A debt relief order, abbreviated DRO, is a way for people meeting specific criteria to deal with certain types of debt. During the DRO period, creditors may not take action to recover money owed and the debtor does not make any payments on covered debts. When the DRO ends, the covered debts are discharged. A DRO typically lasts for 12 months, enabling an individual to become debt-free after just one year.
To qualify for a DRO, a person may not be a homeowner, must have less than £50 remaining after paying living expenses each month, may not have £300 or more worth of assets, and must have little chance of improving the financial situation. In addition, debt must be less than £15,000 and the individual must be a property or business owner in England or Wales. A DRO is only available through an authorized debt adviser and an Official Receiver issues the order.
A DRO will cover many, but not all, types of debt. Qualifying debts include overdrafts, credit cards, personal loans, utilities, rent, council tax, and telephone charges. Agreements classified as buy now-pay later, conditional sale, and hire purchase may also be included. A DRO may even include benefit overpayments as long as the benefit was not obtained fraudulently. Debts that may not be part of a DRO include student loans, court fines, social fund loans, child support and maintenance payments, and debts incurred after the DRO is issued.
A bank loan qualifies for inclusion in a DRO and if the debtor includes it, repayment should not be required. When the DRO ends, the bank loan balance will be written off, freeing the debtor from any additional obligation to it. On the other hand, if the bank loan was not included in the DRO application and was not mentioned until after the DRO was approved, it may not be included in the DRO.
Bank loan debt that is not included in a DRO is not protected from collection action by the creditor. The lender may attempt to recover the debt but the debtor may be able to negotiate a revised repayment. Debtors should note that debt excluded from a DRO that would cause the total debt figure to reach £15,000 or more entitles the Official Receiver to revoke the DRO.[doyouneed01]
Being honest about debts is important, particularly when applying for a DRO. Civil or even criminal action may result if the debtor does not reveal all debt to the Official Receiver. As soon as a debtor realizes that a bank loan or other debt was omitted from the DRO application, the individual should notify the Official Receiver so the issue can be handled appropriately.
By including bank loans in their DROs, debtors eliminate the need to repay these balances as long as their financial situation does not change. A debtor will not make any payments on the loan and the lender will not able to take collection action while the DRO is in place. Once the DRO ends after approximately 12 months, the bank loan debt will be written off for good.