Debt Relief Order – Ultimate 2021 Guide
These days, the number of people who are facing difficulties paying their debts is on the rise, and many of them have resorted to becoming bankrupt, applying for Individual Voluntary Arrangements (IVA) and getting debt relief orders. This will walk you through the specifics of debt relief orders, why you should apply, conditions that you should meet and the costs. Keep reading!
What Is A Debt Relief Order?
A Debt Relief Order or DRO is a new form of debt relief that was introduced by the Tribunals, Courts and Enforcement Act 2007, and is aimed at assisting residents of England and Wales who owe a considerably little amount of money and have no assets, little or no disposable income to repay the debts that they owe, and don’t want to declare themselves bankrupt. A Debt Relief Order is quite different from other forms of debt solutions because it entails a unique form of partnership between the professional debt advisory service and the Insolvency Service. The authorised advisers act as intermediaries and will help you apply for your DRO using the approved form. They will help provide you with solid guidance and will ensure that you give all the required information, which ensures that the DRO application is accepted.
How Does Debt Relief Order Work?
Normally, a Debt Relief Order is for people who have cumulative debts of not more than £20,000 and looking for working debt solutions. Technically, a DRO can write off some of these debts because during the 12 months that the order will be in force, there are certain types of debts that you won’t have to pay, and after which point they get discharged. This legally means that you don’t have to pay them again.
However, you have to make an application using an approved form with the help of an authorised adviser such as the ones you can work with at My Debt Management Online, who will help you with submitting your completed form to an Insolvency Service.
How Do You Apply For A DRO?
Those who want to apply for a DRO can do so through an authorised intermediary. This is an approved adviser who will initiate and submit the application on behalf of the applicant. The application is done via an online portal such as MyDebtManagementOnline.com and delivered to an official receiver, who is a bankruptcy court officer. This is the person who determines whether or not, the DRO can be granted.
Things to Disclose When Applying For Debt Relief Order UK
You must inform your DRO adviser if you have done the following in the last two years:
- You have handed over your assets to someone else.
- You sold off your assets at a price that is lower than their actual market value. For example, if you sold your truck that is worth £5000 for only £2500.
- If for one reason or another, you prioritised paying one creditor at the expense of others.
Things to Consider Before You Start Applying For A Debt Relief Order:
- Your asset base shouldn’t be less than £1,000 or £300 if you are in Northern Ireland.
- If you are a registered owner of a car, its value should be less than £1,000 for you to qualify for a DRO.
- A DRO may hurt your employment, and you must read your contract of employment properly. Unless you have been discharged, there are certain public offices that you won’t hold, and you won’t also hold the position of a director of a company or be the promoter of a company, unless with express permission from the court.
- A DRO is considered a public record matter, so your details will be listed on the Insolvency Service Website.
- Your access to credit will be limited until such a time when your DRO is completed.
- Any improvement in your income during the DRO term means that you no longer qualify for the specified terms, so the DRO is stopped.
- There is a serious risk of you failing to continue paying your priority bills, and this could lead to repossession and loss of essential services.
- You may find it harder to continue making repayments under consumer hire agreements or other credit agreements.
- Do not ignore contracts from lenders or correspondences from lenders or their representatives, because this may lead to more costs on your part.
Be Truthful During the Active Life of Your DRO
Being truthful about your circumstances is highly advised for the entire duration of your DRO. This is because any change that is not communicated with the advisers or Insolvency Services could cause the cancellation of the debt relief order.
But if your financial circumstances or ability improves significantly within the 12 months when the DRO is in force, you should report it because your DRO may be cancelled and you will start paying the debts again in full. One example of this is when you get a pay rise.
When the DRO period comes to an end, all debts that are included in the agreement are discharged, or written off, so you won’t have to be paying them. If it can be proven that you had obtained some of your debts via fraudulent means, then you will be obligated to restart repayment when the DRO period has ended.
In case your circumstances change for the better, to the extent that you can comfortably service some of your debts, your DRO could get revoked, hence you will be in a position to arrange on how to pay your creditors (the companies or individuals that you owe money).
