Debt Relief Orders (DROs)
Debt Relief Orders (DROs) are generally seen as a simple and cost-effective way to resolve debt issues, a cheaper form of declaring bankruptcy.
However, you must be in the following position in order to apply for a DRO.
1. You must be unable to pay your debts.
2. Your total debts must not be more than £15,000. This excludes unliquidated debts (these are debts where the amount due is currently unknown).
3. Your total available remaining assets must not exceed £300.
4. Your disposable income after deducting all normal living expenses, must not exceed £50 per month.
5. You must be resident in England or Wales, or at any time during the last 3 years have been resident or carrying on business in England or Wales.
6. You must not have been subject to a previous DRO within the last 6 years.
7. You must not be involved in any other formal insolvency procedure at the time of application for a DRO.
8. If you have already presented a petition for your own bankruptcy and are awaiting a hearing date, you must have been referred to the DRO procedure by the bankruptcy court.
9. If you have been notified that a creditor has presented a bankruptcy petition against you, then you must get that creditor’s permission to apply for a DRO.
The current fee for a DRO is £90, which must be paid before your application can proceed. A DRO is cheaper to apply for than a bankruptcy order.
DRO debts covered
Only certain types of debts can be written off by a DRO:
1. Credit card debts.
2. Unsecured loans, this includes loans from so-called "payday" lenders.
3. Bank overdrafts.
4. Benefits overpayments.
5. Credit agreements, such as "buy now pay later", hire purchase or conditional sale agreements.
DRO debts not covered
The following types of debts cannot be included within a DRO:
1. Child support and maintenance.
2. Court fines.
3. Student loans.
4. Confiscation orders made by a court.
Applying for a DRO
You can only apply for a DRO through a debt adviser, known as an ‘approved intermediary’ - who is approved to give advice on DROs. The intermediary will be able to advise you whether a DRO is the most suitable route for you.
Intermediaries can also complete the application form for you, or allow you to do it yourself. They will submit your application electronically and print a paper copy for you to sign. Once you have paid the full fee your application can be sent to the official receiver.
If your application for a DRO is accepted the official receiver will:
1. Notify you when the DRO is made and outline the duties and restrictions imposed on you while the DRO is in force.
2. The official receiver will send notice of the DRO to each of the creditors owed a debt covered by the DRO;
3. Your details will be entered on the Electronic Individual Insolvency Register (EIIR) to show that a DRO has been made against you.
What does a DRO do?
The effect of the DRO is to enforce a moratorium period on all the debts included in it. This means that creditors who are owed debts listed in the DRO cannot take any action for repayment of their debts during this moratorium without the permission of the court. Once this period has ended the debts listed in the DRO will be discharged and you will be free from those debts - meaning you cannot then be pursued for them again.
It is important to note that during the moratorium period you must still carry on paying ongoing, current financial obligations, for example rent and utility bills.
Also, you will be responsible for any debts that you incur after a DRO has been approved.
Howver, as stated above you must not make any payments to any creditor who is included in the DRO.
If you financial circumstances change (improve) during the period of the DRO you have a duty inform the official receiver. Also, like bankrupts you will be subject to certain financial restrictions.