In 2021 the rules about who can have a Debt Relief Order (DRO) were relaxed so a lot more people qualify. For example, under the old rules your debts had to be less than £20,000 – now they can be up to £30,000.
The Insolvency Service thinks an extra 13,000 people a year may now qualify for a DRO. Are you one of them? If you are in an IVA, you are renting and your IVA payments are less than about £120 a month, you may be much better off switching from an IVA to a DRO.
This is especially important if you are early in your IVA or if you are finding the IVA payments difficult and you are not sure you will be able to get to the end.
And in 2023 many people are struggling with their IVA payments because of the cost of living.
Contents
Why a DRO is better than an IVA
If you qualify for a DRO, it will be better than your IVA in three ways:
- You don’t have to make any monthly payments in a DRO. After paying the £90 DRO fee, that’s it, no more payments.
- A DRO only lasts for a year – at the end of twelve months, your debts are written off. So if your IVA has years to go, a DRO will clear your debts more quickly.
- DROs very rarely fail – only about 1% go wrong. A lot of IVAs fail, possibly about 30%, when people can no longer manage to make the monthly payments.
So for most people a DRO is much cheaper, shorter and less risky than an IVA.
When you started the IVA it probably felt like the answer to all your money problems. But if you don’t think you can get to the end of your IVA, it’s better to face up to this now, not try to postpone the decision.
You aren’t alone in this situation, debt advisers are seeing more people wanting help with an IVA they can no longer afford. Often nothing can be done to rescue a failing IVA.
Your IVA may have been sensible when it was started, but a change in circumstances (pay drop? higher bills? new baby? separation?) may now be making it hard to afford the payments.
Perhaps a DRO would always have been better than an IVA for you but no-one explained this at the start. Or a DRO may now be right for you because of the relaxed rules.
Cost of living increases mean many IVAs are now unaffordable
Increased, food, energy, petrol and other prices means that in 2022 many IVAs that were previously manageable have become unaffordable.
In June 2022, new guidance was issued by the Insolvency Service – see Help with IVAs if you can’t pay because of the cost of living where I look at the new guidance and the options it now gives you.
In trying to reach an agreement with your IVA firm about this, it will help a lot if you know whether you will qualify for a DRO. If you do qualify for a DRO, one option is to fail the IVA and now get a DRO. But another option is to ask your IVA firm to propose to your creditors that your IVA is completed “on the basis of funds paid to date”. This would then all be over quicker for you.
Find out if you qualify for a DRO
As you are thinking about a major change, you must make sure you would qualify for a DRO, not just assume that you will.
Unlike the other main debt solutions (debt management, bankruptcy, IVA) there are some very specific checks that you have to pass to qualify for a DRO. The main ones are:
- your debts have to come to less than £30,000;
- you can’t own a property. This is a strict rule – it doesn’t matter if there is negative equity, if you don’t live there, if it can’t be sold… it will still stop you qualifying for a DRO;
- a car you own must be worth less than £2,000;
- you can’t have had a previous DRO within the last six years;
- you have little spare income (under £75) each month after all your expenses.
(The DRO limits described in this article are the new limits that are being introduced from 29 June 2021. If you see other articles on the internet with other numbers, then they haven’t been updated for the new rules.)
The “under £75” spare income is the hardest for you to assess.
Your IVA firm may have said you can afford to pay £95 a month to the IVA – that sounds as though it is more than the £75 maximum allowed for a DRO… but the DRO calculations are different, you may be allowed more money for some expenses than your IVA firm permitted.
As a rule of thumb I would say that many people paying £100 a month to an IVA may qualify for a DRO now. And some people paying more, say £120, may qualify.
If your only income is from benefits then you will always qualify for a DRO (providing you meet the other criteria, eg your debts are under £30,000). This is even if you get a lot of disability benefits, because a DRO allows for your extra disability costs.
The best thing to do is to talk to an adviser who can look in detail and say if you can have a DRO. I suggest you call National Debtline on 0808 808 4000.