Debt Relief Restrictions Orders
When seeking advice about DRO, the expert will reiterate the need for you to be open and honest about your finances before and also during your DRO. If they manage to get evidence about irresponsible behaviour on your part, they may go to the extreme and ask you to agree to debt relief restrictions. If you refuse, they will go ahead and make an application to the court for a debt relief restrictions order against you. This order slaps certain painful restrictions on you, and these restrictions may be in force for between two and fifteen years after the date of your debt relief order. Your details will appear in the Individual Insolvency Register, which is a public document for the entire duration when the order is in force, and for additional three months after it ceases to be valid.
Is A Debt Relief Order For You?
Are you wondering if a Debt Relief Order is for you? There is no doubt that if you get your DRO approved, you will be provided with a sure way out of debt. But before you apply for it, it’s of importance that you understand the effects that a DRO will have in diverse areas of your life:
- If a proportion of your debts encompass goods that you bought on hire purchase, you may need to return them to the seller.
- Your DRO will remain on your credit records for 6 years. This has adverse effects on you in the future, for instance, it may make it cumbersome for you to look for a new home or make it almost impossible for you to obtain credit.
- If you have a valid tenancy agreement, this could be affected. Your DRO adviser will look at this and advise you.
- Your bank might close your old accounts, so you might need to open a new bank account.
- If someone else holds power of attorney over your finances, or if you hold this for another person, this will come to an end.
- It might affect the applications that you make for British citizenship. If you aren’t sure, then you should consult an immigration expert.
- Moreover, you will be compelled to follow certain specific rules, also known as “restrictions” for the entire period of your DRO. This, in essence, could mean the following:
- You cannot borrow more than £500 without informing your creditors.
- You cannot be a company director, cannot get involved in the setting up, promotion, and management of a limited company, or be a director of a company without the court’s permission.
- If you have a business that trades under a different name from the one that you got your DRO, then, you will have to disclose to everyone that you do business under that name.
- For the entire duration when the DRO is in force, and for three months afterward, your details will be visible to the public at the Insolvency Service’s Individual Insolvency Register. You will not enjoy the right to privacy about this.
However, if you believe that having your residential address on the register could become a security risk to your loved ones or you, then you can ask the court for the address not to be listed on that register. You should seek a court order for this before you commence your DRO application.
What Is It Covered With A Debt Relief Order?
|Loans, credit cards, and overdrafts
|Confiscation orders that relate to criminal activities
|Telephone bills, utility bills, and rent arrears
|Maintenance and child support
|Conditional sale agreements or hire purchase
|Overpayment of benefits
|Hire purchase agreements
|Compensation for injury and death
|Buy now, pay later contracts
|Council tax, Income Tax
|Debt owed to family and friends
|Bills incurred for services such as solicitors and vets
|In-store credit agreements
|Money owed to HM Revenue & Customs, such as the National Insurance Contributions
Important Facts That You Must Know Before You Get a Debt Relief Order
If you obtained any of these debts through fraud, a DRO will not protect you. You will still have to pay even when the DRO has ended. If you are lagging in rent payments, your landlord can still evict you, or take any other action against you. This is the case even if rent is listed in your DRO. In essence, this means that you may have to continue paying these even after you have entered into a DRO agreement.
Debts that are not included in a DRO cannot be added at a later date. Ensure that all your debts are listed and in any case, debts that take the DRO beyond the accepted minimum limit could make your DRO cancelled.
Costs Of A Debt Relief Order
To start with, there is a fee of £90 which you pay to apply for a Citizens advice debt relief order. This amount covers the fees that are charged by both the debt counsellor as well as the official receiver of your DRO. This fee should be paid before you submit your application, and it is normally paid in cash or by using a debit card. It is important to know that in case your DRO application is rejected, the fee that you paid will not be refunded.
But How Do You Pay These Fees?
Several options allow you to pay the £90 DRO fees. For instance, you can pay cash at your local post office, or by using your local Payzone. This is found mostly in corner shops, petrol stations, and newspaper agents. If you are not sure about where your local post office is located, you can use the branch finder at the post office website www.postoffice.co.uk.
If you want to, there is a provision that allows you to pay the DRO fees in installments. However, there are some strict timelines that you need to observe. You are allowed to start making payments ensure that you have paid in full within 6 months after the commencement of your online application.
