Debt Relief Orders (DROs): A Comprehensive Guide to an Alternative Debt Solution
Are you struggling with debt and searching for a way to regain control of your finances? If you have a low income and few assets, a Debt Relief Order (DRO) may be a suitable solution for you. In collaboration with our partner Debt Guardians, we at SortMyCash are dedicated to helping you explore all available debt solutions. In this comprehensive guide, we’ll cover the essential aspects of DROs, including eligibility requirements, the application process, benefits, drawbacks, and their impact on your credit rating.
- What is a Debt Relief Order (DRO)?
A DRO is a debt solution designed for individuals in England, Wales, and Northern Ireland with a low income, minimal assets, and unsecured debts below a specific threshold. DROs provide temporary relief from creditors, allowing you to pause repayments on qualifying debts for a period of 12 months. If your financial situation doesn’t improve during this time, your eligible debts will be written off at the end of the DRO.
- DRO Eligibility Criteria
To qualify for a DRO, you must meet the following criteria:
- You must have unsecured debts totalling no more than £20,000.
- Your disposable income, after essential living expenses, must be £50 or less per month.
- You must have assets worth less than £1,000 in total. Certain assets, such as a vehicle worth up to £1,000, are exempt.
- You cannot be a homeowner.
- You must not have been involved in another DRO, IVA, or bankruptcy in the last six years.
- You must have lived, worked, or operated a business in England, Wales, or Northern Ireland within the last three years.
- DRO Application Process
Applying for a DRO involves the following steps: a. Consult with an approved debt adviser: You’ll need to speak with a debt adviser authorised by the Insolvency Service to assess your eligibility and discuss whether a DRO is the right option for you. b. Complete the application: Your debt adviser will help you fill out the DRO application, gathering the necessary information about your income, expenses, debts, and assets. c. Pay the application fee: There’s a one-time fee of £90, payable to the Insolvency Service, which can be paid in instalments. Unfortunately, this fee is non-refundable, even if your application is unsuccessful. d. Await the decision: The Official Receiver will review your application and determine whether to grant the DRO. If approved, your creditors will be notified, and the 12-month DRO period will commence.
- Benefits and Drawbacks of DROs
Before applying for a DRO, it’s crucial to understand its advantages and disadvantages:
- Affordable solution for those with low income and minimal assets
- Legal protection from creditors during the 12-month period
- Eligible debts written off after the DRO period, if your financial situation doesn’t improve
- No need for ongoing repayments during the DRO period
- Damages your credit rating for six years from the start of the DRO
- Restricts your ability to obtain new credit during and after the DRO period
- Limited to those with unsecured debts under £20,000
- Application fee of £90
- Impact on Credit Ratings
A DRO will significantly impact your credit rating for six years from the date it begins. During this period, you may find it challenging to obtain new credit, and any credit you do obtain may come with higher interest rates and less favourable terms.
In conclusion, a DRO can be an effective debt solution for individuals with limited income and assets, offering temporary relief and the potential for debt forgiveness. It is essential to carefully consider the pros and cons of a DRO and consult with a professional debt adviser before proceeding with an application.
At SortMyCash, in collaboration with our partner Debt Guardians, we strive to provide clear, accurate, and up-to-date information to help you make informed decisions about your financial situation. If you are struggling with debt and considering a DRO or any other debt solution, please don’t hesitate to reach out to us. Our team of friendly and knowledgeable advisers is ready to assist you in finding the most suitable debt solution for your circumstances.
Remember, you don’t have to face your debt issues alone. We are here to support you every step of the way, providing guidance and the tools you need to regain control of your finances and work towards a debt-free future. Fill out our simple online form and talk to an expert today – together, we can help you find the right path to financial freedom.