The answer may be that you don’t qualify for a DRO, but you may have other options the adviser can help you consider. If your IVA is unaffordable but your debts are too large, bankruptcy may be a better choice. A debt management plan usually isn’t – even if would have been better at the start, now you have the IVA on your credit record it is usually best to carry on with it.
Is switching to a DRO a good idea?
If you are told you will be able to get a DRO, you need to decide if it is a good idea to end your IVA and start a DRO.
This mainly depends on how far you are through your IVA.
If you are early in your IVA
If you are having problems in the first half of your IVA you may never get to the end of it, so taking action now is a good idea.
A DRO will be all over in a year and you don’t have to make any payments in that year at all.
The only downside is that the DRO will be on your credit record for six years, but that’s usually pretty minor as your credit record is already very poor because of the IVA.
If you are in the second half of your IVA
When you are over half way through your IVA, a DRO may still be your best move but look at other options first and talk to your IVA firm about these. Tell your IVA firm that you have looked into a DRO and you would qualify for one but you want to know what your alternatives are.
Two possible options to discuss with your IVA firm are:
- reducing your payments to an affordable level. Your IVA firm will be able to reduce them by 15%. If a larger cut is needed, your creditors would be asked to approve this;
- finishing your IVA on a “funds paid to date” basis. This is completing your IVA so your debts are wiped out, not failing your IVA. It would mean you don’t have to pay any more. The further you are through your IVA the more likely this is to be approved – in your last year this should definitely be tried first, rather than failing the IVA and starting a DRO!
You should be wary of your IVA firm proposing things that will mean your IVA goes on for even longer. For example they may say they will accept lower payment if you add an extra year on. Sometimes a payment break of 6 months can work well, but is it likely your situation will have improved at the end of it? The longer your IVA will continue for, the more attractive the idea of stopping it and getting a DRO is.
Also be careful about a reduction in payments – lower will obviously be better, but will you still be struggling? Don’t think lower must be affordable, think how long your IVA will go on for and whether you are likely to get to the end.
How do you change to a DRO?
There isn’t a simple way to switch over. Your IVA needs to fail first, so you have to stop paying. Tell your IVA firm that you are stopping making your IVA payments and that you want the IVA to fail as soon as possible.
Don’t worry that you will get hassled by your creditors when you stop paying the IVA firm. They can’t do this until the IVA has terminated.
It will take a few months to fail your IVA. During this time your debt adviser can get your DRO application prepared so it can go in quickly after your IVA is formally marked as failed.
What happens when an IVA fails?
What happens if you can’t afford your IVA?
Inflation? Get lower IVA payments
Ms Tracy Hill says
hi,
i am unemployed and having problems paying my iva. i have used up all of my payment breaks so creditfix tried to get my iva paid off with what i had paid already which the creditors rejected. i am now trying to change over to a DRO but still waiting for them to get back to me. your advise is very helpful.
Sara (Debt Camel) says
You are renting? Your debts are less than 30k? Do you have a car?
Tracy Hill says
Yes, I am renting, don’t have a car, and no savings left. Only getting universal credit at the moment so trying to survive on £650 each month is hard.
Sara (Debt Camel) says
Then it sounds as though you are very likely to be eligible for a DRO. What is the chance if you finding a good job in the next year?
Ms Tracy Hill says
i am looking for work from home jobs due to my health and have hopes i should get something soon but they are usually short term contracts or at least the ones i have had in the past year have been.
Sara (Debt Camel) says
I think you should talk to National Debtline on 0808 808 4000 about your options. If you can’t pay the IVA it waill fail. endless breaks don’t actually make progress in getting you out of debt. A DRO may well be a good option for you.
Jb says
I am at the end of my Iva it was supposed to end in 2021, they are saying I now owe £4000 due to a change of circumstances as I was unemployed and went to employed, they want £400 a month which I can’t afford I’ve sent in expenditures, wage slips, bank statement you name it and they just ignore me they told me at Christmas that it was being sent to my creditors for review but never came back to me and now want me to start all over again, I just don’t know what to do I can’t afford to pay what they want I’m a single parent I’ve not worked for a year as I almost died from covid and there is no help anywhere
Sara (Debt Camel) says
Can I ask if you are renting? Do you own a car worth over £2,000?
