Debt Relief Orders (DROs)

What is a Debt Relief Order (DRO)?

A Debt Relief Order (DRO) is a legal solution designed to help people in England, Wales, and Northern Ireland who are struggling with unmanageable debts but have limited income and very few assets. Its main purpose is to give individuals a fresh start when they cannot afford to pay off their debts and do not own valuable property or significant savings.

DROs are aimed at people who meet specific criteria, such as having debts below a certain threshold, a low level of disposable income each month, and minimal assets. This makes them particularly suitable for those who have little chance of repaying what they owe, but for whom more severe solutions like bankruptcy may not be appropriate or necessary.

Once a DRO is approved, your qualifying debts are legally frozen for 12 months. During this period, you do not need to make payments towards those debts, and creditors cannot take further action against you. If your financial situation does not improve after the year, the debts covered by the DRO are usually written off entirely, giving you a chance to rebuild your finances without the burden of old debts.

It’s important to understand how a DRO compares to other solutions. While both DROs and bankruptcy are forms of insolvency, a DRO is generally less costly and less intrusive. With a DRO, you do not have to go to court or sell your assets, and the process is usually quicker and more straightforward for those who qualify.

The legal basis for Debt Relief Orders is set out in the Insolvency Act 1986, Part 7A, which outlines who can apply, which debts are included, and how the process works.

To be eligible for a DRO, you must meet certain requirements relating to your debts, income, assets, and residency status. These rules are explained in more detail in the next section, but in general, DROs are intended for people with low income, minimal assets, and relatively small amounts of debt.

If you are considering a DRO, it’s helpful to understand how they fit into the wider landscape of insolvency and debt solutions, so you can make the best choice for your situation.

Who Can Apply for a Debt Relief Order?

To qualify for a Debt Relief Order (DRO) in the UK, you must meet strict eligibility criteria set out by law. DROs are designed for people with low income, minimal assets, and relatively low levels of debt who are struggling to repay what they owe. Understanding these rules is crucial, as only those who meet all the conditions can apply successfully.

Key Eligibility Criteria for a DRO

1. Debt Thresholds

To be eligible, your total unsecured debts must not exceed £30,000. Unsecured debts include things like credit cards, personal loans, overdrafts, utility bills, and council tax arrears. Secured debts, such as mortgages, are not included in this calculation.

2. Asset Limits

You cannot own assets worth more than £2,000 in total. Assets include savings, valuable possessions, and vehicles. In most cases, you can keep a car if it is worth less than £2,000 or is specially adapted for a disability.

3. Disposable Income

Your disposable income (the money you have left each month after paying essential living costs) must be no more than £75. This means that after paying for rent, bills, food, and other essentials, you should have £75 or less left over each month.

4. Residency and Previous DROs

• You must be living in England, Wales, or Northern Ireland, or have done so in the last three years.
• You cannot have had a DRO in the past six years.

5. Insolvency

You must be unable to pay your debts as they fall due. This means you cannot keep up with your repayments and are considered insolvent.

6. Other Restrictions

• You must not be involved in another formal insolvency procedure, such as bankruptcy or an Individual Voluntary Arrangement (IVA), at the time of your application.
• You must not have had assets or property deliberately transferred to someone else within the past two years to reduce your asset value.

These rules are set out under the Insolvency Act 1986, Part VIII, which provides the legal framework for DROs.

Why These Criteria Matter

The eligibility criteria ensure that DROs are reserved for those who genuinely need them – people who have no realistic way to pay off their debts and have little or no valuable property. Meeting these requirements is essential for your application to be accepted. If you do not qualify, your application will be rejected, and you may need to consider alternative debt solutions.

What If You Don’t Qualify?

Not everyone will meet the criteria for a DRO. If you have higher debts, more assets, or a higher disposable income, you may need to explore other options such as bankruptcy or an Individual Voluntary Arrangement (IVA). For more information on who can apply and what a DRO involves, see Debt Relief Orders (DROs).

Where to Get Help

DROs must be applied for through an approved intermediary, not directly by individuals. The Insolvency Service oversees the process and provides guidance on how to proceed.

If you’re unsure whether you qualify or want more advice, it’s a good idea to seek help from a qualified debt adviser. They can explain your options and guide you through the application process, helping you find the best solution for your circumstances.

