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Last updated on 17th of August 2021

Debt Relief Order: What Is It & How To Apply

If you owe a lot of money and sought out debt advice, your adviser may have suggested that you apply to the Insolvency Service for a debt relief order (DRO). Here, we'll give you free debt advice so you're well-informed about what debt relief is and more.

If you owe a lot of money and have sought out debt advice, your debt adviser may have suggested that you apply to the Insolvency Service for a debt relief order (DRO). If you've been advised to apply for a DRO, it's essential to know what it involves and what it means for you.

Here, we'll give you our own free debt advice so that you can be well-informed about what a debt relief order is, how to make a DRO application and the effect that it could have on you in the future.

What is a debt relief order (DRO)?

If you're asking, "what is a debt relief order" this paragraph will answer that question. Essentially, debt relief orders represent a way of having debts written off as long as you have few assets and quite a low level of debt. If you cannot pay your creditors in England, Wales or Northern Ireland, you can make a DRO application.

A DRO will freeze your debt repayments and any interest due for 12 months. Should you still be unable to meet the debts you need to pay due to an unchanged financial situation after that time, all the debts that were included on the debt relief order will then be written off.

Not everybody qualifies for a debt relief order, but you need to apply for a DRO to the Insolvency Service if you do. A debt relief order is only available if you live in Northern Ireland, England or Wales. If you're resident in Scotland, the DRO is not available.

What benefits can a DRO offer?

Debt relief orders aren't the right option for everyone who has debts. Nevertheless, a DRO does offer some benefits:

  • A DRO may represent a lower-cost alternative to declaring bankruptcy or getting an individual voluntary arrangement.

  • Debt payments are frozen for 12 months, after which they are written off if your financial circumstances remain unchanged.

  • During that 12 month period, you cannot be pursued for your debts by your creditors.

  • While debt relief orders are a form of formal insolvency solution, there is no need to go to court, unlike bankruptcy.

What are the downsides of a DRO?

If you decide to make an application for a debt relief order, there could be some advantages for you, but there may be some downsides to consider as well, depending on your circumstances:

  • A DRO will only be available for people who have a debt of under £30,000 if you live in England and Wales and for people with debts of under £20,000 if you live in Northern Ireland. If you live in Scotland, you cannot make a DRO application at all.

  • DROs aren't free - a fee is applicable. When you apply for a DRO, you must pay the fee of £90 to the Insolvency Service.

  • If you own your own home, you cannot apply for a DRO.

  • DROs appear on the public register. They will therefore have a negative effect on your credit report.

How is a DRO application made?

To make an application for a DRO, you need first to determine whether you qualify. You can do this by seeking debt advice from a professional debt adviser or debt charity.

If the debt advice you receive from the debt charity or adviser suggests that a DRO is a good solution for your debt issues, you must then obtain the appropriate forms from an approved intermediary. Often, organisations that supply debt advice are authorised and regulated as approved intermediaries. A DRO can only be applied for via a specialist adviser.

Once you receive the forms, you must complete them and return them to the debt advice DRO specialist team. They will then begin to prepare the application. You must submit a £90 fee, or if you live in England or Wales, it's possible to make payments in instalments. Once you've paid the £90 fee, the application for a DRO can be submitted, and a decision will be made about whether your application for a DRO will be approved within 10 business days.

There are three decisions which may be made:

  • The DRO will be approved if your application is correct, you have paid the fee, and you're eligible.

  • The order will be deferred if any information is missing from the application.

  • The order can be refused if you're ineligible or the information you've given is false.

 

It's important to always cooperate with the official receiver after applying for your DRO. You must answer their questions accurately and truthfully and supply further information as requested. Should your income increase or you get a lump sum of money, such as a backdated benefit award or tax refund, you must tell the official receiver.

Should your application be refused, you'll be told in writing why. You may then be able to challenge their decision.

Which debts can be covered by a DRO?

A DRO can include most types of debt, including:

  • Council tax arrears

  • Utility bills that you haven't been able to pay

  • Store card debts

  • Credit card debts

  • Loans

  • Catalogues

  • Overdrafts

  • Rent

  • Benefit overpayments

  • Income Tax, National Insurance Contributions or other money owed to HMRC

  • In-store credit agreements

 

There are, however, a few types of debt that do not qualify for inclusion, and these are known as "excluded debts".

