A Debt Relief Order (DRO) is aimed at people who can’t afford to pay much if anything to their debts, which add up to less than £20,000, and who don’t own a property.
If you meet the criteria so you can have a DRO, it is normally much the best debt option for you unless you expect your situation to improve a lot very soon.
It has been described as “bankruptcy lite” because it gets rid of your debts, costs a lot less in fees (only £90) and is much simpler than bankruptcy.
The DRO criteria
Unlike most of the other debt solutions, you have to be able to meet all of the rules to get a DRO, there isn’t any “wriggle room”. The most important ones are:
- £20,000. You can’t decide to leave out a debt to get under this limit – this is discussed in this article;
- you can’t own a house;
- your assets must have a second-hand value of less than £1,000. That sounds like hardly anything, but ordinary household objects and clothes etc are not counted at all and there is an additional allowance for a car, see below;
- you can’t own a car or motorbike worth more than £1,000 (using Parkers value figures);
- you must have less than £50 a month spare income after paying all your normal bills and expenses. This is complicated, see below for details.
Apart from these main rules, there are some other technical reasons that could stop you getting a DRO, including:
- you can’t have had a DRO within the last 6 years;
- you can’t be a company director;
- you can’t be an undischarged bankrupt or currently in an IVA;
- if you are over 55, you can’t have a large undrawn pension that you could access. (See Pensions and DROs for more details. The person that sets up your DRO will be able to find out whether this will be a problem for you.)
The £50 “spare income” test
You may be unsure about the £50 “spare income” level. The level of spare income will be assessed by the debt advisor that sets up your DRO (see below).
The expenses allowed are not the same as those usually used in an IVA or a DMP!
I have come across people who have had an IVA payment of over £100 proposed who have been “under £50” on the DRO criteria. If all your income comes from benefits or state pension then you will pass this test, so you don’t need to worry that disability benefits such as DLA or PIP will mean that you have too large an income.
Some people who have been struggling with debt repayments find the expenditure allowances surprisingly generous – this may be the first time for many years that you have any money to spend on clothes!
Wiping out your debts – with no payments from you
Debts cleared after a year
In a DRO, your debts are cleared after a “moratorium period” of 12 months. During this year your creditors are not allowed to harass you or take any action to get money from you.
If you have a big change of circumstances during the year (perhaps you get a well-paid job? or inherit a lot of money?) your DRO will be revoked. This is pretty rare, see this article on why and how often this happens.
But not quite all debts
A DRO doesn’t wipe out all kinds of debt. Two that cannot be included in a DRO are:
- student debts; and
- magistrate’s court fines, including TV license fines (but fixed penalty fines such as parking fines and the London Congestion Charge can be included).
See the National Debtline factsheet for a complete list. Any excluded debts are ignored when checking if your total debts are less than £20,000.
No monthly payments during the DRO year
A DRO is designed for people with little or no spare income, therefore you don’t have to make any monthly payments.
This is a major advantage over an IVA, where you have to make payments for five years usually and over a DMP, which could last a very long time if you can only make low payments.
What about my partner?
If you and your partner both have debts and want a DRO then you each have to apply for one – there isn’t any such thing as a joint DRO.
If you have a DRO and your partner doesn’t, then they will become fully responsible for any previously joint debts that you had together. This applies to things like council tax arrears, not just a joint bank loan.
A DRO will not affect the credit rating of anyone living at your house unless you have any joint financial products, such as a joint bank account.
A quarter of a million DROs – but you may not have heard of them!
DROs were introduced in 2008. Ten years later, in November 2018, it was announced that the 250,000th DRO had been set up.
Everyone has heard of bankruptcy, but DROs remain a little known secret.
Mainly because there is no advertising for them. With IVAs, the companies offering them make a lot of money from them so they promote them. No-one makes money from you choosing a DRO, so no-one advertises them.
Who does a DRO suit?
A DRO is frequently the best option for anyone where all or the majority of their income comes from benefits. If you are a pensioner, or have a long-term health condition, then it is a sensible choice. If you have a young family and a low paying job, then it could be many years before you are free of childcare costs, so again a DRO can be a very good choice for you.
If you just have a very temporary money problem then a DRO is unlikely to be your best option. It gets rid of your debts after a year, but it will have a very bad effect on your credit file for six years from when it begins. This is a downside that is well worth paying if you have a larger debt problem, but not for a short-term difficulty.
Think if refunds could resolve your problem:
- If you may have paid PPI on any of your debts, including debts that you have repaid, you should try to reclaim PPI before you start a DRO. You may get so much money back that you can use it settle many of your debts so you won’t need a DRO at all! Some people have had big surprises with the amount of PPI compensation they receive, see How PPI can get you out of debt!
- If you have had problems with payday loans or Provident doorstep loans, you may be able to get a refund of the interest you have paid.
