Andrew Hagger, personal finance expert at Moneycomms.co.uk, gives the lowdown on the DRO, an alternative to bankruptcy for those who meet the criteria.
If you’re really struggling to make ends meet, and are finding it impossible to pay your debts, there is an alternative to the onerous and expensive bankruptcy process that doesn’t involve a court hearing.
There is a legal procedure designed specifically to help people on lower incomes who are having difficulty repaying their debts, called a debt relief order (DRO).
It’s not a solution that works for everyone, but if you’ve very few assets, and little money left each month once you’ve paid your essential household bills, it may be the way for you to get rid of your debts and start afresh, without having the stress of owing money and constantly being chased for payment.
Am I eligible for a DRO?
The rules and regulations state that a DRO is a remedy available to people who have lived in England or Wales for the last 3 years, and who have not been made bankrupt or had a previous DRO within the last 6 years.
In addition, to qualify, the total of your debts must not exceed £15,000, you can’t own assets worth more than £300, and you must be in a situation in which you have no more than £50 per month spare once your household bills have been paid. Additionally, you can’t own a motor vehicle (including a motor cycle) valued at more than £1,000.
The new rules
However, it’s worth noting that from 1 October 2015, the eligibility criteria will be changed to increase the maximum debt level from £15,000 to £20,000, and the asset limit from £300 to £1,000, though no change will be made to the maximum level of surplus monthly income allowed (£50).
What will a DRO cost?
A DRO costs £90 – this is a non-refundable fee that is paid to the Insolvency Service. You can pay by 6-monthly instalments, but your application will not be considered until the full amount has been paid.
This is much more affordable than the up-front fees for bankruptcy, which can cost up to £700.
However, it’s still vital that you check that you meet the DRO qualification criteria, otherwise you will be wasting £90 that you can ill afford to lose.
Who are the competent authorities?
You can’t submit your application directly to the Insolvency Service. Instead, you must use the services of one of the 12 approved competent authorities (organisations that are approved by The Insolvency Service).
These companies are there to help you, and will check your financial situation to ensure you meet the criteria for a DRO. They will also help you to complete the DRO application and submit it on your behalf. Details of the firms approved to help in this process can be found here.
What happens once a DRO is granted?
If your DRO is granted, interest and charges will be frozen on the following debts, and they will be written off after 12 months if your circumstances haven’t improved:
- Credit card, overdrafts, store cards, bank loans, payday loans and catalogue balances.
- Hire purchase, buy now pay later agreements, loans from family members.
- Arrears on household bills, including rent, council tax, telephone, gas and electricity.
The drawbacks of a DRO
Even though a DRO may seem like the best solution for you, there are some important things you need to consider before signing up for this solution.
Having a DRO will affect your credit rating and stay on file for 6 years. This can have various implications:
- You may have difficulty opening a bank account (see Bankruptcy and bank accounts: practical tips).
- You won’t be able to get credit over £500 without telling the lender you have a DRO.
- You won’t be allowed to set up a limited company without permission from the court.
- You’ll be expected to make arrangements to repay the creditors if your financial circumstances improve.
If you’re struggling to deal with your debts, don’t bury your head in the sand and hope it will go away. A DRO could be the answer you’ve been looking for to help get you back on your feet again.
About the author
Andrew Hagger founded MoneyComms in 2012, and has over 30 years’ experience of working as a finance expert for major personal finance brands. A frequent media spokesperson, he also writes regular money columns for the Independent, Daily Mirror, The Scotsman and Money Market.