What is a debt relief order (DRO)?

If you’re struggling to pay for essentials like rent and utility bills because of debt, you could benefit from a Debt Relief Order (DRO), if you’re eligible. It can help you write off your debts so you can get back on your feet. But DROs come with serious consequences, so it’s important to investigate other options first.

Written by

Alex Hasty

Insurance comparison and finance expert

Posted

7 JULY 2021

7 min read

What is a Debt Relief Order?

A Debt Relief Order (DRO) is a way of writing off your debts without filing for bankruptcy or insolvency.

It gives you a temporary reprieve from your debt, usually for 12 months. During this time, you won’t have to make payments toward any debts included in the DRO. If you’re still not in a position to pay your debts at the end of the DRO term, they’ll be written off.

DROs apply to England and Wales only. Personal insolvency is devolved to Scotland and Northern Ireland, so you’ll need to follow the rules that apply locally.

Who is eligible for a debt relief order?

To qualify for a DRO you need to meet the following criteria:

you live in England or Wales
you can’t pay off your debts
you owe less than £30,000
you don’t own your own home or other valuable assets. For example, a car or any other asset worth over £2,000
you have less than £75 income left at the end of the month after paying your household expenses
you’ve lived, worked or owned property in England, Wales or Northern Ireland in the past three years
you’re not currently going through another insolvency procedure, such as bankruptcy
you haven’t had another DRO within the past six years

What do I need to think about before applying for a DRO?

A DRO comes with eligibility requirements and restrictions, and will have an impact on your credit record. This could have an impact on your life, making it difficult for you to get credit or find a new home in the future. Applying for a DRO is a serious step to take and there are several other debt management options you might want to consider first.

If you’re in debt, the available debt solutions will depend on your personal circumstances. Each one comes with its own set of benefits and consequences, which you’ll have to weigh up. It can be helpful to get a good understanding of the different options so you can decide what’s the most suitable for you. For example, you might be able to come to an agreement to pay your debts.

A good place to start is by getting free advice and help with debt. There are several debt advice services who will offer non-judgmental help, so don’t worry about contacting them. You can find a list of them on the Money Advice Service website.

If you decide that you want to apply for a DRO, you’ll need to find a specialist DRO adviser to make your application to the Insolvency Service, which deals with all DROs. The DRO adviser will check whether you're eligible to apply and whether a DRO is right for you, for example, how it might affect your credit rating, lifestyle and work.

When deciding if you’re eligible for a DRO, your adviser will also look at the steps you’ve taken in the past couple of years to handle your debt. If you’ve sold off assets for less than they’re worth, given away money or prioritised paying off specific creditors, then they may refuse your application.

You’ll have to pay a fee of £90 to apply for a DRO – so you’ll need to be able to find the money for that. Your DRO adviser may be able to suggest sources of help.

If you can’t pay your bills because of coronavirus

There’s help and support out there, if you’re struggling to pay your bills because of the coronavirus pandemic. It’s important to talk to your creditors to explain your situation and receive help to pay back what you owe. Since the beginning of the pandemic, the government agreed a raft of measures with providers across a range of sectors, to make sure that struggling consumers would be treated fairly. Get more information about what creditors, such as credit card providers and energy suppliers, are doing to support customers in financial difficulty.

You can find more information on what help is available during COVID-19 at Citizens Advice.

What types of debt does a DRO cover?

You can apply for a DRO to cover the following types of debt:

loans, overdrafts and credit card debt
utility bills, telephone bills, council tax and income tax bills in arrears
benefit overpayments
buy-now-pay-later agreements and hire purchase or conditional sale agreements – although you may have to return any items you bought
bills in arrears for services like vets or solicitors
debts you owe to friends and family
business debts

During the DRO period creditors can’t ask you for payments. Even if they do ask, you don’t have to pay them.

Any rent you owe in arrears can also be covered by a DRO. However, if you’re behind on your rent, your landlord can still take action to evict you, even if the rent arrears are included in your DRO. That means you might still have to pay the rent arrears after a DRO is made so that you can continue living in your home.

What debts won’t a DRO cover?

