Also known as a DRO, a Debt Relief Order is an arrangement that a debtor can apply for to help support them with repaying their debts.
This is typically for debts up to the value of £50,000, which the debtor is no longer able to pay.
There are qualifying rules and criteria that the debtor must meet to be granted a DRO, and once this is in place, rules and conditions for creditors, all of which we will explore further throughout this post.
Definition of debt relief order meaning
A debt relief order – a formal debt solution that is legally binding and has rules and restrictions attached to it.
When we are asked what is a debt relief order? Our answer is that a DRO provides a low-cost solution, a workable offer that helps debtors to ultimately avoid bankruptcy.
Debt relief order meaning
For the debtor, a debt relief order means that creditors can not take any further action on the debts owed for a period of 12 months.
The debtor will not have to pay back what they owe, and all interest and any associated fees will stop and no longer be added to the debts in question. In addition, the debtor will no longer be required to correspond with the creditors.
It is an arrangement that ultimately provides the debtor with breathing space to help them get their finances back on track and in order.
Debts that can be captured within a debt relief order include:
- Credit cards
- Overdrafts
- Loans
- Utilities
- Rent
- Income tax
- Council tax
- Benefit overpayments, etc.
Debts that cannot be included in the debt relief order include:
- Child maintenance
- Student loans
- Debts secured against possessions
- Court-ordered fines
- Social fund loans
- TV licensing fees.
Qualifying criteria for a DRO to be granted
In order for a debt relief order to be granted, debtors must meet all qualifying rules and continue to follow these throughout the 12-month DRO period. If finances do not get better during or after the 12 months, debts can be written off.
Debtors will qualify if:
- They are no longer able to repay their debts.
- They owe less than £50,000.
- They have assets or savings of less than £2,000.
- They own a vehicle that is valued at less than £4,000.
- They have £75 per month (or less) at the end of every month to make repayments.
- They have lived and worked in England or Wales for the past three years.
- They have not had a debt relief order granted in the past six years.
If a debtor is considering a debt relief order, this must be applied for through an approved debt advice provider.
It’s important to speak to a professional and make sure that a debt relief order is the best option for you and your circumstances.
Pros of DROs
- Debt repayments, interest charges, and fees are frozen for DRO period.
- Creditors can’t take debt recovery action during this time (unless the courts have granted permission).
- Debt can be written off if a debtor’s finances do not improve after 12 months.
- Debtors don’t have to apply and go to court, and there are no associated fees to apply for a DRO.
Disadvantages of opting for a debt relief order
- DROs do show on the public register, so the debtors’ details will appear on the Insolvency Service’s Individual Insolvency Register.
- A DRO remains on a debtor’s credit file for 6 years (this can be cancelled if there is a change in circumstances and finances improve during the DRO period).
- The DRO can be cancelled if the debtor breaks the rules at any time.
- Some valuable assets may be at risk of being used against the DRO.
- The debtor will also not be able to borrow £500 or more without informing the new creditor about the DRO in place, so this may restrict future financing.
- The debtor cannot set up or be involved in setting up a limited company/be a company director.
- A debtor is unable to make an application for a DRO if they are currently going through/applying for another insolvency procedure, for example, bankruptcy.
Debt relief order definition
Debt relief orders are a way for debtors to deal with their debts. Lasting for a period of 12 months, it is free to make a debt relief order application; however, all financial aspects should be considered before making a final decision.
Corporate debt recovery
As a professional debt recovery agency, we help businesses build robust credit control practices and procedures that not only build good working relationships with customers but also help ensure invoices are paid on time, every time.
We know the impact that overdue invoices and late payments can have on cash flow, and we understand that credit teams can be stretched and not always comfortable with chasing debtors for outstanding payments, which is why business debt recovery solicitors’ letters from professional teams requesting payment can help.
To find out more and see how we can work with your credit teams, call us on +44 786 0197 476.