How Does a Debt Relief Order Work?

When you apply for a Debt Relief Order (DRO), you are taking a legal step to deal with debts you cannot afford to pay. Here’s a clear breakdown of how a DRO works from start to finish, what happens during the 12-month period, and what debts are covered.

Step-by-Step Overview of the DRO Process

• Speak to an Approved Intermediary
  You cannot apply for a DRO on your own. Instead, you must work with an approved intermediary – usually a trained debt adviser – who will assess your situation, check your eligibility, and help you complete the application. The intermediary will submit your application to the Insolvency Service on your behalf.
• Application and Fee
  The application involves providing details of your debts, assets, income, and living expenses. There is a fee to apply for a DRO, which is currently £90 (subject to change). In some cases, charities may help cover this fee.
• Assessment and Approval
  The Official Receiver, a government officer, reviews your application. If you meet all the criteria, your DRO will be approved and put in place.
• The 12-Month Moratorium Period
  Once your DRO starts, you enter a 12-month period where your qualifying debts are legally frozen. During this time:
• You do not have to make payments towards most debts included in the DRO.
• Creditors included in the DRO cannot take action against you or contact you for payment.
• Your financial situation is monitored. You must inform the Official Receiver if your circumstances change (for example, if your income increases).

Discharge and Debt Write-Off
At the end of the 12 months, if your situation has not improved, the debts listed in the DRO are written off. This means you are no longer legally required to pay them, offering a fresh start.

For a detailed explanation of the process and legal implications, see Debt Relief Orders (DROs).

What Happens During the 12-Month Freeze?

The 12-month period is known as the “moratorium.” During this time:

• Payments on included debts are paused: You do not make any payments towards debts covered by the DRO.
• Legal protection: Creditors cannot take legal action to recover these debts or add interest and charges.
• Ongoing obligations: You must keep up with essential bills and debts not included in the DRO, such as rent, council tax (unless included), and utility bills.
• Reporting changes: If your finances improve significantly (for example, you receive a windfall or your income increases), you must notify the Official Receiver. Your DRO could be revoked if you no longer meet the criteria.

What Happens to Debts After the DRO Ends?

When the 12 months are up, all debts included in your DRO are legally written off. You are no longer responsible for paying them, and creditors cannot pursue you for payment. However, if your circumstances improved during the moratorium and you failed to report it, your DRO may be cancelled and creditors could resume action.

Role of the Approved Intermediary

The approved intermediary is key to the DRO process. They:

• Assess your eligibility against the strict criteria.
• Help you gather the necessary information and documents.
• Complete and submit your application to the Insolvency Service.
• Provide advice on what to expect during and after the DRO.

Which Debts Can and Cannot Be Included in a DRO?

Debts that can be included:

• Credit cards, overdrafts, and personal loans
• Store cards and payday loans
• Utility arrears (gas, electricity, water)
• Council tax arrears
• Benefit overpayments (unless due to fraud)
• Rent arrears

Debts that cannot be included:

• Magistrates’ court fines
• Student loans
• Child maintenance or CSA payments
• Debts arising from personal injury claims against you
• Secured debts (such as mortgages or hire purchase agreements on vehicles you wish to keep)

It’s important to list all your debts when you apply. Any debts not included in your DRO remain your responsibility.

For more on the legal framework governing DROs, you can refer to Insolvency Act 1986, Part 7A, which sets out the rules and requirements for this debt solution.

A Debt Relief Order can be a valuable option if you have low income, few assets, and relatively small debts. To explore alternatives, such as bankruptcy or Individual Voluntary Arrangements (IVAs), see our related guides. If you have questions about your eligibility or the process, speaking with a qualified debt adviser is the best first step.

Benefits and Limitations of Debt Relief Orders

Benefits and Limitations of Debt Relief Orders

Debt Relief Orders (DROs) offer a practical route out of unmanageable debt for people with low income and minimal assets. However, while they provide important protections, there are also limitations and long-term consequences to consider. Understanding both the advantages and the drawbacks can help you decide if a DRO is the right solution for your circumstances.

