Debt Relief Orders (DROs) – everything you wanted to know but were afraid to ask

posted by in Debt

20130131_144002Statistics released today revealed that the number of people applying for DROs is higher than bankruptcy. Even though they’re increasing in popularity they’re still not as well-known as their insolvency brothers, IVA and bankruptcy.

What is a DRO?

DROs are often referred to as a form of “mini bankruptcy”, which isn’t too far from the truth. Like bankruptcy, it’s a way to get debts written off through the court system when you can’t afford to pay them back.

If you meet the criteria then you’ll be placed into a 12 month ‘moratorium period’ (a fancy way of saying ‘waiting time’). During this year your debts will still exist but the courts will notify your creditors of the DRO, so you’ll not have to make payments to your creditors and they won’t be pestering you with letters and phone calls.

If your situation hasn’t improved by the end of the 12-month period you’ll be discharged from the DRO (a fancy way of saying that it’s ended) and your debts are written off.

What are the criteria?

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

  • You have to have under £50 per month available after paying essential living costs
  • You must have under £300 in personal assets (not including your car)
  • If you have a car if must be worth £1000 or less
  • Your debts must be under £15,000

How do I know if I’ve under a £50 a month spare?

We can help you work this out! If you contact us for advice we’ll plan a monthly income and expenditure budget which will show what you’ve got coming in and what you need to live off (not including debt payments or luxuries). By taking your outgoings away from your incomings we’ll know what’s left.

What’s classed as an asset in a DRO?

Basically as asset is something that you own that could be sold to raise money. It doesn’t include day-to-day things like clothes or furniture. It’s more things that are worth a bit, so if you’ve got a brand new 60-inch LED TV then you might not qualify for a DRO.

What debts are included?

Credit cards, overdrafts, loans and any other kind of unsecured credit debts are included in a DRO – the kind of stuff folk most expect. However it’s often a surprise to people that arrears on household bills, benefit overpayments and items bought on finance are also included.

What about the fees?

The fee for a DRO is £90 and is paid just before your application is submitted to the Insolvency Service. If you apply for your DRO through us we’ll send you a letter with a barcode on, which can be used to load up payments at local shops with PayZone facilities.

You can pay the £90 in instalments but will only be able to apply for your DRO once your payments add up to the total amount.

Who can help me apply?

We can! We’re an ‘approved intermediary’ for DROs. We can put together an application with you and submit it to the Insolvency Service on your behalf.

Before doing any of this we’ll want to make sure a DRO is right for you, so we’ll look at your finances and advise you on all the options. So if you’re interested in a DRO get in touch with us. You can do this online using our advice tool Debt Remedy or by giving us a call.

What happens if my situation changes?

If your finances change during a DRO notify the Insolvency Service and your situation will be reassessed. If you still meet the criteria your DRO will carry on; if you’ve had an improvement in your finances that means you don’t meet the criteria then your DRO will end and you’ll be back to paying your debts (but bear in mind that you should be better placed to deal with the debts).

 Will it affect my credit rating?

It’s a big “yes” for this one. As with bankruptcy a DRO will make your credit rating pretty rubbish for six years. So even after your DRO has been discharged it’ll still be hard to get credit. However most people who’ve got to the point of doing a DRO aren’t interested in ever getting credit again anyway!

At StepChange Debt Charity we want you to be free of debt and save money. Debt geeks Peer, Mat, James, Jess and Rachel tweet!

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  • moneyaware

    Hello,

    It would depend on the situation. I wouldn’t expect them to dig too far back due to how busy they are. But on the otherhand, if they suspected something was fishy they’d be more likely to dig deeper.

    Cheers

    James

  • Charw321

    Applied for a DRO 2 years ago so have been free of the moratorium period for 12 months, no creditors are contacting me but one of them is still listed on my credit report as having a large balance outstanding i.e. they haven’t updated the balance to “satisfied” and are unwilling to do so unless I provide them with a certificate of completion or a discharge certificate which you obviously don’t get with a DRO.

    Are there any legal guidance notes that I can send to them which will back me up when I tell them that they must update my credit report?

    Thanks

    • moneyaware

      Hello,

      James Jones from Experian dealt with a very similar answer on his Q&A page which I think applies to your situation too. http://www.experian.co.uk/consumer/questions/askjames361.html

      The reply from James Jones says that If they won’t update your record then you should make a complaint to the company. If they still don’t update your file then you could ask the Financial Ombudsman Service to investigate.

      I hope this helps.

      James

  • moneyaware

    Hi there Adam,

    One of the criteria for a DRO is that you have to have assets of under £300. If you get a compensation payout during the course a DRO’s “moratorium” period – the 12 months following your application being accepted – then it’s likely you’ll no longer meet the criteria of the DRO so it would be cancelled.

    So a compensation payment could impact on a DRO. I’m not sure how a DRO would impact on a compensation payment though – that would be something to take up with the people handling your claim maybe.

    Kind regards

    James