How Do I Qualify For A Debt Relief Order?

  • After paying tax, national insurance, and other regular household expenses, you have less than £75 to spend each month.

If you’re in the midst of a bankruptcy or other formal insolvency procedure, you won’t be eligible. If one of your creditors has asked the court to declare you bankrupt, you may get permission from the creditor to apply for a DRO instead.

Why would a DRO be refused?

If you’ve done any of the following in the two years leading up to your DRO application, it could be denied:

  • Paying off a debt owing to a relative but not paying your other bills is an example of making one debt a priority.

Does a DRO check your bank account?

A Debt Relief Order (DRO), like filing bankruptcy, can have substantial consequences in many areas of your life. While a DRO can certainly help you get out of debt, it might also make other elements of your life more challenging. What impact will a DRO have on your bank account, mortgage, credit score, or even your relationship? The first thing to keep in mind is that a DRO will stay on your credit report for a total of six years. As a result, borrowing money will be extremely difficult, and often more expensive, during this period. DROs can also effect what jobs you’re allowed to have, whether you’re allowed to run a business, and whether or not your spouse or partner is allowed to borrow money. DROs have a less severe impact on a person’s lifestyle than bankruptcy because they are for debts of less than £20,000 and are not granted to persons who own their homes or have considerable assets. Furthermore, because they are so brief and prohibit creditors from reaching you, they can provide significant respite from the stress of such obligations.

How will a DRO affect your bank account?

Unless it is designated as a creditor, your bank will not be notified of your DRO. As a result, if it isn’t, you shouldn’t notice any difference. Your bank, on the other hand, may opt to freeze your account if it is listed in your DRO or if it discovers that you have one. Furthermore, having a DRO on your financial record will make opening a new bank account more difficult. Due to the negative impact a DRO will have on your credit score, most banks will only provide you a basic bank account. You can use these accounts to make deposits, pay with a debit card, set up direct debits, and withdraw money from ATMs. You will not, however, be given an overdraft or any other financial incentives. Of course, each bank is unique, and as a result, each has its own policies regarding what DROs are available to consumers. It is therefore recommended that you contact a bank to learn more, either through its customer service line or by visiting a local branch.

What is better IVA or DRO?

A DRO is a better choice than bankruptcy. Creditors that are part of your IVA cannot take legal action against you or demand repayment. Creditors who are listed on your DRO cannot initiate legal action against you or demand repayment. Only a few IVAs are required to be filed with the court.

Can a DRO be refused?

Because your partner earns a lot of money, a DRO will not be denied, and they will not be forced to pay your debts. You are merely being questioned about their earnings so that your rent and bills can be allocated fairly between you. A 50/50 split would be normal if you both make the same amount of money.

Can I get a mortgage if I’ve had a DRO?

For once, there is a simple and straightforward response – no. You can’t get a mortgage if you have a DRO, and you can’t get a mortgage if you don’t have a DRO.

This is due to the fact that the DRO is intended for those who do not have any assets or equity that could be used to pay off their obligations. In England and Wales, you must have debts of less than £20,000, and in Northern Ireland, you must have obligations of less than £15,000. You are also prohibited from owning a car worth more than £1000.

If you own a house, it’s likely that you’ll be able to re-mortgage or downsize it to pay off your debts, and that you’ll be able to pay them off with another insolvency solution in the future.

Even if you are currently in negative equity, possessing such a large asset disqualifies you from a DRO.

If you want to get a mortgage, you won’t be able to do so while in your DRO. But don’t lose hope; your dream may yet come true one day. A DRO is only good for a year.

You can apply for a mortgage once this time has passed. However, you should be aware that your credit score is going to be quite poor. This is a result of your previous debt troubles, as well as the fact that your DRO will remain on your credit record for a total of 6 years after it is approved.

It is advisable to devote time to improving your credit score before applying for a mortgage in order to maximize your chances of receiving a low deposit and interest rate.

What debts can go in a DRO?

Qualifying debts are those that can be included in a DRO. Creditors can’t ask you for payments during the DRO period, and if they do, you don’t have to pay them. They are as follows:

If you received any of these by deception, you will still be responsible for paying them once the DRO expires.

How long after a DRO can I get credit?

Your DRO will be recorded in your credit report. It can hurt your chances of acquiring credit from some lenders because it implies you’ve had trouble making payments in the past.

You can’t acquire credit worth more than £500 unless you tell the lender you have a DRO. When a lender notices a DRO on your credit file, they may reconsider providing you with credit.

Your DRO notation will remain on your credit file for up to six years following the date of the DRO. This means you may have to wait a long time for credit in the future.

You can also have trouble opening a new bank account during the DRO and for a while after it ends.

If you need a new place to live while you’re on a DRO, your alternatives may be limited. When you apply for a rental, many private landlords and letting agencies may require credit checks, and because the DRO will appear on your credit report, you may be refused down or charged additional fees.

If you’re concerned about how a DRO may influence your credit score, you should consider another debt solution.

Is a DRO a good idea?

A debt relief order is the best option for many people who are drowning in debt, but it isn’t right for everyone because it only applies to particular types and levels of debt. A DRO can have a significant impact on your credit score and lifestyle, thus it should not be used lightly. There may be better solutions available depending on your circumstances. Debt consolidation, Individual Voluntary Arrangements (IVAs), and bankruptcy are some of the choices available. To find out which is ideal for you, take our quick online assessment.