How large were the debts that went into your IVA?
And which IVA firm is this?
Km says
Hi Sara,
Please could you help me. I am in my 3rd year of my Iva started January 2020, again like the others I was not advised of a dro and felt pushed into an iva when I was struggling with the debt. My Iva are currently wanting an updated i&e plus bank statements etc, i am currently paying £100 a month to catch up with arrears. Would you advise it’s best to carry on with the Iva for next 3 years, or have this fail and go into a dro, only because I cannot afford to pay more than £100 a month, I now have a job yet when my last i&e was done in 2021 I was only on UC getting £500 a month I have a child and they still expected me to pay £80 even though I was in negative after my I&e was completed. The company my Iva is with have gone into administration, I just feel lost whether to continue the payments for the next 3 years or start again but then having a negative impact on my credit file for the next 6 years instead of 3, I have a car on finance which is up in July with a balloon payment of £5000 which I will not be able to afford.
Thankyou
Sara (Debt Camel) says
Can you manage without the car?
Km says
Yes I can manage without the car, I’m currently in the process of adding it to my Iva, I have had to pay a lot of money out to have the car fixed and cannot afford it anymore.
Thankyou
Sara (Debt Camel) says
So the question for a DRO is after you stop making payments on the car, how much surplus income will you have? I suggest you talk to National Debtline on 0808 808 4000 about this. If they say you will qualify for a DRO, they can talk you through the pros and cons of failing your IVA and going for a DRO.
Tracey says
Hi I’ve terminated my iva as it was presure. I was scared of bailiffs I live alone I’m a tenant I don’t drive and have no assets my debt is under 30k and I’m on benefits I suffer from depression and anxiety. And I wondering if I can go for a dro I only have 36.00per month left
Sara (Debt Camel) says
I think you should talk to a debt adviser straight away about this. Go to your local Citizens Advice, or if you would prefer the phone call National Debtline on 0808 808 4000
Tracey says
I have spoken to stepchange they recommend. A dro but have to wait as missing sold a iva used my housing and disability. Benefitsfit foe extra income and made myoutgoings more so it looked like I could have £-00.00left per month this was not right I terminated after proposal and been told I could have a 3month wait for letter. From I v a and now I have seen they charge fees too no payment I made to them not one so I termination letter I can’t wait 3months it’s frightening as I was only in a proposal please what can i do
Tracey says
I’ve been told by stepchange that the I p could send a letter or email to say that the iva is cancelled so at least it could be quiker I could send to stepchange and money wellness so I can get a dro
Sara (Debt Camel) says
So you have stopped paying the debts in your IVA?
And you haven’t made any payments to the IVA?
Are there any debts not included in your IVA that will go into a DRO?
Are you paying any council tax?
What debt have you been contacted by bailiffs about?
Who is your IVA firm?
(sorry for all the questions!)
Tracey says
I have been informed I do not need termination letter of iva as it was only a propsal not approved and no payments made so I was only with it 10days so I can go ahead with dro
Sara (Debt Camel) says
OK in that case you can have a DRO now. Your name would not be on the Insolvency Service register as having an IVA until after it was approved.
Jane says
Hi I’ve been in iva now for 18 months .now not in work suffer with depression and Iva just wants to put me on payment breaks
Help how do I apply for a dro I’m worried sick
Sara (Debt Camel) says
Can I ask how large the debts were going into your IVA? How much you were paying a month before you lost your job? Were these payments easy to manage at that point?
Are you buying or renting? Do you own a car that is worth more than £2,000?
Tracey says
Hi I was missing sold a iva as I was unemployed. and on benefits you will need a termination letter and apply for a dro which has a one of payment of 90.00 and if after a year no change it gets all bills written off
Jane says
Roughly 11,000
£80 a month ..I now have no income at all my son is covering all household bills
Renting
Sara (Debt Camel) says
You may well be eligible for a DRO.
Are you claiming any benefits?
How long ago did your IVA start and how many payments did you make?
Jane says
Iva started 22.
I’ve made 16 payments none since unemployed so 1 missed.
