Debt Relief Orders (DROs) – answering your questions

A Debt Relief Order is a very simple and cheap form of insolvency in England, Wales and Northern Ireland.

This article is an in-depth guide, so you can:

• see if you are likely to meet the DRO criteria;
• decide if this is your best option for your financial problems;
• look in detail at what can happen during a DRO and after it ends.

Update – the DRO limits described here are being reviewed and they may be increased in May 2021.
See Proposed DRO changes for details. 

An overview of DROs

Read What is a Debt Relief Order (DRO)? for an overview of DROs and how they work.

In a Debt Relief Order (DRO):

• you pay one £90 fee at the start;
• you don’t have to make any monthly payments at all;
• your creditors can’t chase you, take you to court or send round bailiffs;
• at the end of a year, your debts are wiped out.

Most types of debts can go into a DRO, including any CCJs and bills such as council tax and utilities. Student loans are the most common exception.

There are strict criteria to be allowed to start a DRO including not owning a house, having less than £20,000 in debts and having very little spare income each month.

Do you qualify for a DRO?

The DRO rules can’t be fudged:

• you can’t choose to leave a debt out of a DRO to get under the £20,000 limit (but this limit may be increased in May 2021);
• you can’t own a house, even if there is no or negative equity in it or if it is not possible to sell it;
• some debts can’t be included in a DRO, see this list.

The hardest rule for most people to understand is that you can’t have a DRO if you have  “more than £50 a month spare income” (this limit may be increased to £100 in May 2021):

• this is the amount of money you have leftover after paying your bills (rent, council tax, utilities, TV license, mobile etc) and your other expenses (groceries, toiletries, clothes and school uniforms, petrol, bus pass etc)
• it doesn’t take into account the payments you are currently making to your debts, because these payments stop in a DRO.

This may be difficult for you to assess – even if you would be paying more than £50 a month to a DMP or IVA, you may still pass the DRO check as the calculations are different.

If your only income is from benefits you will pass this test even if your income sounds high because of disability benefits – this is because for disability benefits you are allowed to include an expense line for “adult care costs” which is how much you are getting in disability benefits. This is sensible – you are getting PIP for example because you have higher than normal expenses.

If you are unsure if you qualify for a DRO, talk to one of the charities that set up most DROs: Citizens Advice or National Debtline on 0808 808 4000 if you prefer to use the phone.

If you don’t meet the DRO criteria, they will be able to help you look at your other options.

Is a DRO your best option?

If your debt problems aren’t likely to be quickly resolved and you meet the DRO criteria, a DRO is almost always better than most other debt solutions:

• It’s better than an IVA or DMP because you don’t have to make any payments and it is over much quicker.
• It’s better than bankruptcy because the fees are much lower and the procedures simpler.

DROs are meant for serious, long-term debt difficulties.

If your debt problems are only temporary – perhaps you expect to get a well-paying job soon – don’t choose a DRO. Instead look at the option of a Debt Management Plan – if you can’t pay much now, you can offer a token £1 a month to each debt until things get better.

And if you expect to get a chunk of money in the next year, a DRO is usually best avoided. See a reader’s question about the timing of a DRO and redundancy for an example.

One alternative that can work well for some people is Full & Final Settlement offers if you could get a lump sum, for example by getting payday loan refunds.  If you think this might be a possibility, don’t opt for a DRO, instead start a Debt Management Plan even if you can only make token £1 a month payments.  If a few months later you don’t get enough money to make your debts manageable, you can then choose a DRO.

Applying for a DRO and what happens afterwards

Your DRO Adviser is the best person to ask any questions about the application process, but I have gathered together some common ones here:

• FAQs about DRO applications.

Some common questions people have about DROs include::

• Will debt collectors stop contacting you?
• How does a DRO affect your credit record?

What happens in a DRO

No-one monitors what you spend your money during a DRO. It is very non-intrusive!

But you have to inform the Insolvency Service if your income goes up or you get a lump sum of money. Or there is some significant change in your circumstances.

• What happens if your income goes up? – if your income goes up or you acquire some money – perhaps from an inheritance or a PPI payout – you need to inform the DRO Unit.
• What happens if you move in with a new partner? here your income and expenses may change.
• What happens if you inherit money? You get to keep the money but it’s likely your DRO will be cancelled if you inherit more than £1000. If there isn’t enough money to repay your debts, you should consider “disclaiming” the bequest.
• How a DRO affects refund claims  – you should not try to reclaim PPI whilst you are in a DRO. People who have had a large payout have had their DRO revoked.
• Can I give my daughter in a DRO a car? – a reader’s question… I look at the alternatives.
• Your pension and your DRO – you must not take any money out from your pension whilst you are in a DRO.

What happens after a DRO ends?

The debts that were listed in your DRO application are wiped out.

• What happens at the end of a DRO?
• How to improve your credit record after a DRO
• DROs and your credit score – this looks at whether you can ever get a mortgage after a DRO.

Why no-one talks about DROs

You may wonder why you have never heard of a Debt Relief Order. They aren’t complicated, expensive or unusual. There have been 250,000 DROs in the last ten years – more people choose a DRO than bankruptcy!

But no-one makes any money from them. The DRO fee is only £90 and the organisation that sets up your DRO will only get £10 of this. As a result, almost all DROs are set up by charities.

Fee-charging debt management companies and IVA firms are supposed to give people good advice on what their debt options are, but the regulator says this often isn’t happening. If you look at DMP and IVA firms websites and adverts, many of them simply ignore Debt Relief Orders. That doesn’t mean that DROs are a bad option if you have debts – just that they aren’t a profitable option for those firms.