Debt Relief Order

 

What is a Debt Relief Order?

Debt Relief Orders (DROs) are a new form of insolvency measure in the United Kingdom. They were introduced under Chapter 4 of the Tribunals, Courts and Enforcement Act 2007. A DRO is a simplified, quicker and cheaper alternative to bankruptcy in England and Wales suitable for debtors who have have less than £4,000 in assets (£1,000 in Northern Ireland), A car worth no more than £4,000 (£1,000 in Northern Ireland) and little disposable income (less than £75 per month).

 

Who can qualify for a Debt Relief Order?

Debt Relief Orders Are Intended To Provide Debt Relief For People In England , Wales and Northern Ireland If:

• the debtor is unable to pay his/her debts;
• the debtor’s total unsecured liabilities must not exceed £50,000
• thave less than £2,000 in assets (£1,000 in Northern Ireland) and a car worth no more than £4,000 (£1,000 in Northern Ireland)
• the debtor’s disposable income, following deduction of normal household expenses, must not exceed £75 per month;
• the debtor must be domiciled in England or Wales, or in the last 3 years have been resident or carrying on business in England or Wales;
• the debtor must not have previously been subject to a DRO within the last 6 years;

• the debtor must not be involved in another formal insolvency procedure at the time of application for a DRO, such as:

  • an undischarged bankrupt;
  • a current individual voluntary arrangement;
  • A current bankruptcy restrictions order or undertaking;
  • A current debt relief restrictions order or undertaking;
  • An interim order
  • A current pending debtor’s bankruptcy petition in relation to the debtor but the debtor has not been referred to the DRO procedure by the court as a more suitable method of debt relief;
  • A current pending creditor’s bankruptcy petition against the debtor but the debtor has not obtained the creditor’s permission for entry into the DRO process.

 

A Debt Relief Order is a form of insolvency, like bankruptcy, and will be subject to a public listing through the Insolvency Service website.

Debt Relief Orders can only be completed by an approved intermediary and competent authorities. Approved intermediaries will be mainly experienced debt advisors attached to debt advice organisations such as a Citizens Advice Bureau, the Consumer Credit Counselling Service or an AdviceUK member. The approved intermediary can review the persons information, make a determination that they are eligible and appropriate for a DRO and file the DRO application online. Approved intermediaries will not charge a fee for completing or submitting an application.

Organisations approved by the Insolvency Service as competent authorities are listed on the Insolvency Service web site, and include AdviceUK, Citizens Advice and the Institute of Money Advisers.

Upon receipt of the application and payment of the fee, an Official Receiver may make the order, administratively, without the involvement of the court if it appears that the applicant meets the requirements.

If the Official Receiver becomes aware of information which means the debtor does not qualify for a DRO, the application will be refused. If this information comes to light after the DRO is made, the Official Receiver may revoke the DRO without reference to the Court. The effect of revoking a DRO will be to leave the debtor open to actions by his or her creditors. 

 

Implications of a debt relief order

During The Year That A Debt Relief Order Is Active, The Applicant Will:

• Be protected from enforcement action by the creditors included in the application (bar certain creditors whose debts cannot be scheduled in the DRO and those creditors whose debts are included in the DRO but who have successfully obtained leave from the court to pursue their debts).
• Be free from those debts at the end of the period (normally 12 months from Order).
• Be obliged to provide information to and co-operate with the Official Receiver.
• Be expected to make arrangements to repay their creditors should their financial circumstances improve.

 

The Benefits

• A Debt Relief Order is designed to be a low cost debt solution and an alternative to Bankruptcy if you have a debt level of £50,000 or less with little or no savings.
• Although a Debt Relief Order is a formal solution the cost is relatively low and the outcome is that for a period of 12 months you will have your debts and interest incurred frozen and if your situation has not changed after 12 months your debts will be written off.
• Creditors are not allowed to contact or chase you for payment and you do not need to make any payments to lenders for 12 months.

 

The Negatives

• Not all debts qualify to be written off under a Debt Relief order. Debts such as student Loans, child support maintenance and magistrates courts fines are not able to be included under the DRO.
• If you have given away assets, sold goods for less than their value or paid certain lenders in favour of others in the past 2 years prior to your DRO application, a DRO could be refused.
• A Debt Relief order will appear on your credit file and you will find it difficult to obtain credit for a period of 6 years. In addition, your details will be added to the insolvency register.

 

In addition certain more serious misconduct may result in criminal prosecution.

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