Advantages of Debt Relief Orders

1. No Court Appearance Required
Unlike bankruptcy proceedings, applying for a DRO does not require you to attend court. The process is handled by an approved intermediary, making it less intimidating and more accessible for many people.

2. Low Application Cost
A key benefit of a DRO is its affordability. The application fee is currently £90, which is significantly lower than the costs associated with bankruptcy or an Individual Voluntary Arrangement (IVA). This makes DROs particularly suitable for those with limited financial means.

3. Protection from Creditor Action
Once your DRO is approved, your creditors are legally prevented from taking further action to recover most debts included in your order. This “moratorium period” usually lasts for 12 months, during which your eligible debts are effectively frozen. At the end of this period, if your financial situation hasn’t improved, these debts are written off.

4. Simple and Streamlined Process
The application process for a DRO is straightforward, with clear criteria and support from an authorised intermediary throughout. This can help reduce stress and uncertainty at a difficult time.

For a detailed overview of these benefits, see Debt Relief Orders (DROs).

Limitations of Debt Relief Orders

1. Strict Eligibility Criteria
DROs are only available if you meet certain conditions. These include having debts below a set limit, a low level of assets (such as savings or valuable possessions), and limited disposable income. If you own a home, you will not qualify for a DRO.

2. Restrictions on Assets and Income
You cannot have assets worth more than the current threshold (for example, a car worth over a specified value, or significant savings). Your monthly surplus income must also be below a set amount. These rules are set out in the Insolvency Act 1986, Part VIII.

3. Not All Debts Are Covered
Certain debts cannot be included in a DRO, such as court fines, child maintenance, and student loans. You will remain responsible for these even if your other debts are written off.

4. Restrictions During and After the DRO
While your DRO is active (usually 12 months), you must follow certain rules. For example, you cannot obtain credit over £500 without telling the lender about your DRO. You may also face restrictions on running a business or being a company director.

5. Impact on Credit Rating
A DRO will appear on your credit file for six years from the date it is approved. This can make it difficult to obtain credit, open bank accounts, or secure certain types of housing in the future.

6. Public Record
Your DRO will be recorded on the Individual Insolvency Register, which is publicly accessible. While most people are unlikely to check this, it can be a concern for some applicants.

For more information on these limitations and the legal framework, refer to Insolvency Act 1986, Part VIII.

When a DRO Might Not Be the Best Option

A DRO may not be suitable if:

• You have assets or income above the eligibility limits.
• You need to deal with debts not covered by a DRO, such as court fines or student loans.
• You expect your financial situation to improve significantly in the near future.
• You want to avoid the impact on your credit file and public record.

In these cases, you might want to consider alternatives such as bankruptcy or an Individual Voluntary Arrangement (IVA). Each option has its own pros and cons, so it’s important to compare them carefully.

To explore your options further, read about Debt Relief Orders (DROs), or consult the Insolvency Act 1986, Part VIII for the full legal details.

Alternatives to Debt Relief Orders

When a Debt Relief Order (DRO) isn’t the right fit – perhaps because you don’t meet the eligibility criteria or your financial situation is more complex – there are several other debt solutions available in the UK. Choosing the right option depends on your individual circumstances, such as the level of your debts, your income, and the assets you own. Below, we outline some of the main alternatives to DROs, with a comparison to help you understand when each might be suitable.

Individual Voluntary Arrangements (IVAs)

An Individual Voluntary Arrangement (IVA) is a formal agreement between you and your creditors to repay a portion of your debts over a set period, usually five or six years. IVAs are legally binding, so once approved, your creditors must stick to the terms. This solution is often used by people with regular income and higher levels of debt than those allowed under a DRO. Unlike a DRO, IVAs can include larger debts and don’t have strict limits on assets or income, but you must be able to afford regular monthly payments.

Administration Orders

If you have less than £5,000 in unsecured debt and at least one County Court or High Court judgment against you, an Administration Order could be a suitable alternative. This court-based solution allows you to make a single monthly payment to the court, which then distributes the money to your creditors. Administration Orders are designed for people who can pay something towards their debts but can’t afford to pay them in full immediately. They’re less common than other options but can be useful if you have multiple creditors and a stable income.

