Debt Relief Order: How Do They Really Apply?

It was just another day for me, Mike explained to his debt advisor. I had just come from another futile job-hunting day when I noticed some papers on my front door. Immediately I sensed this couldn’t be good, and getting closer, it confirmed my worries.

An Eviction notice, that clearly displayed I had to vacate the premises in a weeks’ time, this was the last thing, an un-employed, low-on savings person ever wanted.

Mike also owed in around £13000 in debt to creditors. With getting a new house and paying the deposit that comes with it, there was no way he could keep up paying the £200 to his creditors monthly. He was still in limbo when the creditors started getting onto him, that’s when he decided to get help from a debt advisor.

After assessing his situation, the debt counselor advised him to apply for a Debt Relief Order, as his situation warranted for it.

But What is a Debt Relief Order? And How Do They Really Apply? Are They For Everyone?

To start with, Debt Relief Orders (DROs) are one way to deal with your debts if you owe less than £20,000, {The benchmark is a little low in Ireland as it is £15000,} do not have much spare income and do not own your home. If you are a homeowner, this system can’t apply or be of use to you as a way of clearing your debts.

BenefitsDrawbacks
  1. One of the pertaining advantages of DRO is the freezing the debt payment for a specific period of time.
  2. A Debt Relief Order allows you to pause the payments of the debts towards your creditors for at least 12 months.
  3. You can resume your potential workability without worrying about the repayments of your debts.
  4. With the freezing of the payments, you can utilize your remaining assets for managing your finances.
  5. There is no need to appear in the court even with formal debt solution as DRO.
  1. The DRO is only an available option for you if you have a collective amount of £20,000.
  2. In addition, you are required to live in England, Northern Ireland or Wales for obtaining a Debt Relief Order (DRO).
  3. The initial fee for requesting insolvency is £90, which you will need to pay.
  4. The insolvency agency that you have contacted will look into your profile and will approve or reject your application.
  5. The DRO will appear on the public register. This will affect your reputation in terms of credit report.

It is important to note that, these relief orders are available for every other part of the UK except Scotland. Scotland has their own system, known as the Minimal Assets Process which is almost but provides very different benefits and risks to the creditors. At this article, we will concentrate on the Relief Orders that are available to the rest of the UK.

A Debt Relief Order is not an easy fix to debt problems and a charitable debt management service will be able to advise you if this is the best way forward.

If you get one:

  • Your creditors cannot recover their money without the court’s permission
  • You are usually freed (‘discharged’) from your debts after 12 months

How does one Apply?

According to the official government site, they are only two ways in which you can apply

Get Debt Advice
  • You can only get a DRO from the debt advisor.
  • An officer of the bankruptcy court,

You can’t apply individually but through an authorized debt adviser or counselor. They too should be responsible enough, to help you with filling the paperwork that will be involved.

The site also provides lists of approved government organizations that can help you throughout the process and advise accordingly.

What Do You Need to Declare?

You will need to declare during the application if, within the last two years, you have given away your assets like an expensive watch to a family member or a friend.

If instead, you sold your belongings to them, then you will need to declare this too, to check if you did it, at a fee far below the true value e.g. sold an expensive car to a family member or friend. Any priority to paying off debt such as paying back a relative instead of a credit card company or bank will need to be noted.

What is The Total Cost for Applying?

Your only fee is for the official receiver which is £90. This fee can be paid over in installment within the duration of six months. It is only after the full payment that your case will be looked at. Your debt advisor should be able to guide you on how and when the payments should be made. In some scenarios, a non-for profit-company like a charity may decide to help you with the cost. More of the reason to confirm with your advisor.

How does it Work?

  • A DRO is only suitable if you are classified as a low in-comes with negligible or little assets.
  • It works completely by freezing your debts for a full year. If by chance, your situation has barely improved or not changed at all, it writes off all your debts.

It is important to note that once a Debt Relief Order has been issued, you will not be allowed, make no further payments to your debtors

Generally, your lenders will only agree to the order if there’s chances of ever clearing your debts are minimal or zero at all. If there is still an opportunity, for example, high probability of getting your old job back, then chances are they will challenge the order.

Eligibility

You are generally eligible if you meet all of these criteria:

  • You owe less than £20,000
  • You have less than £50 a month spare income
  • You have less than £1,000 worth of assets
  • You have lived or worked in England and Wales within the last 3 years
  • You have not applied for a DRO within the last 6 years
  • You live or own property in the following regions for the past three years; England, Wales, or Northern Ireland.

Restrictions included Are:

  • If your lenders had already applied earlier to make you bankrupt, but the case has yet to be heard. The only exception to this rule is if your lenders and advisor agree that you could still apply for a DRO.

If you have already been given a bankruptcy order or is in the process

  • If you have petitioned for bankruptcy but your petition has not yet been dealt with – however, this doesn’t apply if you’ve petitioned for bankruptcy and the judge has referred you for a debt relief order instead
  • If you have already been declared bankrupt
  • If you already have an Individual Voluntary Arrangement or are you’re in the process of applying to one
  • If in the past six years, you had been given a similar DRO
  • You are already serving a  DEBT RELIEF RESTRICTION ORDER. 

While Serving Please Note:

If your application is successful, you must keep in mind the following;

  • You can’t get a loan exciding £500 without informing your creditor beforehand of you DRO
  • You can’t serve as the managing director of any company, either public or private
  • Yours restricted by the terms not to manage, promote or even start a company without the consent of the court
  • You are also required to inform your fellow business partners about your DRO
  • If by any chance you may need to open a bank account, you’re required to inform the bank or the building society about your current situation concerning the DRO

The restrictions only apply for the duration of the DRO which generally is 12 months. However, they can be extended if you go against the set guidelines such as you lying or being dishonest about your credit.

If this should come to pass, then the debt advisor in charge of your case has the obligation of notifying you of the change in circumstance. You will then be required to sign a “Debt relief Restrictions Undertaking”. If you don’t agree with the official, he can ask the court to issue it to you.

Which Credit or Debt Will be Written Off?

The following is a list of the debts that will be canceled if your application is successful, they are also referred to as Qualifying Debts.

These include:

  • Bank Loans
  • Overdrafts
  • Catalogs
  • Credit cards
  • Rent, Council Tax
  • Utility and phone bills
  • Benefit overpayments
  • In-store credit agreements
  • Money owed to HM Revenue & Customs, like Income Tax or National Insurance Contributions

Which Debts Can’t I Pay off With a Debt Relief Order?

Not all debt is going to be cleared by the DRO

Some that are going to be spared include:

  • Outstanding Student loans
  • Social Fund loans
  • Confiscation orders
  • Magistrates’ court fines
  • Arrears in child support and maintained

It should be noted that your DRO will encroach in your credit card history for a duration of six years, including time served under the DRO

For further clarification, about the loans that will or will not be covered, you will need the advice from a debt adviser.

Please also keep in mind that your DRO will be added to the Individual Insolvency Register, which is removed only after the duration of three months after your DRO ends

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