A debt relief order, abbreviated DRO, is one alternative to filing for bankruptcy in the UK. People with certain kinds of debt who meet several criteria are eligible for apply for DROs through authorized debt advisers.
A DRO is designed for people who have little spare income, are not homeowners, and do not anticipate that their financial situation will improve. A bankruptcy court officer called the Official Receiver is the only party authorized to issue a UK DRO.
To qualify for a DRO, the debtor must have lived, owned property, or run a business in England or Wales within the past three years. He or she also must have debts under £15,000 and have less than £50 leftover each month after living expenses are paid.
Total assets must be valued at less than £300, not including motor vehicles. The person also may not have applied for a DRO within the previous six years, though people using another formal insolvency procedure may qualify.
While common types of unsecured debts can be included in a DRO, some debt cannot be
Family maintenance payments, court fines, and student loans are a few debts that a DRO will not cover. An authorized debt advisor will review all debts held by the individual and determine which qualify for inclusion. This party will also assist with completion of the DRO application form and submit it to the Official Receiver.
It costs £90 to apply for a DRO and acceptance is not guaranteed. While a DRO is in place, the debtor is responsible for complying with DRO restrictions. For example, the individual may not act as a company director.
Court permission is required to manage, promote, or create a company. In the case of managing a business, the individual also must inform business associates of the DRO. The debtor also may not borrow more than £500 without disclosing the DRO to the lender.
With a DRO in place, the debtor is relieved from making payments on debts and creditors must obtain court permission to recover money they are due
A DRO typically lasts for 12 months, after which time the covered debts are written off. If the financial situation of the debtor improves during a DRO, the arrangement can be amended or cancelled.
Though a DRO can be an excellent debt solution, it affects the credit rating of the covered individual. DROs are listed on the Individual Insolvency Register, which credit reference agencies use to update consumer credit ratings. The notation is removed three months after the DRO concludes, making it difficult to get additional credit like credit cards, auto and personal loans, and mortgages while a DRO is in place.
The impact of a DRO on credit does not end there. Credit reference agencies maintain their DRO records for a six-year period. This extends the period of credit difficulties for former DRO participants. Many former participants even have trouble opening new bank accounts during this period. Therefore, people in debt should carefully consider a DRO before applying for one.