I’m not claiming benefits as past experience they got me in more debt due to over payments and fluctuations in council tax benefit..
Sara (Debt Camel) says
I understand what you are saying, but it seems hard for your son to have to make all the payments for what may be a prolonged period. I think you should reconsider applying for Universal Credit and council tax benefit.
Were the £80 a month payments hard to afford before you lost your job? If they were, then it makes sense to look at a DRO now. I suggest you go to your local Citizens Advice and get advice about a DRO – this isn’t something you can apply for yourself, it has to go through an approved DRO adviser. Citizens Advice can also talk about benefits.
Jane says
I know I can apply for a dro I’ve spoken to step change .
It’s the iva company that are being difficult I told them I want to apply for a dro and they keep say I have to go through 9 months of payment breaks 1st..
I’ve already had advise on council tax benefit as my sons income is so high I will not be eligible as council tax benefit goes on house hold income weather your financially linked or not
Sara (Debt Camel) says
which IVA firm is this?
Jane says
NDH FINANCIAL
Sara (Debt Camel) says
OK email jonathan.gribble@ndhfinancial.co.uk and say StepChange have told you you are eligible for a DRO, so you want your IVA terminated as soon as possible.
You haven’t said anything about whether the IVA payments were difficult to afford before you lost your job. If they were you should also mention this.
If you think you would also have been eligible for a DRO last year when your IVA started, you could also say that and that you think the IVA may have been mis-sold.
Jane says
They wasn’t really but ndh said looking at what my wage was and outgoings it was it just left me with nothing once I had paid ndh.
Emma says
I am on an IVA with Creditfix I feel like I was pushed into it instead of exploring other options. With the cost of living & winter coming I will be able to pay for gas electric or food through the winter. My curret IVA is in month 13/60 I pay £90 a month I work part time & claim universal credit. My 21 year old daughter (full time student) who lives with me receives PIP & has a motability car which I drive as shes not allowed a license & I fully support her as she was turned down for U/C My debts are under 20000 would I be better off trying for a DRO? I rent from a Housing association.
Sara (Debt Camel) says
A DRO may well be an option for you. The motability car is wouldn’t be affected.
I suggest you tell Credit flux you won’t me able to afford heating and food this winter and ask Creditfix to consider if you are eligible for a DRO – if they say yes, they should organise this for you.
If they say no, then talk to National Debtline on 0808 808 4000
Mike says
Hi. I’m currently half way through an IVA paying £125 to McCambridge Duffy (30 months remain). I’m a full time student nurse and I’m also trying to work full time to make ends meet. I have a private house which I rent alone, a car valued at £900 so that I can actually get to and from work and placements. I’ve had to miss two payments on this and I’m being chased by them for it. I made one payment to them to catch up and they’ve moved the rest over to the end of the agreement. For the past three years I’ve been making payments to it I’m supposed to have reviews and I supply all kinds to them but never hear back regarding it. I’ve pushed and pushed.
My debt remaining to pay is £3875 but if I cancel then my debts going to go right back up to £8k isn’t it if creditors chase me again.
What are my options? Who can I talk to? I’m running myself into the ground and I’m scared. I’m considering leaving my degree which I’m doing to better my prospects and life.
Michael Peoples says
Hello Mike. I work for McCambridge,Duffy and apologies if you feel let down in any way by us but we are here to help. A DRO may be an option but there is also a possibility of closing the IVA down based on an early settlement or funds paid to date. You can contact supervision@ and then our address or if you want to contact me directly my email is mpeoples@. I or one of our supervision team will be in touch to discuss things with you and see what your best option would be so please get in touch.
Georgie says
Hi Sara
What happens if within the 12 months of starting a DRO, your financial position improves or you get a job? Would your debt be resorted back to the IVA agreement?
Thanks
Sara (Debt Camel) says
No the IVA will have terminated.
In practice very few DROs fail… about 1%. Do you expect your finances to improve a lot? Remember that if you get any benefits, they will reduce if you get a pay rise or work extra hours.
How far are you through your IVA?
Georgie says
17 months into my IVA.
– First 9 months have been paid at £90ea month as I was working.