Summary
Pros gets rid of debts when you have little or no money to repay them each month, low-cost, fairly simple
Cons restrictive set of criteria, will affect your credit record for 6 years, may affect your job (very unusual)
Debt Camel says If you owe less than 20k and have no realistic chance of repaying it, a DRO could be an excellent solution for you
How to set up a DRO
You have to apply through an approved debt adviser, called an Approved Intermediary. Debt Camel suggests using Citizens Advice (they set up over 50% of DROs) or National Debtline if you prefer to do this on the phone.
After the debt adviser decides that a DRO is a suitable option for you, you will usually be sent an application pack to complete.
Things to talk to your adviser about include:
- anything you have on Hire Purchase or any unusual debt (not simple credit cards, store cards or loans).
- if you are owed money by someone else or expect to get money in the next year, possibly from benefits backdating.
- what happens to bills such as council tax and utilities if you owe money here and you have a partner.
- If you are concerned about how ‘spare income’ is calculated – people often ask if they can include things like broadband costs and pet food in their expenses – talk to your adviser.
The £20,000 limit is absolute, so to ensure that you will meet this at the time the application is approved your adviser will not put your name forward if your debt is close to the limit, as more interest being added could take you over the top.
Your adviser does almost all the necessary checks before submitting your application. This makes the process of approval very fast:
- there is no court hearing;
- no-one visits your house;
- checks are made on your credit reference file by the Official Receiver – if you appear to have assets or debts that are not listed on your application you will be asked about them. But you won’t be refused a DRO because you live with someone who has assets or a good income.
- DRO applications are usually handled within 2 working days of being submitted;
- more than 98% of DRO applications are approved.
I have collected together some common questions about the application process here:
When your DRO application is approved, you will be sent a letter by the Official Receiver (called the Debtor’s Notice) confirming this and listing the debts which are included in your DRO.
Will debt collectors stop calling after a DRO?
Could you get a payday loan refund?
A guide to Debt Relief Orders
Kerri says
I had a dro six years ago and have fallen into debt with my local authority, am I able to apply for another dro?
Sara (Debt Camel) says
You cannot have a another DRO within 6 years of your previous one. I suggest you talk to StepChange about whether a DRO is a good option for you now, or whether there are any other alternatives.
Peter says
hi there so I am eu citizen working in uk 10 years recently due bad luck i accumulate dept about 8k and lost good pay job since then i cant find decent pay job and work at retail ,i own on few rents and slowly paying off,i like to apply for dro and then go back to europe cause on minimal wage i am rally straggling and i have family at home who can help me not to become homeless or hungry every end of the month question is how would it work if i leave after dro to live in another eu country? many thx
Sara (Debt Camel) says
So far as I know there is no reason why you have to stay in the UK during the DRO moratorium year. You will need to report changes in your circumstances to the DRO Unit during the year. These would include not having to pay rent say if you moved in with a relative abroad. If you then got a job, your net income may be over the DRO level. I suggest you discuss these possible situations with a detb adviser who could set up a DRO for you.
Hannah R says
Hi i have been unable to find this answer anywhere I have 8 defualts from 2016 and one from early 2018 , I have applied for dro with stepchange and I have to now just pay the fee , my question is will all of those defualts now change dates from 2016 to 2018 or will they drop of in 2022 instead of 2026 , I know it’s only two years but hoping to move out in to rented accommodation and not sure what my best option is before I move out . Hope you can help thanks
Sara (Debt Camel) says
The default dates will remain what they currently are, new defaults will be added to any debts which aren’t currently defaulted.
Having a DRO on your credit record will make it considerably harder to rent, the defaults are less important. But if you aren’t renting now and you have less than £50 a month spare income, how are you going to manage to pay rent? Are you expecting your finances to improve a lot?
Jimmy says
Hi,
I was approved for a debt relief order last month, which was a great relief. My debts almost touched the 20k mark and my disposable income was at minus £79 per month.
Came home today and I have a letter from HMRC saying they owe me £1300 in a tax refund for tax year April 17 – April 18.
I know that I need to contact the insolvency service DRO office to tell them, do you think my DRO would be revoked because of this?
Also if I don’t tell them how can they find out?
Thanks in advance
J
Sara (Debt Camel) says
Read https://debtcamel.co.uk/dro-income-up/ which looks at this situation. £1300 is in the “discretionary” region – you should tell them promptly about this extra money as that is the best chance of them deciding not to end your DRO.
Wendy says
Hi Sara would I be able to put in complaints about unaffordable lending to companies such as shop direct and next if I have recently had a debt relief order put in place or would that be a bad idea? Thanks . Wendy
Sara (Debt Camel) says
It’s a very bad idea – a big refund could get your DRO cancelled… Same applies to PPI and payday loan refunds. See https://debtcamel.co.uk/dro-income-up/.
