Debt Relief Orders (DROs)
Why have DROs been introduced?
Believing that existing debt relief remedies, such as bankruptcy, were not suitable for all debtors, The Insolvency Service put forward a proposal for a non court based debt relief scheme, with the aim of providing certain debtors with better access to debt relief.
The result is a new scheme called Debt Relief Orders that came into force on April 6th 2009. Below is an overview of who the DRO are suitable for and what the effects are. If you need any more information, then please contact us.
Who is eligible for a DRO?
A DRO is suitable for a debtor who does not own their own home, have less than £50 surplus income per month, less than £300 worth of assets and less than £15k worth of debt.
How does a DRO work?
In contrast to other debt relief methods, applying for a DRO is made online, not through the courts, and is delivered in partnership with debt advisors. The order is made by the Official Receiver and usually lasts for about 12 months. During that time creditors named on the order will not be able to attempt to recover or enforce their debt, unless they have agreement from the court. At the end of the 12 months, if the debtor's financial circumstances haven't changed then the debts will usually be written off.
If for any reason it's believed that the debtor has not been entirely truthful on their application and hasn't disclosed all their assets, then the Official Receiver has the right to investigate and may revoke the order. If at any point during this period the debtor's financial circumstances improve, they have to make steps to repay their creditors.
How is this different to bankruptcy and other debt relief solutions?
There are a couple of differences between a DRO and other debt remedies. The application fee is much less than applying for bankruptcy or an IVA and it's not applied for through the courts, so no court costs are associated. A debtor who applies for a DRO will not own their own home and so the Official Receiver will have no legal claim over the property and will not be able to pay dividends to creditors.
Final Word
DROs are a cheaper method of debt relief for a certain population but it's not an easier option to take. Debtors will only be able to access a DRO once every 6 years and it will have a lasting impact on their credit rating. Their DRO will also be listed on the Individual Insolvency register the same as bankruptcies currently are.
