A Guide To Debt Relief Orders - DROs Explained
Did you know that there are alternatives to bankruptcy in solving your problems with debt obligations?
A debt relief order (DRO) is a legally binding solution that does not involve the courts. Instead, an approved debt adviser acts as an intermediary between you and your creditors.
A debt relief order is available to those on low income and offers certain advantages compared to filing for bankruptcy. If you qualify, a debt relief order involves less time and energy than is needed in going to court for bankruptcy.
In addition to having a low income, you must not own a home, must have less than £300 in assets, and less than £50 in monthly disposable income (income minus living costs). Your total unsecured debt obligation may not exceed £15,000, and you must not own a vehicle worth £1,000 or more (exceptions for people with disabilities). You are required to have been a resident of England or Wales within the last three years, or to have owned property or a business in this area over the same period.
In addition, you can only receive one DRO every six years, and you cannot be involved in any other legal procedure to relieve your debt. If you are currently bankrupt, you are ineligible for a DRO.
Advantages Of A Debt Relief Order
- You do not have to go to court for a debt relief order.
- A DRO is less costly compared to a bankruptcy.
- The DRO process is quicker and involves less hassle.
- After a year, you become debt free.
In order to apply for a debt relief order, you must first receive advice from a professional debt adviser. Your case will be handled by an approved intermediary who may charge fees up to £100 for their services. Once the intermediary has received your application and fee payment, they submit your request to an official receiver. No court proceedings are necessary if your paperwork is in order.
The debt relief order process lasts for 12 months during which time the debtor must follow certain rules. Also, the creditors may appeal the order during this period. The debtor cannot seek credit during this period without informing potential creditors that they are in the process of obtaining a DRO. They may not be involved in certain positions related to limited companies without obtaining permission from the court. Also, even after the DRO is granted, the recipient must not do business under a different name without informing those with whom they did business with using their former business name.
During the DRO period, you do not have to make payments to creditors, and the creditors will not be able to take legal action against you. A debt relief order does stay on your record for six years and this can have a negative impact on your ability to obtain credit.
Also, remember that the debt relief order only covers unsecured loans like credit card debts and house utility bills. Any debt that has collateral like a home or car loan is not eligible for relief under this type of order.
If a debt relief order sounds right for you, you should seek an approved debt adviser like the Citizen’s Advice Bureau, Credit Action, CCCS or National Debtline. They will lead you through the entire process.