Bankruptcy

Bankruptcy is a more serious form of insolvency and may be considered if you owe more than £30,000 or have assets and income above the DRO thresholds. Bankruptcy can write off most debts and stops creditor action, but it can have significant consequences, such as the possible sale of your home or other valuable assets. It also affects your credit rating for six years and may impact your employment in certain sectors. Bankruptcy is generally a last resort if other solutions, like DROs or IVAs, aren’t suitable.

When to Consider These Alternatives

• If you don’t qualify for a DRO: For example, if your debts exceed £30,000, your assets are worth more than £2,000, or your disposable income is above £75 per month, you’ll need to explore other debt solutions.
• If you need to protect assets: An IVA might help you avoid losing your home or car, while bankruptcy could put these at risk.
• If you have court judgments: Administration Orders are specifically for people with at least one court judgment against them and manageable levels of debt.
• If you have a regular income: IVAs and Administration Orders require you to make regular payments, so they’re most suitable if you can commit to a payment plan.

Every debt solution has its own rules, advantages, and drawbacks. It’s important to get independent advice before making a decision, so you can choose the option that best fits your needs and long-term financial goals. If you’d like to learn more about the alternatives mentioned here, you can read further about Individual Voluntary Arrangements (IVAs), Administration Orders, or bankruptcy for detailed guidance.

Applying for a Debt Relief Order

Applying for a Debt Relief Order

Applying for a Debt Relief Order (DRO) is a structured process designed to ensure you get the right support for your financial situation. Here’s what you need to know about making an application, what documents are required, and the steps involved.

How to Apply for a DRO

You cannot apply for a DRO by yourself. Instead, you must go through an approved intermediary – a specialist adviser authorised to handle DRO applications. These intermediaries are usually found at free debt advice agencies, such as Citizens Advice or StepChange. They will assess your situation, help you determine if a DRO is the right solution, and guide you through the application process.

The role of the approved intermediary is crucial. They will check your eligibility, prepare your application, and submit it to the Insolvency Service on your behalf. For more detail about their responsibilities and the process, see the official DRO guidance for Approved Intermediaries – GOV.UK.

Documents and Information Needed

To apply for a DRO, you will need to provide detailed information about your financial circumstances. This usually includes:

• Proof of identity and address (such as a passport, driving licence, or utility bill)
• Details of your debts (creditor statements, letters, or court documents)
• Information about your income (wage slips, benefits statements, or bank statements)
• A list of your assets (including savings, vehicles, property, and valuables)
• Details of your regular expenses (rent or mortgage, bills, food, travel, childcare, etc.)

Your approved intermediary will help you gather and organise this information. It’s important to be honest and thorough, as providing incomplete or inaccurate details can delay your application or even lead to your DRO being revoked.

What to Expect During the Application Process

Once you’ve met with an approved intermediary and provided all the necessary information, they will prepare your application. Here’s what typically happens next:

• Eligibility Check: The intermediary will confirm that you meet all the criteria for a DRO, such as having debts under the current limit, low income, and minimal assets.
• Application Submission: Your intermediary submits your application online to the Insolvency Service. There is a one-off fee to apply, which your adviser will discuss with you.
• Assessment: The Insolvency Service reviews your application. If everything is in order, your DRO is usually approved within a few weeks.
• Notification: If your DRO is granted, you and your creditors will be informed. Your debts will be frozen for 12 months, giving you relief from payments and legal action.
• Supervision Period: During the 12-month period, you must inform the Insolvency Service of any significant changes in your circumstances.

For a step-by-step overview of the process, you can read more in Debt Relief Orders (DROs), which explains the essentials and what to expect.

The Importance of Free Debt Advice

Before you apply for a DRO, it’s strongly recommended to seek free, impartial debt advice. A qualified adviser can help you review all your options – including bankruptcy, Individual Voluntary Arrangements (IVAs), and other debt solutions – to make sure a DRO is the best choice for your circumstances.

Getting advice early can help you avoid mistakes and ensure you understand the consequences and benefits of a DRO. Your approved intermediary will provide this advice as part of the application process.

A DRO can offer a fresh start if you’re struggling with debt and have limited assets. By working with an approved intermediary and preparing the right information, you can make the process as smooth as possible. To learn more about alternatives and related debt solutions, explore our pages on bankruptcy, IVAs, and other forms of financial support.

