With a Debt Relief Order, debts can be written off after one year. People in debt tend to be frustrated, upset, and confused by their situation.
Some did not even see the financial problems coming- a few late payments and maxed out credit cards later, they are staring at a pile of bills they cannot pay.
Doing something about the situation is the first order of business. However, few consumers are well-informed when it comes to debt solution options.
Individuals in England and Wales have exclusive access to one insolvency solution, called a Debt Relief Order (DRO).
Defining A Debt Relief Order
The DRO was introduced in 2007 as a new type of bankruptcy. It is quicker, less expensive, and simpler than the traditional form of bankruptcy. A DRO is designed for residents of England and Wales who have low disposable income, few assets, and are unable to repay their debts.
These individuals may want to file for bankruptcy but cannot afford the fees associated with this debt solution. As a low-cost alternative, a Debt Relief Order provides assistance to individuals with limited available income.
Once a DRO is granted, a 12-month moratorium is placed on repayment of unsecured debts. The individual will not be required to make any repayments on unsecured debts during this time and no interest or other charges will be added to debt balances.
If the financial status of the individual does not improve by the end of the 12-month period, the debts included in the DRO will be written off, allowing the individual to start with a clean slate.
Who Qualifies For A DRO?
Several requirements must be met in order to qualify for a Debt Relief Order. Unsecured debts that cannot be repaid must not exceed £15,000. Total assets must have a value less than £300 or the automobile must be worth under £1,000.
After accounting for necessary living expenses, monthly disposable income may not be greater than £50. The individual may not have had another DRO within the previous six years and may not be currently involved in other insolvency-related proceedings.
Individuals who are not certain whether they qualify should contact a debt management specialist.
Debt Relief Order Benefits
The ability to cease unsecured debt repayments for one year is a major benefit of a DRO. During this time, unsecured creditors covered by the order cannot take any legal action against the individual.
If the person is unable to repay the debts by the time the DRO has ended, all included debts are written off, reducing these balances to zero.
For people who cannot afford the £700 fee required for bankruptcy, a DRO can be a feasible alternative. Consumers can receive the help they need without placing themselves deeper in debt by borrowing money for the bankruptcy fee.
The lower cost is one of the primary reasons the DRO was introduced. Being able to pay in installments is also helpful. However, be aware that the 12-month moratorium does not begin until the DRO fee is fully paid.
A court appearance is usually required when filing for bankruptcy. With the assistance of an Intermediary, a DRO can usually be handled completely by telephone and mail.
Eliminating the need to attend court is a load off the mind of an already stressed debtor. The process is discreet, often not even involving a face-to-face meeting with the Intermediary.
Negative Aspects Of A DRO
When consumers choose to apply for a Debt Relief Order, they must be careful. Only an approved Intermediary is authorized to submit the application on behalf of the individual.
The potential client should verify that the Intermediary is approved before submitting any payment. Another thing to be wary of is a company that charges a fee exceeding the £90 government-mandated charge.
Most debt solutions have drawbacks, and a DRO is no exception. As a type of insolvency, it is recorded on the Insolvency Register for the 12 months of the order period and the three months that follow.
A DRO is noted on the credit report and remains there for six years. It will be difficult for the individual to obtain additional credit during this time. In some cases, this negative effect can last even longer, preventing individuals from moving forward with their life.
What Debts May Be Included In A DRO?
Only unsecured debts are eligible for inclusion in a Debt Relief Order. These include personal loans, credit cards, catalog debts, overdrafts, council tax arrears, and utility arrears.
Debts secured by an asset, such as a mortgage, cannot be included in a DRO. Student loans, court fines, and several other debts are also exempt from inclusion. An individual should consult with a debt counselor to determine which of his or her debts qualify.
Restrictions That Exist With A Debt Relief Order
During the time that the DRO is in place, the individual is subject to several restrictions. Before borrowing an amount of £500 or more, the person must inform the lender of the DRO.
The individual must receive court permission in order to serve as a company director or have any involvement with a limited company. In addition, a period of six years must pass before the person may apply for another DRO.
Applying For A Debt Relief Order
An individual must visit an approved Intermediary in order to apply for a DRO. This professional will conduct a financial review and determine whether the DRO is the proper solution.
If so, the Intermediary completes the DRO application on behalf of the individual. The individual then signs the documents and submits them to the Insolvency Service. The application fee is £90 and installment payments are accepted. No court appearance is required during this process.
If debts have become unaffordable and the bankruptcy filing fee is too expensive, a Debt Relief Order may be the solution. There is no need to attend court to apply for a DRO and unsecured debt repayment will be frozen for 12 months under the arrangement.
If the financial situation has not improved at the end of that period, the debts will be written off and the individual can start anew.