A Debt Relief Order (DRO) is a simple and cheap alternative to bankruptcy if you are renting and have little money to spare each month to repay debts.
A DRO lasts for 12 months and during this time you must inform the Official Receiver (OR):
- if you receive any money or other assets, or
- if your income increases.
If this happens, the Official Receiver (OR) may ‘revoke‘ your DRO. This means the DRO is cancelled and you are back owing your debts. But this doesn’t always happen – the OR has discretion about whether to revoke a DRO.
Only one in a hundred DROs are revoked – so it’s really rare!
The DRO limits on assets and spare income
(New DRO limits are being introduced from the end of June 2021.)
DROs have two important limits which matter if you get some more money:
- you cannot get a DRO if you have more than £50 ‘spare’ income each month that you could pay towards your debts (this goes up to £75 at the end of June 2021);
- you cannot get a DRO unless the total value of your assets is less than £1,000 (this goes up to £2,000 at the end of June 2021)
If you get some extra income each month thus may take you over the “spare income” limit. If you get a lump sum of money. this may take you over the total asset limit.
In these cases the Official Receiver will decide if your DRO should continue or if it will be revoked – the legal term for cancelling your DRO.
My income has increased
You usually need to inform the DRO Unit of any increases in your income, but it is unlikely that small increases will result in revocation unless you were close to the surplus income limit when your DRO started.
You don’t have to tell the OR if one of your benefits has gone up, usually in April, because of a small inflation rise.
Coronavirus – there is a new temporary exception for this.
You don’t need to tell the DRO Unit about the increase in universal credit, the extra £150 a year of extra Council Tax Support you may be getting, any extra overtime you are having to work or if you get the government self-employed grant.
If you do get a pay increase, don’t forget that you have to pay tax on the increase, your pension contributions may increase, and any benefits such as Universal Credit, Child Tax Credit or Housing Benefit may be reduced if you are earning more.
A new Income and Expenditure assessment may be needed, so any increased costs will be taken into account. For example, if your benefits went up because you have had a baby, your costs will also have gone up. Your advisor will be able to help with this.
If your income hasn’t permanently changed, for example you did some overtime one month, then the OR is more likely to treat the extra money as a one-off payment than as additional income.
If you aren’t sure whether you should tell the DRO Unit,
talk to the adviser who set up your DRO as soon as possible.
I have received some money
In a DRO, the money you get is not “at risk”. Unlike in bankruptcy or an IVA, it won’t automatically be taken to pay your debts. But if getting this money means that your DRO is ended, you may need some or all of the money to settle your debts or pay bankruptcy fees.
You must inform the OR about any money or property you receive. This includes:
- money or property you inherit;
- money received from PPI or similar reclaims such as payday loan refunds;
- lottery or other gambling winnings;
- a lump sum from benefits back-dating;
- a tax refund or correction to your previous year’s tax credits;
- money from the settlement of a court case.
You should do this as soon as possible, even if you think the money is going to be covered by one of the situations mentioned below. If you aren’t sure whether you should tell the DRO Unit, talk to the adviser that set up your DRO as soon as possible.
Some special cases:
A lump sum from benefits back-dating
Here it depends on what the benefit is.
If the backdating is for PIP, DLA, Attendance Allowance or Severe Disability Premium, it will be treated as covering additional disability expenses you had, and your DRO will not be affected.
If you get a lump sum for backdating of other benefits, for example ESA, this is treated as getting a lump sum of money and, depending on how large it is, could lead to your DRO being ended. See The amount you receive is important below for details.
A settlement for a Personal Injury
Sometimes this will not affect your DRO even if it a large amount. The DRO guidance says:
Personal injury payments received during the moratorium period will be dealt with depending on the composition of the payments (special and general damages). If the compensation relates solely to general damages and is received during the moratorium period, this will not adversely affect the DRO so long as the funds are used only for living expenses and not converted into tangible assets.
Your solicitor will be able to explain whether you are getting general or special damages (or a mixture). Broadly general damages are compensation for pain and injury and these will be ignored by the OR but you shouldn’t use the money to buy an asset until your DRO has ended.
This case is covered in more detail in a separate article: Inheriting money when in a DMP, DRO, IVA or bankruptcy.
Money for a special purpose
The OR will take this into account. For example you may have been given a bonus by your employer to spend on training.
The amount you receive is important
If the value of the lump sum is less than £1,000, your DRO will not be revoked if you have notified the DRO Unit promptly and the money is less than half of your debts.
If the lump sum is between £1,000 and £1,990, your DRO will usually be revoked, but this doesn’t always happen. The OR has discretion and a decision will be made looking at your individual case. This could include taking into consideration the size of your debts, health, personal circumstances, age, etc.
For lump sums over £1,990, it is very likely that a DRO will be revoked, but the OR does have some discretion so you should point out any factors you think should be taken into account.
These figures are likely to be doubled from end June 2021 when the allowable asset limit in a DRO goes up to £2,000.
How often is a DRO revoked?
In November 2018, the 250,000 DRO was set up. At that date there had been 2,437 revocations, so about 1% of all DROs.
Not all those revocations were because of someone getting extra money. They also include all the cases where a DRO was revoked because someone had had debts that exceeded the total limit.
So you can see that the number of people who have problems with additional income or a large windfall is small.
It is extremely rare for a DRO to be revoked after it has completed. These are called Post Moratorium Revocations and the Official Receiver has to go to court to get one.
My DRO is being revoked – what should I do?
If your DRO is being revoked, you need to find an alternative debt solution. Obviously if you have inherited a lot, you can pay all your debts off! The other main possibilities are:
- using a windfall to make full and final settlements on your debts;
- a Debt Management Plan; and
- bankruptcy. In practice bankruptcy has much the same effect on you as a DRO, so you can just use some of the money you have received to pay the bankruptcy fees. Your debt adviser can explain how to apply for bankruptcy.
Implications if you are looking at getting a DRO
When you talk to a debt adviser about whether a DRO is right for you, do mention if you think your income may increase soon or you may get a lump sum payment:
- if you expect your finances to recover quickly – perhaps you have been made redundant but expect to be able to get a job soon – then you probably shouldn’t thinking of a DRO. Have a look at a token payment DMP instead until you see how things turn out;
- if you think you may get a lump sum in the next twelve months – from PPI, payday loan refunds, a court case, or backdated benefits – then it would be better to wait and see if this happens before deciding on a DRO. If you get enough money you may not need the DRO at all! And if there isn’t enough money for that, you can still choose to spend some of the extra money on essentials that you need and then go for a DRO.
But unless you have some specific reason to think things will change in the next year for the better, I wouldn’t let worries about whether your income might increase or you might get a lump sum stop you going for a DRO.
As you can see from the statistics above, revocations are pretty rare!
If you want to know more about DROs read this Guide to Debt Relief Orders.