But this is not the case if you apply for your debt relief order through the National Debtline, which requires that your fees be paid in full within 2 months after they receive your completed DRO application.
You are allowed to ask the official receiver for a refund of the fee if you change your mind before the completed application is submitted. Once the form is sent in by the intermediary of your choice, and you have paid the fees, no refund will be entertained.
Debt Relief Order Pros and Cons
|A DRO provides an affordable and realistic proposal that is presented to your creditors by a certified officer.
|All the details of your DRO will be captured in a public register, and this deprives you of your privacy.
|It can bind all your creditors that are subject to the DRO order and prevents them from asking for further collections from you.
|A DRO will remain in your credit file for at least 6 years and this affects your ability to obtain credit adversely.
|After you complete the order successfully, debts that are subject to the order, which you aren’t able to pay, get written off.
|If you work in licensed roles such as a financial advisor or solicitor, a DRO may affect your future employment.
|All the creditors that are listed in your DRO application can never take any action against you unless when the court permits.
|If you acted recklessly, dishonestly, or irresponsibly, a debt relief restrictions order may be placed against you for a period that ranges between 2 and 15 years.
|The entering fee is low (£90), and you can choose to pay it monthly. But remember that your DRO only begins after the fee is fully paid.
|It will be an offence on your part if you take credit of more than £500 without letting the lenders know that you have a DRO.
|You get discharged from debts that are included in the DRO after 12 months.
|You cannot manage a company, promote it or be a director unless with the consent of the court.
|You don’t have to go to court while applying for DRO.
|You won’t have a DRO if you are a house owner, even if it doesn’t have equity.
|If you fail to cooperate with the official receiver for the 12 months duration, your DRO may risk cancellation.
|If you want to cancel your DRO application, the fee paid won’t be returned to you.
Do You Qualify For A Debt Relief Order?
You qualify for a Debt Relief Order if all these apply to you:
- You are not able to pay your debts.
- All your debts that qualify for DRO does not exceed £30,000.
- You don’t have a surplus of more than £75 after paying your household expenses.
- You do not own a home or have one registered to you.
- The value of your assets, savings, or everything valuable that is registered to you is not valued at more than £2,000. Assets such as tools that you need to carry out your job every day and basic household items are not taken into consideration when computing the value of your assets.
- It has been more than 6 years since you made a DRO, and you are not undergoing bankruptcy, individual voluntary arrangement, or a formal bankruptcy procedure.
- If you had property, lived, or worked in Wales or England within the last three years.
Things You Should Know:
If you have a vehicle, which value is less than £2,000; it’s advisable not to include it in your assets. But if the value of the vehicle that you own is valued more than £2,000 then it should be included in your assets register. You are allowed to have one vehicle excluded from your assets list, but this exception doesn’t apply if you use the vehicle only for work.
However, there are scenarios where you cannot apply for a DRO, and among them include:
- If your creditors have applied for bankruptcy against you, but the proceedings are yet to start.
- You have been served with an Undertaking or a Bankruptcy Restrictions Order.
- You have filed a petition for bankruptcy, but your petition is yet to be heard. You are exempted if you applied, but the judge chose to refer you to DRO instead.
- You are bankrupt at the time of your DRO application.
- You have an active Individual Voluntary Arrangement or are in the process of applying for one.
How Many Months Does My DRO Last?
In normal circumstances, a debt relief order will last for only 12 months. During this time, your creditors and others who you owe are legally prevented from taking any action to recover the money that you owe them, in full or in part. However, you should cooperate with the administrator of your DRO and ensure that you honour your part of the agreement. During this moratorium, there is nothing much your creditors can do, but they may still send you correspondence to remind you of the amount of money that you still owe them. If any of your creditors call persistently or threatens to take legal action against you, you should remind them that you are on a DRO. Don’t fail to notify your DRO unit at the Insolvency Service that you chose.
What Happens To My DRO If I Get A Windfall?
If the windfall that you have received is not valued at more than £1000, the DRO order remains in place. However, if the amount of windfall received is between £1000 and £2000, there is a possibility of it being cancelled. But this solely depends on personal circumstances and how much debt that you owe. However, a windfall amount which is more than £2000 leads to a complete failure of the agreement. This means that you start becoming fully liable for your debts all again. What is important here is that you should notify your official receiver of any change in your financial circumstances any time there is a change, and they will be in a position to advise you properly.
