What is a Debt Relief Order?

In this article, we’ll explain what a Debt Relief Order is, how to determine eligibility, what the process looks like and what a Debt Relief Order might mean for you and your debt problems.

Let’s start with what a Debt Relief Order is.

A Debt Relief Order is described by gov.uk as "a way of dealing with debts if you cannot afford them". If you are granted a Debt Relief Order, you will be given a break period of around 12 months, during which you will not need to pay certain debts. At the end of the 12 months, the rest of the debt in the Debt Relief Order will be written off, meaning you won't have to pay them anymore.

If your financial situation improves during your Debt Relief Order, the order may be cancelled, and you will have to start paying off your debts again.

A Debt Relief Order is only for people who are really struggling financially. It shouldn’t be seen as an easy way out, as there are repercussions.

Now, let’s find out more about who Debt Relief Orders are intended to help.

If you are struggling financially and cannot pay your debts, a Debt Relief Order could help you with some of your debts. However, there are specific criteria you must meet to be eligible. These are:

It is important to note that if you are currently bankrupt, involved in bankruptcy proceedings or any other formal insolvency proceedings like Individual Voluntary Arrangements (IVAs), you can’t apply for a Debt Relief Order.

If you’ve read the above criteria and feel you might be eligible for a Debt Relief Order, read on to find out more about the application process.

So, you’ve read the criteria and feel this could be an option for you. To start the process, you’ll need to find an "approved intermediary", which means an authorised debt advisor. This could include the Insolvency Practitioners Association, Step Change Debt Charity, the Citizens Advice Bureau (CAB), National Debt Line and others.

The debt advisor will ask you for some information about your debt. They specifically want to know if you have paid some creditors over the last two years but not others. They’ll also want to know if you have given away any assets or sold them for less than they were worth in the last two years.

Depending on what you have done to manage your debt over the last two years, you may be refused.

There is currently no application fee for a Debt Relief Order (DRO)

After you complete your application with the “debt advisor," it will be sent to the Official Receiver. The Official Receiver will then take charge of your finances and review your financial affairs to fully understand your financial situation.

If you’re granted a Debt Relief Order, you will be informed by the official receiver, who will tell you what you can and cannot do for the 12 month period. The Official Receiver is also responsible for informing the eligible creditors that they cannot ask you for any payments for the next 12 months. However, the creditors can send you statements and default notices. If any creditor approaches you to request payments, inform them that you are in a Debt Relief Order.

During your Debt Relief Order, you must be completely transparent with your Official Receiver. If you receive any salary increases or increase in your regular income, or if you feel you can start paying towards your debts again, you must inform them.

Any withheld information that is discovered may negatively affect your Debt Relief Order.

As part of the Debt Relief Order process, you will be placed on a publicly accessible register called the Individual Insolvency Register. This is a register for people who have been made bankrupt or are in an Individual Voluntary Agreement (IVA). However, you will be removed from the register three months after your Debt Relief Order ends.

As with Bankruptcy, when you are granted a Debt Relief Order, you need to be aware of some restrictions that could impact your life; it’s important to consider this aspect before deciding to apply. We’ll break these down in the next section.

There are always pros and cons for every route you consider when handling your debt. So far, we’ve focused a lot on the benefits and practicalities. However, there are restrictions that you need to be aware of, including:

It’s important to consider all of these restrictions carefully before committing to a Debt Relief Order.

If you decide to take this route to handle your debts, make sure you understand which debts can be placed in a Debt Relief Order. These are:

As you probably expect by now, some debts cannot be placed into a Debt Relief Order. So, you will be required to keep paying. These are:

In addition, if you run up new debts while in your Debt Relief Order, you could be placing yourself at risk of bankruptcy or prosecution if you incurred the debt without informing the lender about your Debt Relief Order.

If you have been dishonest about something relating to your Debt Relief Order or you accrue new debt dishonestly, the Debt Relief Order can be extended for 2 -15 years. You can also volunteer to stay in a Debt Relief Order for longer.

The positives? Once your Debt Relief Order is over, you will be discharged, and the debts related to the Debt Relief Order will be null.

The Debt Relief Order will remain on your credit file for at least six years, depending on whether you have any extensions. In terms of obtaining future credit, a Debt Relief Order will affect you similarly to bankruptcy. Unfortunately, if you’ve had a Debt Relief Order, you may find it difficult to obtain credit for the six years (or longer) it sits on your credit file.

The Real Debt Guy is a qualified financial adviser and a UK debt expert. The information in this article is considered to be true and correct at the publication date.