– the last 8 months have been payment breaks as I’m on £650 a month via benefits.
I am currently getting £1000 from this month through benefits and I’m not sure when I’ll be able to return to work yet.
Many thanks
Sara (Debt Camel) says
So in practice you are only 9 months in…
In that case there seems very little chance of your IVA completing as you have 4 years and 3 months of payments to go… unless you think you would be able to return to a much better job, ending the IVA and switching to a DRO seems a better option.
Do you mind saying how old you are and what your health problems are? What sorts of debts are in your IVA?
Georgie says
I an 34, I lost my son unexpectedly last year
It’s mainly credit card debt
Sara (Debt Camel) says
I am so sorry to hear that. Can I ask who your IVA firm is?
Because one option is for the IVA firm to propose to your creditors that your IVA is ended now as though you have completed it and the debts are written off, so you would not need a DRO. This isn’t often don in the early stages of an IVA, but given your bereavement it may be possible.
Georgie says
I’m with creditfix, I have been in contact with them over the last 9 months regarding my situation and all they have offered is payment breaks or potentially looking at a dro
Sara (Debt Camel) says
OK, assuming your doctor will confirm that you are not currently fit to return to work, you could ask Creditfix to recommend to your creditors that your IVA is completed “on the basis of the funds made to date” given your circumstances. Point out that you would qualify for a DRO but would prefer to have this settled now because it will be less stress. And that the majority of your creditors are FCA authorised, who should take into account your vulnerability and look for a solution that will give the best customer journey under the circumstances.
If they refuse, then a DRO sounds a preferable option. You could talk to National Debtline on 0808 808 4000 if you are unsure about a DRO.
Samantha Warburton says
Dear Georgie
My name is Samantha Warburton I am one of the Insolvency Practitioners at Creditfix, my email address is samantha.warburton@creditfix.co.uk, if you could contact me directly, I will look into your case personally and we can discuss how to move forward.
Kind regards
Sam
Jb says
Hello
I’ve been in an iva agreement since the beginning of the year. My original debt is £4190.29 the total repayments amount to £9072.96. I was not made aware at the time of agreement that I would be paying more than double my original debts! Is this right?
Sara (Debt Camel) says
What are your monthly payments and have they increased from the start?
What sort of debts are in the IVA?
Who is your IVA firm?
Bethany says
Hi,
My IVA has suggested I apply for a DRO as I’m on maternity leave as a single mum with little income. I receive UC too. I took a 6 month break but now the payments need to restart and I cannot pay them. My debts are less than 30k I rent also don’t own a car. How would I go about the process please? Thanks
Sara (Debt Camel) says
Hi Bethany,
how far into your IVA are you? What sort of debts are in the IVA? do you have any debts outseide the IVA?
and can you say who your IVA firm is – are they asking if you want to do this or telling you that that they are failing your IVA?
Bethany says
Hi, I have no debts outside the IVA. Most of the debts were credit cards & store accounts. I’m around 14 months into the IVA. The firm is McCambridge Duffy, they at the moment have more just suggested it but have been limited with my options and help.
Sara (Debt Camel) says
ok, well nothing you have said suggests that a DRO is not a good idea. But there may be a better option – MCD proposing to your creditors that you have no prospect of continuing with the IVA and that you could get a DRO, but in the interest of promoting a good customer journey, in line with the new Consumer Duty, MCG suggest that instead your IVA is completed on the basis of the funds paid to date.
(That is quite o lot of jargon, but it will make sense to MCD. If they agree, and your creditors agree, then your IVA can end now and your debts will be written off.)
Bethany says
So I can suggest this even if I’ve had a payment break for 6 months? I’ve paid £300 per month from June 2022- may 2023. Could this be a strong possibility? Thanks
Sara (Debt Camel) says
It is hard for me to say whether this is a “strong possibility” or not. Usually you have to have made more payments to get a “completed on the basis of the fund paid to date” agreed. But at the end of July the new “Consumer Duty” came into force and creditors who are FCA regulated 9that is all banks and credit card companies) now have to consider this.
Let’s see what MCD say.