Debt Relief Orders - Pros and Cons
Write-Off Debt up to £15K with the Latest Government Debt Solution
Feb 26, 2009
The UK economy is officially in recession and many people have lost their jobs. Millions are struggling to pay unsecured debts. The Citizens Advice Bureau have reported that 58% of it's clients have no money left over to cover personal debts. Numerous low income families have financial difficulties and urgently seek a debt solution to write-off debt. Does a Debt Relief Order provide the answer?
What is a Debt Relief Order?
A Debt Relief Order is a plausible alternative to an Individual Voluntary Arrangement or going bankrupt. Instead of dealing with the Official Receiver, a debtor will work with an intermediary (a qualified debt advisor) who will help and guide them to a new debt-free life.
It only costs the debtor £100 to commence a Debt Relief Order. This low outlay makes it an affordable debt solution for low income families and provides an opportunity to become completely debt free in as little as 12 months. No creditor harassment can take place during a Debt Relief Order.
Advantages of Debt Relief Orders
- Write-off debt. All personal debt is written-off;
- Short term. A Debt Relief Order is completed after just 12 months;
- Prevents creditor harassment. Any form of creditor harassment is illegal once a Debt Relief Order has been entered;
- No monthly repayments. All Debt Relief Orders have a basic requirement that someone shouldn't have more than £50 of disposable income. This means that debtors aren't expected to contribute towards the agreement because they have no spare income available;
- Simplicity. An intermediary, rather than an Official Receiver, will deal with the case. This means that someone with financial difficulties has someone to consult and take care of the more complex aspects of a Debt Relief Order.
Disadvantages of Debt Relief Orders
- Bad Credit. A Debt Relief Order will result in bad credit being registered at all the major credit reference agencies. This will show on personal credit reports for a period of 6 years. However, many individuals that are struggling with personal debt problems and financial difficulties will already have bad credit;
- Access to credit. Those in a Debt Relief Order will have to inform potential creditors should they wish to borrow more than £500;
- Existing debt solutions. A debt relief order is not suitable for individuals that are undischarged bankrupts, have a Bankruptcy Restriction Order (BRO) or are already in an Individual Voluntary Arrangement;
- Only covers debts up to £15K. Tenants seeking to write-off debt above £15,000 will need to look into an alternative debt solution, such as going bankrupt;
- Unsuitable for home owners. A debtor's assets must not exceed £300. A home owner with personal debts over £15,000 may wish to consider an alternative debt solution, such as an Individual Voluntary Arrangement or debt management plan;
- Windfall payments. Should a debtor win or inherit money, it is expected that this will form part of the Debt Relief Order;
- Insolvency register. A Debt Relief Order will appear on the publicly available government insolvency register. However, very few people will ever access this as it isn't common knowledge;
- Once in a 6 year period. A Debt Relief Order can only be entered once in any six year period.
A Debt Relief Order is a perfect debt solution for those living in rented accommodation and have unsecured debts of under £15,000. It allows a person to write-off debt and become free of financial difficulties in just 12 months. However, it will result in a bad credit rating.
Home owners with personal debt problems should consider an Individual Voluntary Arrangement. Those seeking to write-off debt may be interested in finding out whether they have an illegal credit card or unenforceable loan agreement.
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