Wendy says
Okay thanks Sara for your advise. Wendy
Wayne says
Hi
Is it possible for you to give me some advice regarding my partners , she is about to enter into a DRO , at present she lives on her own with her 16 year old son , however I would like her to move in with me , will this affect her DRO , also what affect will this be on me .
Thank you in advance
Sara (Debt Camel) says
Affect on her DRO – Most single parents will have been on benefits. These will then change, possibly a lot, when she moves in with you (NB telling HMRC, the DWP and the local council that she has moved and has a partner is top priority after the move otherwise she will be over paid benefits and end up with them to repay.) On the other hand, her living costs will have dropped. She should make a fair contribution to your rent and utilities, not live with you “for free” It’s also reasonable that she should pay the expenses for her son – clothes, clubs, pocket money etc.
So this is very much case by case, but for many people there will be no change to their spare income, still having less than £50 a month, so the DRO will be unaffected.
She should talk to the adviser who is setting up the DRO about this as they will know the details of her case. In a few cases there can be other affects because she is moving, not getting a partner eg on on the repayment of any rent arrears she has.
There will be no effect on you if you avoid having any joint account, loan or mortgage with her for the next 6 years while the DRO shows on her credit record. Otherwise your credit score will be badly impacted by a link.
Claire says
Hi I have debt of £18000 I have been making token payments of £1 a month since 2014. They are showing as closed accounts on my credit file but no default date because I have been paying them regularly. There is no chance il ever be able to pay them back so would I be better off going for a DRO so at least they will fall off my account after 6 years?
Also if I do all the debt is in my name but do I they take my partners income into account for the DRO? Thanks in advance
Sara (Debt Camel) says
This sounds like a situation where a DRO may be your best option.
It is possible you could get default dates added (see https://debtcamel.co.uk/debt-default-date/) so they would drop off in 2010 or 2021. But you would still owe the money.
A quick check to see if there are other possibilities – what sort of debts are these? Who were the original creditors and have they all been sold to debt collectors?
Your partner’s income matters only because they should be paying their fair share of your household costs. If you both earned the same, it wouldn’t be fair for you to pay all the rent, council tax and bills.
Jackie says
Hi, I have been advised that a DRO with only affect my partners credit rating on a joint account If the account is overdrawn. Is this correct? Will it affect his rating if its one we both use, no overdraft?
The adviser also said that a mail order is still allowed as long as it doesn’t exceed a certain. Amount? I currently have £45 on a catalogue that’s not mine, but was used by a friend who wishes to pay (I’ve not yet fully applied for a DRO).
Can this mail order account whilst the DRO is in place? For minimal things? I don’t want credit but it doesn’t allow you to pay as you buy.
Sara (Debt Camel) says
“I have been advised that a DRO with only affect my partners credit rating on a joint account If the account is overdrawn. Is this correct? Will it affect his rating if its one we both use, no overdraft?” I don’t think that is right. A joint account creates a financial association, not the overdraft. One of you should get their name taken off this joint account.
The catalogue. If you paid it off as soon as you bought something, that would not be credit. You couldn’t buy anything on a buy now pay later deal. In general this is a very expensive way to buy things, so it may be best to give up the habit?
Jackie says
Thank you. That was my understanding regarding the account.
As for the catalogue. I only the facility that you get virtually everything from it. But yes you’re right.
Will it affect my application for a DRO the fact that it has £45 waiting to be paid/or be cleared by then?
Sara (Debt Camel) says
Other £45 has to be paid by the time your application is submitted OR it has to be listed as a debt on your application, in which case it can’t be paid afterwards.
Jackie says
Hi can you answer something for me please.
Can a debt relief order affect my current tenancy? I’m in social housing, no rent debts and I’ve never missed a payment. I can’t see anything in the tenancy agreement and wondering as I’ve been a tenant for 4years, unless they’re looking, would they know?
I understand only banks would be informed?
Many thanks
Jackie
Sara (Debt Camel) says
If you have no rent arrears there will no impact on your tenancy. Even if the social landlord knew, why would they case?
(There is only one minor exception, which is that it could affect your ability to buy under the Right To Buy. But if you qualify for a DRO it is highly unlikely you would be able to get a mortgage offer anyway.)
Jackie says
Thank you for answering that. Exactly as you said, as I qualify for a DRO it would affect my right to buy, I did consider this but my chances are shot anyway.
Do many succeed in years to come however? I’m not the breadwinner in my family, therefore in the future would only look to be a second name? I understand it takes time to rebuild but is this actually impossible or do you know of success rates here… People rebuilding? Or do we stay this way for life
I’m grateful for your advice.