Some common debts that you may owe which are excluded from a DRO include:

  • Criminal fines you need to pay that have been issued by the court

  • Child support or maintenance debts

  • TV licence arrears

  • Student loans that you need to pay

  • Any loans like budgeting loans from the DWP Social Fund

  • Any fraudulent debts, including any benefit overpayments due to fraud

Is a DRO a good option for me?

A DRO is designed specifically for individuals on a low income and who owe a small amount of debt. It's a more affordable alternative to declaring bankruptcy.

To apply for a debt relief order, you need to:

  • Be resident in Northern Ireland, Wales or England.

  • Have debts of under £30,000 or £20,000 if you live in Northern Ireland.

  • Have under £2,000 of money or assets or £1,000 of assets in Northern Ireland.

  • If you have a car, it must have a value of less than £2,000 or no more than £1,000 in Northern Ireland.

  • Have under £75  (or £50 in NI) of surplus income each month after paying your household expenses such as living costs and household bills.

  • Not be resident in Scotland as DROs aren't available. Instead, a MAP (Minimal Assets Process) bankruptcy may apply.

 

You can determine whether a DRO is a good choice for you by seeking free debt advice from a registered charity or talking to a professional money advice service.

Will a DRO affect my credit score?

Debt relief orders stay on your credit report for a period of six years following its approval date. During that time, it could be difficult to obtain credit as potential creditors will see the order on your file.

What will happen if my DRO is approved?

On approval, you'll enter the DRO period (or moratorium), which is typically one year. In that time, you face certain restrictions. The period cannot be ended early unless the DRO is stopped by the official receiver because you've acquired money or broken the restrictions.

If your application is agreed, you'll receive a notice that outlines all your duties that need to be complied with. Notice will also be sent to each of your creditors to whom you owe a debt covered by the order. At the same time, an entry will be added to the EIIR (Electronic Individual Insolvency Register), which shows your details against the DRO.

During the 12 months of the DRO, the debts covered by the order needn't be paid, and those creditors cannot take action against you for non-payment of the money owed. There are, however, a few exceptions:

  • Rent arrears that are due to your landlord. If you have rent arrears and are unable to pay, possession action can still be taken against you by your landlord.

  • Any payments to enforcement agents or bailiffs who have seized control of your possessions via a controlled goods agreement.

  • Your typical household expenses such as rent, electricity and gas bills, council tax and water charges.

  • Any other debts that weren't covered by the order.

 

There are also certain things you can't do when you have an active DRO. These include:

  • Obtaining more than £500 of credit without letting the lender know you've got a DRO

  • Continuing a business in a name other than that on the order

  • Involving yourself with managing, setting up or promoting a limited company without getting permission from the court

  • Acting as the director of a limited company without the court's permission

  • Adding any other debts or owed money to the order

 

Should you fail to follow these rules, you'll have committed an offence, and you could be fined or even receive a prison sentence. You could also have a debt relief restrictions order made against you by the court, which could extend the restrictions for as long as 15 years.

What happens when the debt relief order comes to an end?

When the 12 months are over, you are then free from all the debts covered by the order except any obtained fraudulently. There'll be no official communication or notice when your DRO ends, so you'll need to keep a record yourself or check the Insolvency Service's register for your entry. Printing off a copy of this will prove your debt relief order has ended, but you must do it within 3 months of the end date.

If one of your creditors attempts to collect a debt that was listed on the order once the period has come to an end, those debts needn't be paid, and you're able to challenge them (except for excluded debts such as rent arrears) as you are considered to be free from your listed debts. You can get free advice about this if you talk to a DRO adviser service or national debt charity.

If your creditors won't believe or accept that your debt relief order has come to an end, you can send a copy of the entry from the Register or, if you don't have one, tell them to get in touch with their DRO team. If they are registered in England, they are regulated by the Financial Conduct Authority, so you can make a complaint to them if the harassment doesn't stop.

It can be difficult to get yourself out of debt, but debt relief orders are one way that could help. If you're struggling with repayments on your loan, credit cards and other debts and you have assets below £30,000 (or £20,000 in Northern Ireland), you should talk to a free national debt service to find out whether a DRO could help you escape your money worries.