What is a Debt Relief Order?

A debt relief order (DRO) is a way of managing debts if you cannot afford to repay them. A DRO freezes your debt repayments and interest for a set period, which is generally 12 months. If your financial situation doesn’t improve after this time, your debts will be written off.

A DRO is only available if you have debts totalling £30,000 or less in England and Wales. In Northern Ireland, it’s £20,000 or less. Debt relief orders are not available if you live in Scotland. However, residents may be able to get similar help through a Debt Arrangement Scheme (DAS), which is a free debt management solution. You can find out more about DAS at the Accountant in Bankruptcy, Scotland insolvency service.

What debts are covered by a debt relief order?

A DRO only covers certain types of debt, known as ‘qualifying debts’. These include:

• credit cards, overdrafts and loans
• Buy Now, Pay Later schemes
• utility bills, telephone bills, council tax and income tax
• rent arrears
• benefits overpayments
• hire purchase or conditional sale agreements
• Invoices for services such as vet fees
• debts owed to friends and family
• business debts

If a DRO is granted, you’ll have to keep paying regular household expenses such as rent, council tax and utility bills.

What debts aren't covered by a debt relief order?

A DRO does not cover some types of debt, these are known as ‘excluded debts’. Debts not covered by a DRO include:

• criminal fines
• child maintenance payments
• TV licence missed payments
• government-backed budgeting or crisis loans fraudulent debts
• student loans
• damages or fines a court has ordered you to pay
• debts that come up after a DRO is granted

If you get into more debt after receiving a DRO, you may have to declare bankruptcy or face legal action if you didn’t tell your creditor about the DRO.

Am I eligible for a debt relief order?

To be eligible for a DRO, you must show that you’re in financial hardship and meet the following criteria:

• You owe less than £30,000 in England and Wales (£20,000 in Northern Ireland).
• You have less than £75 to spend each month, after paying tax, National Insurance and normal household expenses.
• You’ve lived or worked in England, Wales or Northern Ireland in the last three years
• Your total assets aren’t worth more than £2,000.
• You have not had a DRO in the last six years.

You won’t be eligible for a DRO if you are already involved in bankruptcy proceedings or any other formal insolvency procedure. If one of your creditors has asked the court to make you bankrupt, you can ask the creditor if you can apply for a DRO instead.

How to apply for a debt relief order

To apply for a DRO, you’ll need to contact an authorised debt adviser or ‘approved intermediary’ to submit an application. It isn’t possible to apply for a DRO by yourself. Applying for a DRO through an approved intermediary costs £90, although some debt charities offer help to spread the cost or pay some of the fee. The DRO application fee is non-refundable, even if your application is refused.

You must let your debt adviser know if within the last two years you have:

• paid some of your creditors but not all of them
• given away any of the assets you hold
• sold assets for less money than they were worth

That’s because a DRO application may be refused if any of those actions apply to you. Once completed, your debt adviser will submit your application to the official receiver who will assess your case. They could contact you for further financial information to support your application.

How long does it take to get a debt relief order?

It takes 12 months to get a DRO. While your application is processed, you are placed in a ‘moratorium period’.” During this time certain restrictions will be placed on you while your DRO application is processed. This means that you cannot:

• borrow more than £500 (by yourself or jointly with another person) without telling your lender about your DRO
• create, manage or promote a company without getting permission from the court
• act as a director of a company during this period
• manage a business with a different name without disclosing to anyone you do business with about your DRO
• apply for an overdraft without informing your bank or building society that you have a DRO
• write cheques for payments that are likely to bounce

Breaking any of these restrictions is against the law and you may face legal action if you do so.

How much does a debt relief order cost?

It costs £90 to apply for a DRO. This is a non-refundable fee that must be paid at the time of making your application. However, some charities can help with this cost by offering a payment plan or covering some of the cost.

What are the pros and cons of debt relief orders?

A DRO has the following advantages:

• DROs may be cheaper than bankruptcy.
• You’ll have the opportunity to become debt free.
• if you don’t pay anything towards your debts for 12 months, they may be written off if your situation hasn’t improved.
• Your creditors can’t chase you for debts during the 12-month period.
• You won’t have to appear in court as a result of a DRO.

Some of the risks to consider with DROs include the following:

• There is a limit on the amount of debt covered by a DRO (under £30,000 in England and Wales, and less than £20,000 in Northern Ireland).
• There is a restriction on monthly income to be eligible for a DRO (less than £75 spare income to be eligible).
• You’ll need to pay a £90 fee to make a DRO application.
• DROs aren’t available for homeowners.
• A DRO will appear on a public register and will negatively affect your credit history.

How does a debt relief order affect your credit?

A DRO will negatively affect your credit history because it shows that you have had trouble paying off debts. DROs stay on your credit file for six years. You’ll also appear on an insolvency register which can be accessed by the public for a fee for three months after the end of the DRO moratorium period.

If you have a DRO and want to borrow £500 or more, you’ll need to inform your lender of the DRO. Failing to do so is a criminal offence and may lead to legal action against you.

Will a debt relief order stop bailiffs?

Having a DRO won’t stop bailiffs or ‘enforcement agents’ from taking your belongings and selling them. So you’ll have to carry on paying the debt to keep your possessions.

What are the alternatives to a debt relief order?

Other types of formal debt solutions might be more suitable for your situation, depending on how much debt you have. These include an individual voluntary arrangement (IVA), an administration order, or bankruptcy. You could also go down the route of a debt management plan (DMP), which is an agreement between you and your creditors to get your interest frozen so you can slowly pay off your debts in a manageable way. It’s not legally binding and doesn’t involve the courts.
Getting independent, expert debt advice is important to help you find the best solution for managing your debts. Many debt charities can also help you understand the best way to tackle your debts.

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