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 in this article are the new limits that are being introduced from the end of June 2021. So if you are applying for a DRO now, they will be the ones that are relevant for you.
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 £30,000 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 £75 a month spare income“:
- 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 £75 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:
Some common questions people have about DROs include::
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 £2000. 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.
Sylvia says
Dear Sarah! I definitely qualify for a DRO, I have spoken to a debt advisor. I meet all criteria, however I am baffled on a particular thing and didn`t find any information. I have a share in a property overseas (EU), which would cover my debt- around 5K. However it is not easily marketable, as my sibling is the other owner, plus my Grandma, who under the country laws has usurer rights and according to this upon a sale, 20% of the sale price would be for her and the rest would be between me and my sibling. The property has numerous problems on the top of it as some of the plots around it are in a shared ownership and we couldn`t agree with those people for many decades. Can a sale be forced on them just because of me? If it would be a forced sale, I assume it would be for a very low price, which I must avoid at all costs. Do I need to declare such a problematic property or I have to show the legal background to prove what I say? What to do in a situation like this?
Sara (Debt Camel) says
Sorry but you don’t qualify for a DRO because you own a property.
You have to declare the property and that rules you out, it doesn’t matter that it can’t be sold…
How large are your debts? How old are they?
Sylvia says
The debts are 6-8 years old, around 5000 pounds. My husband has around 11000 thousand under his name. He has no assets. Can he apply only himself, because of the property under my name. I inherited from my mum. How is considered the monthly surplus income when you are a married couple in a same household? Is it halved by 50-50?
Sara (Debt Camel) says
Yes your husband could apply for a DRO – your property will not affect that.
When drawing up the income & expenses for someone in a couple, the Joint expenses such as rent, utilities are usually divided according to who has the most income. So if A’s income is twice as much as B, then A is normally expected to pay two thirds of the rent and bills. A DRO adviser will go through this in detail.
Sylvia says
Thank you so much for your answer, I will consider it.
Harry says
Hello Sara,
I am renting a 3 bedroom property even though I am only eligible for a 2 bedroom under Universal Credit. One child is at university whilst the other now works and lives an hour away and often visits. Obviously I would like to live in what has become “my” family home. I have it now on a very good rate as I have been here for 7 years, and most 2 bedroom properties in the area rent for the same or more than the one I am currently in. If I moved to a different local town, the 3 bedroom properties are still more than I am now paying now but it does have some 2 bedroom properties which are less desirable for approximately £250 less per month perhaps even £350. These aren’t the sorts of areas I would feel secure in. Would I be rejected for a DRO because a DRO officer would deem my rent too high as it would be possible to rent more cheaply if I moved to a more undesirable property?
Thank you in advance.
Sara (Debt Camel) says
It is unusual for your choice of where to live to be questioned, but talk to a DRO adviser about this.
After all the child at uni still lives there for more than a third of the year. And moving to a 2 bed locally would not save you money.
Harry says
I appreciate this very much. Thank you.
Ben says
Hi.
I was wondering if there has been any news on the possible increase to the D.R.O?
Thankyou
Ben
Sara (Debt Camel) says
yes – the Insolvency Service is now expected to announce what the cahnges will be after the May elections and they may be introduced and June-ish.
Jules says
I have contacted Stepchange today and was told that I meet the criteria for a DRO for my old debts of 11K. I am a full time mature student and was fortunate to secure a bursary last year of £1500 – £500 per term – and am worried that if I should secure it again next year this will affect my DRO if I decide to go ahead with it. I presume it is considered an increase in income. I know the bursary is not taken into account as income for benefit payments, would you know if it is treated as income on a DRO? Thank you.
Sara (Debt Camel) says
is this your only income apart from benefits?
Jules says
I have taken out student finance (maintenance loan), I receive child tax credit, child benefit and receive approx. 40% of my rent in housing benefit.
Sara (Debt Camel) says
in that case I think you should be fine – but do explain what will happen to the adviser at StepChange – they need to know your full situation now and what might happen in the next year.
Jules says
Ok brilliant, thanks Sara
Tina says
Hello Sarah ,
I’ve entered the dro 2 months ago.
Everything was fine until yesterday when i’ve received the bad news that my mum had a stroke and she’s in the hospital!
I am planning now to go back to my country as soon as possible!
I don’t know how long I have to stay there, it all depends on my mother’s condition!
I know that I must inform the official receiver of any changes, including a change of address !
I am on universal credit +furlough at the minute but if i go back to my country and if
stay there for more then 2 months i will ptobably lose my universal credit and the furlough !
My question is how this going to affect my DRO?
Sara (Debt Camel) says
Yes you need to tell the OR where you are going. Explain the circumstances, say you don’t expect to be working abroad, but if you earn anything you will inform the OR.
As your income seems likely to fall it can’t harm your DRO.
Talk to your local Citizens Advice about your benefit situation while you are abroad and any concerns about retaining your tenancy.
Tina says
Thanks very much Sarah for your advice, appreciate it
Frank says
Hi Sara,
I’m worried ill be made redundant and am now living abroad..
Can I apply for DRO from outside of the U.K.?
Sara (Debt Camel) says
I agree with this comment made on another page: https://debtcamel.co.uk/proposed-dro-changes/comment-page-1/#comment-418361
Bev says
Hi. I had a DRO in Aug 17 every company satisfied the debts at that date so they all dropped off when the DRO ends. However United Utilities satisfied them a year later Aug 18? So basically the DRO ends Aug 2023 but these two stay on an extra year? Is that correct? As every other company satisfied them on the DRO date? I thought they have to last 6 years as UU debt is then 7 years? Thanks in advance Bev
Sara (Debt Camel) says
UU should have added a default of the start date of your DRO. See https://debtcamel.co.uk/repair-credit-record-dro/. As UU to correct this.