Can I work while on a DRO?

If you work part-time or full-time and know you won’t be able to repay your unsecured obligations, you may be eligible for a DRO.

If you’re thinking about getting a Debt Relief Order, or DRO, you’re probably worried about your unsecured obligations and don’t see how you’ll ever pay them off.

The truth is that whether you work part-time or full-time, you may still be eligible for a DRO. One of the eligibility requirements is that you have a monthly discretionary income of less than £50. Even if you work, you may still be in this situation because you may have a lot of expenses, such as childcare or necessary travel.

It makes no difference whether you have a job or not if a DRO is the best answer for you. Speak with a debt counselor about your alternatives, since a DRO is just one of many debt relief options available, depending on your circumstances.

How does a DRO affect my partner?

A Debt Relief Order (DRO) is for persons who can’t afford to pay much, if anything, towards their debts of less than £30,000 and don’t own a home.

If you satisfy the requirements for a DRO, it is usually the best debt solution for you unless you expect your condition to drastically improve in the near future.

It’s been dubbed “bankruptcy light” because it eliminates debts while costing significantly less in fees (just £90) and being much easier than bankruptcy.

The DRO criteria

The DRO restrictions outlined above are new, more generous limits that will take effect in June 2021.

Unlike most other debt relief options, you must be able to follow all of the conditions in order to obtain a DRO; there is no “wiggle room.” The following are the most important:

  • £30,000. You can’t choose to leave a bill unpaid in order to stay within this limit — this is covered in this article;
  • Your assets must be worth less than £2,000 in secondhand value. That may appear to be a low figure, however common home items, clothing, and other items are not tallied, and there is a separate allowance for a car (see below);
  • You are not allowed to own a car or motorcycle costing more than £2,000 (based on Parkers value numbers);
  • After paying all of your regular payments and costs, you must have less than £75 each month left over. For more information, see the section below.

Aside from these major restrictions, there are a few technical reasons why you might not be eligible for a DRO, such as:

  • If you’re over 55, you won’t be able to get a substantial undrawn pension. (For further information, see Pensions and DROs.) The person who sets up your DRO will be able to tell you whether or not this will be an issue.)

The £75 “spare income” test

You could be hesitant to pay £75 “amount of “spare income” The debt expert who sets up your DRO will estimate your level of spare income (see below).

I’ve met folks who had an IVA payment of over £100 offered to them and who would have been readily able to pay it “On the DRO criterion, “less £75” is required.

You will always pass this test if all of your income comes from benefits or a state pension, so don’t worry about disability benefits like DLA or PIP making you have an excessive income.

The expenditure allowances are shockingly generous for some people who have been suffering with debt repayments. It’s possible that this is the first time in years that you’ve had any money to spend on clothes!

Debts cleared after a year

Your obligations are wiped after a 12-month “moratorium period” under a DRO. Your creditors are not authorized to bother you or take any action against you during this year.

If your circumstances change dramatically during the year (perhaps you find a well-paying job? If you lose your job or inherit a large sum of money, your DRO will be cancelled. This is a somewhat uncommon occurrence; for more information on why and how frequently it occurs, check this article.

But not quite all debts

A DRO does not eliminate all debts. The following are two items that cannot be included in a DRO:

  • Fines imposed by magistrates’ courts, including fines for violations of television licenses (but fixed penalty fines such as parking fines and the London Congestion Charge can be included).

For a complete list, see the National Debtline factsheet. When determining if your total obligations are less than £30,000, any excluded debts are ignored.

No monthly payments during the DRO year

Because a DRO is meant for persons who have little or no extra income, you will not be required to make any monthly payments.

This is a significant advantage over an IVA, which typically requires payments for five years, and a DMP, which can take a long period if you can only make little payments.

What about my partner?

If you and your partner both have debts and want a DRO, you must each file separately – a joint DRO does not exist.

If you have a DRO but your partner does not, they will be held solely accountable for any previously shared debts. Not just a combined bank loan, but also items like council tax arrears.

Unless you have any joint financial products, such as a common bank account, a DRO will have no effect on the credit rating of anyone living in your home.

A quarter of a million DROs – but you may not have heard of them!

In 2008, DROs were introduced. It was announced ten years later, in November 2018, that the 250,000th DRO had been established.

Companies who provide IVAs make a lot of money from them, so they push them. No one makes money if you choose a DRO, thus they aren’t advertised.

Who does a DRO suit?

A DRO is often the best solution for people who rely on benefits for all or most of their income. It is a logical decision if you are a pensioner or have a long-term health condition. If you have a young family and a low-paying job, it may take years before you are free of childcare expenses, therefore a DRO may be a suitable option for you.

A DRO is unlikely to be your best solution if you only have a short-term financial difficulty. It clears your obligations after a year, but it will have a negative impact on your credit file for the next six years. This is a disadvantage that is well worth it if you have a huge debt problem, but not if you are having a short-term problem.

A DRO is usually a better alternative than an IVA if you qualify. A DRO does not require you to make any monthly payments, and while it is extremely rare for a DRO to fail, more than 30% of IVAs fail, leaving you with your obligations.