Sara (Debt Camel) says
oh yes, people do get mortgages after 6 years when a DRO (or bankruptcy or an IVA, they are all the same for your chance of getting a mortgage in future) drops off your credit file.
You may be asked on a mortgage application if you have ever been insolvent (which is what a DRO is) and you have to say yes, but go through a broker and there will be high street lenders that won’t care about your ancient credit problems and will offer you a mortgage at a good rate.
A DRO gives you a clean start.
Jackie says
Thank you. This is very much appreciated. I’ve been in turmoil as to what to do. However the final straw was getting a CCJ, then I was told I had little chance of building up credit ratings anyway. So that I understand. Apparently the impact of the DRO is not much more than that if CCJ? My reason for going for DRO.
What I wasn’t sure of was the full long term impact of a DRO, it sounds so final. I thought no one would look twice in the long term (even though I’m standing no chance currently as I can’t get in top of things)
My intermediary has advised lots but I forget to question things like this. I have a phone contract too, Been with o2 for 20yrs, never missed a payment. I’m hoping they don’t revoke my contract but they stand not to get their money on handset so hopefully not. They’ve always honoured my updrade yet other networks wouldn’t entertain me. Might not with DRO showing on my credit file at time of contract renewal I daresay
Sara (Debt Camel) says
An unpaid CCJ on your credit record makes it VERY hard to get any credit.
re your mobile contract. You do need to talk to your DRO adviser about this. If they think you will have problems, you can get a SIM card then just pay monthly for that. But most people don’t find mobile contracts after a DRO are a problem.
Jacqueline May says
Hi i want to apply for a dro there all in my name does my partner income count towards a dro
Sara (Debt Camel) says
Your partner’s income only matters as they will be expected to pay a fair share of the household costs. So if you both have the same income, you would each be expected to pay half of the rent, council tax, bills. See https://debtcamel.co.uk/dro-applications-faqs/ for other questions you may have about the application.
The adviser that sets up a DRO will explain everything in detail. It’s good to make a list of questions to ask – there is no such thing as a silly question!
Michelle says
A relative on ESA has recently agreed an iva based on being told ccj for an old debt would disqualify her has she been mis advised and is it too late for her to apply for a DRO
Also when applying is there a difference between husband and partner.
Thanks
Sara (Debt Camel) says
She was told she couldn’t have a DRO because she had a CCJ? Or was this because the CCJ amount would have taken here over the 20,000 limit? How old was this CCJ?
Debbie says
Hi,
I’m after a bit if advice about a dro please. I do fit the criteria, live in rented property, have no assets, no car, on benefits.
I owe approximately £14,000 spread over 3 credit cards. I would say 90% of this debt is due to gambling. I had my light bulb moment six months ago and hung my head in shame at the amount of debt I had through gambling! No credit card has been used since. I’m just finding it so hard to even make the minimum payment every month, I haven’t missed any payments yet because my family have been helping me out each month.
My questions are,
Will I be able go get a dro because of the gambling.
Can the credit company object to the dro and could it be revoked.
If I got a restriction order say for 4 years would the debt still be written off after 12 months or would I have to wait until the 4 years was up.
Thanks for any assistance you can give me.
Debbie.
Sara (Debt Camel) says
Well done for getting through 6 months free of gambling. This is a good point to sort out your debts – you can’t carry on with your family having to help you.
Yes, you can get a DRO if you fit the criteria – gambling will not prevent this.
No, a credit card company can not object on the grounds that you had been gambling. And your DRO cannot be revoked because of gambling.
Your debts are still written off at the end of the 12 months. there is an exception if a debt was obtained by fraud, but this doesn’t normally happen because of gambling even if you applied for credit and your application wasn’t accurate.
Debbie says
Sara, thank you so very much for your quick reply.
You have certainly put my mind at rest. I’ve had nightmares of being led to the gallows or flogged in public, my imagination has been running riot!
It is now time to sort my life out and get back on track, the first step to that is sorting these debts out. I will be getting in touch with CAB on Monday to get an appointment and start the ball rolling.
Once again Sara many thanks.
Debbie xx
Martin says
Hi Sara,
First of all, thank you so much for all the time and effort you put into this website. It’s an invaluable resource, and you should be very proud!
I have a quick question about what happens after a DRO has been granted.
What happens if creditors included in the DRO continue to add interest and charges during the moratorium period? At the end of the moratorium period, do you still owe the difference between the debt figure listed on the DRO application and the balance at the end of the 12-month period?
Also, if interest and charges added during the moratorium period cause the total value of your debt to breach the £20,000 limit, does this mean that the DRO will be revoked, or is it just important that your debts are below £20,000 at the time of application?
Thank you,
Martin
Sara (Debt Camel) says
A DRO freezes your debts. All that matters is that you are below the £20,000 when you apply. At the end of the year your debts are then written off.