Does DRO Restrict Me From Doing Certain Things?
For the 12 months, while your DRO order is active, there are things that you cannot do. These are referred to as restrictions. The most common of these restrictions is that you shouldn’t obtain a credit of more than £500 without informing the lender that you have a DRO order in place. You will never carry on a business activity without telling the people you trade with that you had a business previously which was subjected to a DRO. You cannot promote, set up, or be a director of a limited company, unless with permission from the court.
What Happens If My Circumstances Change During The DRO Period?
Immediately you experience change during your DRO, you must inform the official receiver, who will look at the circumstances and decide whether to let the DRO continue or have it cancelled. Take, for instance, if your level of income goes up, or if you receive assets or a lump sum payment, these are enough grounds for letting the receiver know.
Will I Be Listed On Any Public Insolvency Register?
If you are a resident of Wales and England, your DRO, together with your details that include name and residential address will get listed at the Individual-Insolvency register or IIR. These details will remain on the register for the entire 12 months when the DRO is active. However, they are removed three months after the DRO coming to an end. However, if you reside in Northern Ireland, your details will appear on the public DRO register, and these details get removed from the register 3 months after the DRO comes to an end. This is the case whether the DRO has been removed or completed successfully. But there are exceptional circumstances that can warrant an application to keep your address private. For instance, if it can be proven that personal harm cam can be meted on your loved ones or you, an order can be issued by the court, exempting the listing of your address.
How Does A DRO Affect My Job?
A DRO may hurt some jobs, especially in scenarios where the contract states that you can never be insolvent while still in employment. However, this is a rarity, and most people who are on a DRO can continue with their old jobs without problems. If you are unsure about how applying for a DRO can affect your employment, you must talk to your professional membership body, trade union, or your human resources department secretly.
Is It Possible For My Debt Relief Order To Be Canceled?
If the official receiver of your DRO thinks that you provided those with misleading information in your original DRO application, then, your DRO get cancelled. If there is any change on your part, maybe you have received a salary increase, have received an asset from whatever source, including inheritance, or have received a windfall; there is a huge need that you be willing to disclose them. If the Insolvency Service asks you for any information, it’s of great importance that you cooperate with them. Upon cancellation of your DRO, you will have no option, but to start making repayments towards the debts that were included in the order.
I Have A Sedan on HP. Should This Be A Problem?
This can get complicated, and you must let your DRO adviser know about this. Arrears that still exist on your hire purchase plan must be listed as among the debts in the DRO. But if there are no arrears, then this shouldn’t be listed and will not be counted towards the debt limit of £30,000. Moreover, there are instances where the hire purchase company may opt to end the HP agreement and repossess the car even when it’s not listed. Nonetheless, it’s upon your DRO to decide if the future payment to your hire purchase agreement will be regarded as an allowable expense. If you aren’t interested in keeping the car, then you can hand it back with the keys and list the debt owed in your DRO so that it’s fully wiped out after 12 months.
What About My Rent Arrears?
Ideally, rent arrears must be listed with other debts in your DRO. However, if you are living in a house where the rent arrears are accrued, you are required to keep paying the arrears. There are consequences if you don’t pay and among them are being kicked out by the landlord, council, or the housing association. Consider talking to your adviser on DRO about this, as it’s of great importance for you to obtain an affordable arrangement that will enable you to continue repaying the arrears. Your adviser will go a step farther to understand the housing policies of the place that you live and will offer you some solid advice.
I Have Not Been Paying Most Of My Dents For Years Now, But There Are Two Catalogues That I Still Pay. Can This Become A Problem?
In technical terms, this is known as preference. This is where you pass some creditors, but still pays others. While this may seem to be alarming, it is a common practice. Well, a DRO unit can use this as a valid ground for refusing an application, but they will first have to look at the seriousness of the preference. If this selective preference happened some years ago before you started getting DRO advice, then it won’t have a lot of weight. All debts must be treated with equal seriousness. If you have been servicing debt from a family and leaving out the rest, this is considered to be more serious. You will need to talk to your adviser on DRO, who will suggest the most appropriate thing to do.