Debt is a heavy burden for consumers to bear and as such, it should be handled as soon as it arises.
People who find themselves in debt often do not know where to turn. The UK provides many debt management resources and solutions to its citizens, making debt much easier to handle.
A Debt Relief Order (DRO) is one tool offered to consumers who have certain types of debt totaling less than £15,000.
A DRO can only be granted through application to an authorized debt specialist.
This makes for a more time-consuming process than alternatives like debt consolidation loans and informal arrangements.
An individual must meet certain conditions to qualify for a DRO. The person may not be a homeowner and it must be unlikely that the financial situation will improve.
How To Qualify
To qualify for a DRO, an individual must owe less than £15,000 and reside in, own property in, or run a business in Wales or England currently or within the last three years.
Assets must be valued at less than £300 total. Motor vehicles are not taken into account and if the car is needed for disability reasons or is valued under £1,000, it usually may be retained.
Income remaining after covering essential expenses must be less than £50 per month. A £90 fee must be paid before a DRO application will be considered but installment payments are permitted.
Creditors must receive court permission to take recovery action during the DRO period. While the DRO is in place, the covered individual is not permitted to make any debt payments.
However, the person also may not borrow over £500 or manage a business without informing the lender/business partners of the DRO.
In addition, the individual may not establish, promote, or manage a company without court permission and may not serve as a company director or Insolvency Practitioner.
Unfortunately for debtors, not all debts can be included in a DRO. Student loans, court fines, family maintenance payments, and debts arising after a DRO is issued are some examples of excluded debts.
In addition, a DRO may not remain in place if the debtor’s financial situation improves. The order may be amended or cancelled, though other debt management solutions may then become available.
A DRO usually lasts for 12 months and after that time, the individual is freed from the covered debts and the DRO restrictions end
In essence, the individual ceases making payments on covered debts when the DRO begins and is forever freed of making these payments when the DRO ends.
If the Official Receiver finds that the individual engaged in careless, dishonest, or criminal behavior, the DRO restrictions may be extended.
DROs are listed on the Individual Insolvency Register, which is available to credit reference agencies, until three months after they end.
These agencies retain DRO records for a six-year period, which will make it more difficult to obtain credit or open a new bank account during this time.
UK residents interested in this financial solution should contact a debt management professional.