Credit Score Ace helps you to learn more about Debt Relief Orders and what they are. You can find out whether DROs are a suitable solution for you with the information below.
When it comes to paying off personal debt there are many people that are struggling to cope these days. In many cases those that are now struggling to repay their unsecured debts are struggling because of circumstances that were out of their control, such as a cut in income. It is important that anyone that is finding it difficult to keep on top of debt repayments does not ignore the problem, as it can quickly spiral out of control. It is important not to simply stop making payments, as by doing this you will risk accruing fees and charges, which can make the problem worse and you could also find that lenders take legal action for non-payment of debt and breach of your credit agreement.
There are a number of different solutions that are available for those that are struggling to repay their debts, and often these will enable you to continue making repayments on your debts but at a more affordable rate and pace. Some of these debt solutions will result in the interest on your debts being frozen and your credit terms being extended so that you have to pay far less each month but you pay over a longer period. Others will result in you paying a set amount for a fixed period of time after which any remaining debt may be written off. One of the newer solutions to be introduced over the past few years is the Debt Relief Order, also known simply as the DRO.
What is a Debt Relief Order?
A Debt Relief Order is a debt solution designed for those that meet specific criteria for example on a low income and cannot pay back their debts. These orders last for one year, during which time you do not have to make monthly payments on your debts. After the twelve-month period the debts are written off. Once a DRO is in place your creditors cannot take further action without permission from the courts. Several different debts can be included in a DRO, including debts such as rent arrears, council tax arrears, and energy bill arrears.
What is the eligibility criteria for a Debt Relief Order?
The criteria to be eligible for a DRO is as follows:
- Must have lived in England, Wales or Northern Ireland for the last three years.
- Your debts must come to no more than £50,000
- You must have no more than £75 disposable income after all bills and living expenses have been deducted
- You must have assets worth no more than £2,000
- You must own a car worth no more than £4,000
- Not be subject to any current bankruptcy or IVA proceedings.
- You must not be involved in any other insolvency programme and must not have been in a DRO in the past six years.
- Not given away or sold property, money or assets in the last two years.
How will A DRO impact my credit report & Score?
Any sort of insolvency procedure will have a negative impact on your credit report and credit score. An entry relating to your DRO will be made on the Individual Insolvency Register and this will show up on your credit report for six years. Your ability to get credit in the short to medium term will be affected by the DRO. You will also be unable to apply for credit of £500 or more, even if it is jointly with someone else, without disclosing that you are on a DRO. It is important to bear in mind that the DRO will stay on your report for six years and will impact upon your financial future at least for the medium term and possibly longer.
How do I check if I have a Debt Relief Order on my Credit Report?
Access your free credit report from Experian, Equifax and TransUnion. They should all show the DRO as they are sourced from the same public register but sometimes your credit reports can be incorrect hence why it is a good idea to check them.
How to apply for a DRO?
Application for a debt relief order must be made through and authorised debt adviser – Citizen Advice or Step Change.
How long do Debt Relief Order stay on record?
DRO’s typically stay on the Individual Insolvency Record for 3 months after the DRO period ends (typically 12 months) so 15 months in total. DRO’s include the debtor’s name, occupation, date of birth, details of the DRO, date it ends and any previous DRO’s or bankruptcies in the last 6 years.
Advantages & Disadvantages of DRO
There are pros and cons that have to be considered when it comes to Debt Relief Orders, and it is important that you take these into consideration in order to determine whether this is the right debt solution for your needs. These include:
Advantages
- You will not have to make any payment on your included debts for the twelve month duration of the DRO
- Your debts will be discharged after the twelve month period
- You do not have to attend any court hearing
- The fee for the DRO is only £90
- You can include a range of debts in the DRO
- You are able to make a fresh start once your debts have been discharged
Disadvantages
- You have to meet strict criteria with regards to income and assets in order to be eligible
- You cannot be a homeowner as this would be classed as an asset
- If you have any pension accrued this would be classed as an asset
- There are some debts that you cannot include such as court costs and fines, maintenance costs, and student loans
- You cannot add other debts in at a later date
- Your credit report and ability to get credit will be seriously impacted in the short to medium term
- You cannot be involved with any other insolvency procedures or have been in a DRO in the last six years
- You could still have action taken against you by secured creditors
