What Is A Debt Relief Order And How Can You Apply for It?

Following the unforeseen consequences of Brexit and the impact of the still ongoing COVID-19 pandemic, many individuals have seen their budgets shrink while their debt is going nowhere but up. Getting the situation under control oftentimes requires discipline and determination. After all, putting your finances in order could be a time-consuming and exhausting process. You will have to list all your income sources and compare them against the monthly expenses such as bills, subscriptions, taxes, loan payments, etc.

Navigating the complexities of the tax and debt laws and figuring out the best options available to you can make the task seem even more insurmountable. One solution that could be of great help is to turn to a specialized insolvency firm like Hudson Weir Ltd. Receiving professional guidance on how to best manage and deal with your debt while taking into account your personal circumstances could prove to be invaluable.  Furthermore, the experts can pick solutions that you may have otherwise overlooked such as filing a Debt Relief Order (DRO) application.

DRO Overview

In essence, the Debt Relief Order is a way for individuals with insufficient income to deal with outstanding debt that they cannot afford to pay. A DRO lasts for a specific period, typically 12 months, after which the debts included in it will be ‘discharged’ and will no longer have to be repaid.

You cannot apply for a DRO directly. Instead, you will need to get an ‘approved intermediary,’ typically an authorized debt adviser, who will send the application on your behalf to an official receiver. The receiver is an officer of the bankruptcy court, and they will decide whether the DRO application meets all the requirements and should be granted.

A £90 fee is paid to the official receiver when you apply for a DRO. The sum is paid in cash at the time of application and will not be refunded even if the DRO request is denied. Some debt charities offer to shoulder the cost of the fee. For more information, you should ask your debt adviser.

If you are successfully granted a Debt Relief Order, it will be added to the Individual Insolvency Register and become publicly available information. The corresponding record will be removed after the end of the DRO plus a typical period of 3 months. However, your credit reference file will retain the information for 6 years from the date the DRO was granted.

DRO Specifics

According to the law, Debt Relief Order applicants must meet several strict requirements. To be eligible for a DRO, your outstanding debt must be £30,000 or less while, you must have less than £2,000 in assets, and less than £75 in spare income ( the funds available to you after paying your taxes, national insurance, and any normal household expenses).

The other requirements include not having a DRO already issued in the past 6 years and having lived or worked in England or Wales in the past 3 years. The official receiver may further disqualify you from getting a DRO if you are currently involved in either bankruptcy proceedings or other formal insolvency procedures.

DRO Restrictions

If the official receiver grants your application, they will explain the details, restrictions, and duties imposed while the DRO is active. The receiver will also contact all of the creditors listed in the Debt Relief Order and inform them that they can no longer ask for debt repayments. Keep in mind that the creditors are allowed to send you statements or default notices. If, at any point during this ‘moratorium’ period, your financial state improves and you become able to start paying your debts, it could lead to the DRO being revoked.

Numerous specific restrictions must also be followed. Breaking any of them is considered a criminal offence, and you may be prosecuted for doing so. The restrictions range from forbidding you to act as a director of a company to borrowing more than £500 without notifying the lender about the active DRO. Also, you can be granted a DRO only once in 6 years.

Debts Not Covered by DRO

While receiving a Debt Relief Order is an incredibly powerful instrument that could greatly improve your financial situation, you must keep in mind that it doesn’t cover all types of debts.

You may still be forced to repay any of the following:

  • Child maintenance
  • Student loans
  • Funds received from the Social Fund as budgeting or crisis loans
  • Debts secured against one of your assets
  • Drug offence fines
  • Damages or fines that are part of a court order
  • Outstanding TV license fees
  • Any new debts incurred after the DRO was granted

You are also not exempt from paying your regular expenses such as rent and bills.

The benefits of getting a Debt Relief Order are immense as debt and poor budgeting are one of the common startup problems that you want to avoid. However, you must consider the various requirements and restrictions that must be followed during the moratorium period and some even after that. Make sure that you have discussed the DRO route thoroughly with your debt advisor.