A DRO won’t cover you for the following debts:

court fines and confiscation orders resulting from criminal activity
child support and maintenance
student loans
budgeting and crisis loans from the Social Fund
any compensation you must pay for death and injury

The DRO won’t include any debts incurred after the order was granted. If you run up new debts after it’s granted, you could face a bankruptcy order or even criminal prosecution if you failed to tell the new creditor about your DRO.

Will a Debt Relief Order affect my credit rating?

Yes, a DRO will stay on your credit record for six years, so it’s important to make sure it’s the right choice for you before going ahead. It can also impact your life in other ways too.

It’s unlikely you’ll be able to borrow during this period. That’s because when you apply for credit, providers look at your credit information to decide whether to lend to you or not. Having a low credit score could affect your ability to get a mortgage, a credit card or other type of loan in the future.

Although you don’t need to tell your bank about the DRO unless they’re a named creditor, some banks do check for them and may choose to close your account if they find out. Read our guide to finding a current account if you have bad credit.

If you’re intending to look for a new home in the near future, getting a mortgage could prove difficult with a DRO as it will impact your credit record for six years. Also, many landlords and private letting agencies will insist on reviewing your credit record, so a DRO could affect your chance of securing a lease.

It’s also worth noting that a DRO will invalidate any powers of attorney you hold, and it could affect an application for British citizenship.

Your DRO will be published on the public Individual Insolvency Register (IIR) and is removed three months after your DRO ends.

Are there any restrictions included in the Debt Relief Order?

Yes, you’ll have to declare your DRO to creditors if you want to borrow more than £500. Plus, you won’t be able to apply for an overdraft without telling your bank you have a DRO.

During the DRO period, you won’t have to pay any creditors covered in the DRO. But you will need to carry on paying your ongoing bills, like rent, utilities and council tax, and you’ll have to keep up payments for student loans and any other debts that aren’t included in the DRO.

A DRO could have implications for your business too. You can’t set up or manage a limited company, or act as a company director without getting permission from the courts. You’ll also need to inform anyone you do business with about the DRO, even if your business is under a different name. And your name will appear on the Insolvency Service’s Individual Insolvency Register for anyone to view for the term of the DRO and for three months after.

If you break any of the restrictions, you could face a fine or even a prison sentence. The court could also place you under a debt relief restrictions order, which could extend the DRO restrictions for up to 15 years.

How do I apply for a debt relief order?

You can only get a DRO through a specialist adviser, also called an approved intermediary. They’ll check to see if you’re eligible and make sure you’re aware of the restrictions. They shouldn’t charge you for your consultation but there is a £90 official receiver’s fee for the application if you decide to go ahead. The fee must be paid in cash. If you can’t afford the fee, there are some charities that may be able to help you. Your debt adviser can tell you more about this.

When you apply for a DRO you need to declare all your debts. You should give an honest accounting of your finances during your application and you must report any changes in circumstance, such as an increase in income, or you could face prosecution.

Your debt adviser will send your application to an officer of the bankruptcy court – known as the official receiver – who will decide whether to grant the DRO.

There’s a list of organisations that can help you find an approved debt adviser on the government’s guide to getting a Debt Relief Order.

How long does a Debt Relief Order last?

The DRO period, known as a moratorium, normally lasts 12 months, although you can end the DRO before that if your circumstances change and you’re able to pay off your debts.

Once your DRO is approved, you’ll receive a letter from the official receiver at the bankruptcy court to let you know it’s been granted and to inform you of the term (length) and the restrictions.

They’ll tell any included creditors that you’ve been placed under a DRO and inform them that they won’t be able to chase you for payment. If any listed creditors do approach you during the moratorium, then you should inform them of the DRO and refuse to pay.

Be aware that if you break any of the restrictions of the DRO, they could be extended up to 15 years.

What happens when the DRO ends?

At the end of your DRO, any listed debts will be ‘discharged’ and you won’t have to pay them.

You won’t receive an official notification that your DRO has ended. If you’re not sure when it finishes, you can check your status on the Insolvency Service register.

Your entry will stay on the register for three months after the end of the DRO. If you want proof that your DRO has ended, you can print off a copy of your entry during this time. It will show the end date of your DRO period.

Did you know?

In a Compare the Market survey of 2,000 Brits, 45% of respondents admitted to being in debt. For the majority, the main reason for their debt was everyday living expenses, such as paying utility bills, rent and putting food on the table.

