DRO extended.
• If the individual's finances improve then debt repayments may need to be made.
• The individual can't make an application for a credit product worth over £500 without telling the lender that they are going through a DRO.
• The individual will have certain restrictions placed on them if they want to run a business.

People who think that they may qualify for a Debt Relief Order as a debt management solution may want to take some independent advice before making a final decision. They may have a range of other solutions that could work better for them and, if they do not qualify for a DRO may, for example, want to investigate their options with an IVA.

Sources: The Insolvency Service

The copyright of the article A Guide to the Debt Relief Order (DRO) in Personal Budgeting/Finance is owned by Carol Finch. Permission to republish A Guide to the Debt Relief Order (DRO) in print or online must be granted by the author in writing.

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