Debt Relief Orders

A Debt Relief Order is a relatively new debt solution in the UK. This is a government initiative and is intended as an alternative for formal bankruptcy. The officially released statistics indicate that 11% of those who have previously declared themselves formally bankrupt would have been eligible for this alternative, had it been available during their bankruptcy proceedings.

Before I go on to discuss how a debt relief order works, I will share the eligibility criteria:

1. The debtor should be unable to pay his or her debts off.

2. The debtor's unsecured liabilities must be no higher in value than £15000.

3. The value of the debtor's assets should be no more than £300.

4. After living expenses have been deducted, the debtor should have no more than £50 of disposible income left each month.

5. The debtor must be a resident of England or Wales.

6. The debtor must not have been involved in a Debt Relief Order during the previous 6 years.

7. The debtor must not already have been paying off debts to any creditor at a reduced rate.

8. The debtor must not be involved in any other type of insolvency procedure at the time of application for a Debt Relief Order. This could include things like bankruptcy, IVA or interim orders.

Debt Relief Orders (DROs) require an application to be made online. One interesting thing about the application process is that, if the eligibility criteria appear to be met with no exceptions, the Official Receiver can go ahead and complete and approve the application without the approval of the court.

Typically, a debt relief order lasts for 12 months. However, it's worth noting that creditors can apply to the court to extend this or, in the very least, to extend the restrictions that is imposes. During the course of the DRO, the debtor repays nothing on their debt unless their financial situation changes. However, a number of restrictions apply thoughout the course of it. Firstly, they must keep creditors informed of their financial situation - though creditors will not be permitted to chase payment if the financial situation does not change. In addition, anyone undergoing a DRO must not obtain credit in excess of £500 without telling the creditor about their DRO and must not condusct any business in a different name from that under which the DRO was placed, without telling those they do business with of their DRO. In addition, the debtor is not permitted to start up a business, nor accept a post as a company director without the explicit permission of the court.

However, once the Debt Relief Order is over, the debts are considered settled, though the fact that you have entered into a DRO at all is likely to be present on your credit record for six years.

Things you will need before applying for a DRO - an intermediary, who assists in completing the application and without one your application with be declined, and an application fee. The fee is less than £100, but nonetheless must be paid.

As you can see, the DRO is a means to an end of debt problems for those who simply have absolutely no money and relatively low debts.