Financial Support and Related Help During Debt Problems

If you’re struggling with debt, it’s important to know that financial support is available to help you manage your living costs and protect your wellbeing. Alongside exploring a Debt Relief Order (DRO), you may be entitled to other forms of assistance that can ease your financial pressure and help you regain stability.

Applying for Universal Credit

Universal Credit is a government benefit designed to support people with low income or those who are out of work. If you’re finding it difficult to cover essential living expenses such as rent, food, or utility bills, you might be eligible for this financial support. Universal Credit can provide monthly payments to help with living costs, and your eligibility will depend on your income, savings, and personal circumstances. For detailed information on eligibility, the application process, and what to expect, see our guide on applying for Universal Credit.

Housing Assistance if You’re at Risk of Losing Your Home

Debt problems can sometimes lead to difficulties in paying your rent or mortgage, putting you at risk of eviction or repossession. If you’re worried about losing your home, it’s vital to seek help as soon as possible. Local councils and housing charities can provide advice and emergency support, and there are legal protections in place to prevent homelessness. You can learn more about your rights and the support available by visiting our housing assistance resource.

Support for Families with Children Facing Debt

Families with children may be entitled to extra help during financial hardship. This could include additional benefits, free school meals, childcare support, and grants for essential items. If you have children and are worried about how debt is affecting your family, it’s important to understand what support is available. For further guidance and practical advice, see our page on help if you have children.

Explore All Available Support

Dealing with debt can feel overwhelming, but you don’t have to face it alone. By exploring all your options for financial support – such as benefits, housing help, and family assistance – you can take positive steps toward improving your situation. Seeking advice early and making use of available resources can make a significant difference in your financial recovery and long-term stability. If you’re unsure where to start, consider speaking to a qualified debt adviser who can help you understand your rights and guide you through the process.

Managing Your Debt Beyond DROs

Managing Your Debt Beyond DROs

A Debt Relief Order (DRO) can offer valuable breathing space if you’re struggling with unmanageable debts and meet the strict eligibility criteria. However, it’s important to think about how you’ll manage your finances both alongside a DRO and after it ends. Taking proactive steps now can help you avoid falling back into debt and improve your long-term financial health.

Practical Strategies for Staying Debt-Free

1. Create and Stick to a Realistic Budget
Budgeting is one of the most effective ways to keep your finances under control. Start by listing your income and all your essential outgoings, such as rent, utilities, food, and transport. This helps you see exactly where your money goes and identify areas where you can cut back. Even small changes, like cancelling unused subscriptions, can make a difference.

2. Build an Emergency Fund
If possible, set aside a small amount each month for unexpected expenses. Even a modest emergency fund can help you cope with sudden costs without relying on credit.

3. Keep an Eye on Your Credit Report
After a DRO, your credit rating will be affected for six years. Regularly checking your credit report can help you spot any errors and track your progress as you rebuild your credit history.

Seeking Expert Advice

You don’t have to manage your debts alone. Speaking to a qualified adviser can help you understand your options and avoid common pitfalls. Free and confidential advice is available from a range of organisations, including National Debtline, which offers guidance on DROs and other debt solutions.

Other Debt Management Tools and Support

If a DRO isn’t suitable for you, or if you need further help after your DRO ends, there are other options to consider:

• Debt Management Plans (DMPs): An informal arrangement with your creditors to pay off debts at a rate you can afford.
• Individual Voluntary Arrangements (IVAs): A formal agreement to pay back a portion of your debts over time.
• Bankruptcy: A legal process that may be appropriate in more severe cases.

Each solution has its own advantages and drawbacks. For a broader overview of your choices and practical tips, visit our page on managing debt.

Understanding Your Legal Rights

It’s useful to know that DROs and other insolvency solutions are governed by specific laws. The Insolvency Act 1986 sets out the legal framework for DROs, bankruptcies, and IVAs in the UK. Familiarising yourself with your rights and responsibilities under this Act can help you make informed decisions about your financial future.

Take Control of Your Finances

Managing debt is an ongoing process. Whether you have a DRO in place, are considering one, or have recently completed one, taking positive steps now can make a real difference. Set clear goals, seek support when you need it, and use the tools available to you. With the right approach, it’s possible to regain control and build a more secure financial future.