Debt Relief Orders (DROs) are the simplest form of insolvency in England, Wales and Northern Ireland. Almost all debts can be included – student loans are the only common exception – and at the end of a year, the debts included are wiped out.
This Guide to DROs lets you:
- see if you are likely to meet the DRO criteria;
- decide if you have any better options for tackling your debt situation;
- find out how a DRO is set up;
- look at what can happen during a DRO and after it ends;
- see news items about DROs.
Do you qualify for a DRO?
There are strict criteria to be allowed to start a DRO including not owning a house, having less than £20,000 in debts (this went up last year from the old limit of £15,000) and having little spare income each month. For the full criteria you have to meet and a general overview, including how a DRO is set up (you can’t do it yourself), read:
The DRO rules can’t be fudged:
- you can’t leave a debt out of a DRO
- you can’t have a house, even if there is a lot of negative equity
- types of debt that can’t be included in a DRO.
The “no more than £50 a month spare income” rule 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 all your income is from benefits you will pass this test even if the income sounds high because of disability benefits.
If you are unsure if you qualify for a DRO, talk to one of the charities that sets up most of the DROs: Citizens Advice if you prefer to do this face-to-face, or StepChange 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?
DROs are meant for serious, long-term debt difficulties. If your debt problems may be temporary – perhaps you expect to get a well-paying job soon – you shouldn’t choose a DRO, instead look at the option of a Debt Management Plan.
But if your debt problems aren’t likely to be quickly resolved and you meet the DRO criteria:
- a DRO is better than most other debt solutions;
- better than an IVA or DMP because you don’t have to make any payments and it is over much quicker;
- better than bankruptcy because the fees are much lower and the procedures simpler.
One alternative that can work well for some people is Full & Final Settlement offers if you could get a lump sum, for example by making PPI claims (this is now much simpler and quicker than it used to be, see Five great reasons to reclaim PPI ) or from your pension if you are over 55. 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 PPI money to make your debts manageable, you can then choose a DRO.
What can happen during a DRO and at the end
Some common questions people have about DROs include::
- Will debt collectors stop contacting you?
- 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
- Your pension and your DRO
- How does a DRO affect your credit record?
- How a DRO affects PPI claims – you should not try to reclaim PPI whilst you are in a DRO. People who have had a large pay out have had their DRO revoked. If you are sent a PPI check for an old claim that had been rejected (this is very rare!), read My DRO is being revoked because of PPI.
After the DRO year has finished:
- What happens at the end of a DRO?
- How to improve your credit record after a DRO
- Is it possible to cancel 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 – more people choose a DRO than bankruptcy now. 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 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 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.