Frequently asked questions

What happens if I forget to include a debt in my DRO application?

If you find a debt that you’ve forgotten to add to your application, you must tell the official receiver about the mistake as soon as possible. If you don’t, you’ll be committing a criminal offence.

You won’t be able to add the debt to your DRO, so you’ll need to make separate arrangements to get it paid. It also means the creditors for that debt can still take action to make you repay it. That’s why it is so important to make sure you include all your debts when applying for a DRO.

Are creditors allowed to contact me during the DRO period?

Creditors on your DRO list aren’t legally allowed to demand payments from you during the moratorium period. However, they may still be able to contact you:

to give you information about your account
to send you certain notices by following the rules of the Consumer Credit Act
if you’ve come to a payment agreement, for example, a controlled goods agreement with a bailiff
if your landlord wants to come to a payment agreement with you for your ongoing rental payments or to give you notice of eviction because you’re behind on your rent

Can unpaid rent be included in my DRO?

Yes, you can include rent arrears in your DRO. This means that your landlord can’t chase you for these payments. But they can still take action to evict you, so you could risk losing your home. If this happens, you might want to come to an agreement with your landlord and find a way to pay back what you owe so you can stay.

What about hire purchase debt?

If a hire purchase debt is included in your DRO, your creditor can’t demand payment. But as you can’t make any more payments during the DRO period, they can take action to repossess the goods. If you can find someone who’s prepared to make the payments on your behalf, you might want to see if the creditor will accept them or agree to transfer the agreement into the other person’s name.

Can my DRO be cancelled?

In certain circumstances your DRO can be stopped (revoked). If this happens, you’ll need to start making payments again towards any debts included in the DRO. This also includes any interest or charges that have built up since you applied for the DRO.

Reasons why your DRO might be stopped:

you receive a lump sum of money or assets worth over £1,000
your income increases so you have more than £50 left over each month after your living expenses are paid
you left out information in your original application
you don’t tell the official receiver about your change in circumstances
you don’t follow the restrictions of the DRO
you were dishonest and got your DRO fraudulently

If your circumstances change you must tell the official receiver straight away. If you’re not honest about your finances, you could be charged with a criminal offence. Not only will the DRO be cancelled, but the restrictions could also be extended for much longer and you could be fined or go to prison.

If your DRO is stopped, you and the listed creditors will receive a notification explaining the reason why, the date your DRO will be revoked and how you can challenge it.

My DRO application has been refused. What should I do?

If your DRO application is refused, you’ll receive a letter explaining the reasons why.

Your DRO might be refused because:

you don’t meet the criteria
you didn’t provide all the information asked
the official receiver doesn’t believe you’ve been honest about your application

If you think the decision is wrong or unfair, you should ask the official receiver to reconsider your application. If they still refuse, you have the right to ask the court to decide if the decision should be changed. Your DRO adviser can help you write a letter explaining your case. You’ll need to include supporting evidence showing that the original decision was wrong or unfair.

What other options are there for paying off my debts?

There are other arrangements you can make to pay off your debts, depending on how much money and assets you have:

Debt Management Plan (DMP) – an agreement with your creditors to pay off a small amount of your debt each month at a rate you can afford. This is only suitable for non-priority debts like an overdraft, personal loan or credit cards.
Covid Payment Plan (CPP) – this is a short-term helping hand if you’re facing reduced income because of the pandemic and lockdown. It allows you to make reduced payments for up to 12 months, and interest and charges on your debts are frozen. You’ll still have debts at the end of the plan, so you’ll need to speak to your creditors to agree new payments.
Administration Order – if you have a County Court Judgment (CCJ) against you for debts under £5,000. You’ll need to make one payment each month to your local court. The court will decide how much of the debt you’ll need to repay and how much your monthly instalments will be. They’ll then distribute payments to your creditors. To be eligible you must have at least two creditors and owe less than £5,000 in total.
Individual Voluntary Arrangement (IVA) – an agreement that freezes your debts and allows you to pay them back over a set period of time. Any money still owed after that is written off. Payments can span over five or six years, so you need to have a steady, long-term income to be eligible.

The Money Advice Service offers advice and information on the best ways to pay back your debts and how to take control of your finances.