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). 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.

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). 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.

Anelda Knoesen
From the Money team
minute read
Do you know someone who could benefit from this article?
Posted 8 JANUARY 2021

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, normally 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, then they’ll be written off completely. 

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

A DRO comes with restrictions and will have a serious impact on your credit record. Applying for a DRO is a big step to take and there are several things you can do before you reach this point.

If you’re in debt, the solution will depend on your personal circumstances, but one of the first things to do is talk to your lenders. You might be able to come to an agreement to pay your debts. You can also get free advice and help with debt from several organisations – you can find a list of them on the Money Advice Service website.

What do debt relief orders 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

Any rent you owe in arrears can also be covered by a DRO - but your landlord still has the right to evict you. 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 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.

What do I need to get a debt relief order?

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

  • you can’t pay off your debts
  • you owe less than £20,000
  • you don’t own your own home or any other valuable assets, for example a car or any other assets worth over £1,000
  • you have less than £50 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

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.

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’s unlikely you’ll be able to borrow any more during this period.

Having a low credit score could affect your ability to get a mortgage, a credit card or other 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 they 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 looking for a new home in the near future, getting a mortgage could prove difficult with a DRO and for the six years after. Also, many landlords and private letting agencies will insist on reviewing your credit record so it could affect your chance of securing a lease.

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

Your Debt Relief Order will be published on the public Individual Insolvency Register (IIR) where it will remain for 15 months.

Are there are any restrictions included in the debt relief order?

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

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, for rent, utilities and council tax for example, 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 application fee if you decide to go ahead.

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.

Visit The Money Advice Service to find out where you can get free debt advice.

How long does a Debt Relief Order last?

A DRO 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.