What is a Debt Relief Order (DRO)?

6 April 2009

A Debt Relief Order (DRO) is a form of insolvency which is designed to help people who have relatively low debt, little surplus income and few valuable assets - and who have no realistic chance of paying off their debts within a reasonable time.

Available as of 6th April 2009, a DRO will last for 12 months:

• during which, any creditor named on the order cannot take any action to recover their money unless they have the court`s permission, and
• after which, the individual will be freed of the debts included in the order (unless their circumstances have significantly improved).

DROs don`t involve the courts, and are run by The Insolvency Service in partnership with debt advisers known as `approved intermediaries` - the people who actually help individuals apply to the Service for a DRO.

Would a Debt Relief Order be suitable for me?

As The Insolvency Service website (insolvency.gov.uk) states, a Debt Relief Order is suitable for people who don`t own their own home - but this isn`t the only condition.

People can only enter a DRO if they meet the following conditions:

• They must be unable to pay their debts.
• They must not owe more than £15,000.
• The total value of their assets must not exceed £300 - although they can own a car worth up to £1,000.
• Their disposable income (after tax, national insurance contributions and normal household expenses) must not exceed £50 per month.
• They must live in England or Wales - or have lived / carried out business in England Wales at some time in the last 3 years.
• They must not have been subject to another Debt Relief Order in the previous 6 years.
• They must not be involved in another formal insolvency procedure at the time they apply.

Would a Debt Relief Order write off all my debts?

Some debts cannot be included in a DRO - such as :

• Magistrates` court fines,
• Student loans, and
• Secured debts (debt secured against property)

Secured debts are unlikely to be an issue anyway, as owning property would probably mean you`re not eligible for a Debt Relief Order, as your assets would almost certainly be worth more than £300.

Does a Debt Relief Order come with any restrictions?

Yes - similar to the restrictions you would face if you were declared bankrupt. For example, you would not be able to obtain credit of £500 or more without declaring that you`re subject to a DRO.

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Gregory Pennington is a member of DEMSA whose code of conduct is approved by the Office of Fair Trading.