A Debt Relief Order, or DRO, is a bankruptcy alternative to handle certain types of debt. To qualify for a DRO, an individual must have limited spare income, may not own a home, and the likelihood that the financial situation will improve must be slim. A DRO costs £90, must be applied for through an authorized debt adviser, and is issued by an officer of the bankruptcy court called the Official Receiver.
The Official Receiver informs covered creditors in writing that they may not take action to recover money they are owed unless they receive court permission. The debtor may not make any debt payments to covered creditors while the DRO is in effect. A DRO usually ends after 12 months and when it does, the debtor is freed from the covered debts. However, if the financial situation of the debtor improves, the DRO can be amended or cancelled.
To qualify for a DRO, an individual must have total debt of less than £15,000 and have a maximum spare income of £50 per month after paying for essential living expenses such as food and shelter. The person may not have owned property or run a business in Wales or England in the previous three years and may not have applied for another DRO within the previous six years. In addition, the individual must have less than £300 worth of assets.
Assets include luxury items, antiques, stocks, shares, savings, premium bonds, and valuable collections. When considering assets, many household items are not included such as cookers, crockery, cutlery, furniture, beds, and televisions. Her Majesty’s Revenue and Customs-approved private pensions are not included as assets. However, any money received from a pension is treated as income when determining whether an individual qualifies for a DRO.
Motor vehicles valued at under £1,000 according to Parker’s Guide or those under a conditional sale or hire purchase agreement are also not included. The balance owed under the relevant agreement should be included in the list of debts. The individual is usually allowed to keep a vehicle falling into one of these categories or one that is needed due to disability.
Individuals considering a DRO should discuss their assets with a debt advisor. Resale value is used to determine the value of an asset. Being open about any assets is important because the Official Receiver can terminate the DRO and take further action if the debtor does not inform him or her of an asset that would cause the £300 limit to be exceeded or one that was given away or sold for less than its value within the prior two years.
Some types of debt may not be included in a DRO. These include student loans, court fines, family maintenance payments, and debts created after the DRO is issued. Citizens Advice and the National Debtline can help people deal with these types of debt. They offer free counseling and debt management tools and provide advice about which debt resolution methods are most suitable based on the type of debt the individual has.
