Making the decision to declare bankruptcy is a significant move that requires serious thought. Fortunately, there are other ways to deal with overwhelming debt. A debt relief order, for instance, is an alternative. Debt relief orders allow certain people to have their debt cancelled. It may be a good option for individuals with minor debt and limited assets. If you want to apply for debt relief online, you can learn more with an online search.
Understanding Debt Relief Orders
A debt relief order (DRO) is a legal procedure that assists individuals in settling their debts without the need to declare bankruptcy. It’s applicable in England and Wales for those with debts of £30,000 or less and in Northern Ireland for those with £20,000 or less.1 If you’re facing financial distress and can’t afford your debt repayments, a DRO might be an appropriate resolution.
Recipients of a DRO are provided with a 12-month debt moratorium, during which certain types of debt are not required to be paid. Once this period concludes, the debts specified in the DRO are written off, unless the individual’s financial situation has changed for the better. For instance, if you receive a significant salary increase enabling you to repay your debts, your DRO might be annulled.
Types of Debts Covered Under Debt Relief Orders
It’s important to note that only certain types of debts are covered under a DRO.2 Qualifying debts include credit card debt, various types of arrears such as rent and telephone bills, ‘buy now, pay later’ agreements, and business debts. This means that if qualifying debts are causing financial hardship, a DRO may be a possible solution. Online research can help you determine if your debts are eligible for a DRO.
Qualifying for a Debt Relief Order
In addition to the maximum permissible debt level, there are other eligibility criteria to keep in mind. For example, proof of financial difficulty and inability to pay off your debts is required. Part of this is having less than £75 remaining after covering household expenses, taxes, and national insurance each month.3
Unfortunately, you’re disqualified if you possess substantial assets such as a house or if you’ve received a DRO in the preceding six years. Furthermore, you must have resided or worked in England, Wales, or Northern Ireland within the last three years. An online search can help you learn more about requirements.
Debt Relief Orders — Pros and Cons
While contemplating a debt relief order as a solution for your debt situation, it’s essential to thoroughly consider the advantages and disadvantages. With this in mind, let’s take a look at some of the pros and cons.4
Advantages of Debt Relief Orders:
- Possibility of debts being written off after the DRO term
- No requirement to repay certain debts during the term
- Protection from debt collectors during the term
- More affordable than other formal debt resolution methods
Disadvantages of Debt Relief Orders:
- Negative impact on your credit score
- Inclusion in your credit file for six years
- Certain debts not covered by DROs
- Some occupations disallow insolvency
How To Apply for Debt Relief Online
Once you understand the basics of debt relief orders, you probably want to know how to apply. It’s a good idea to begin by thoroughly understanding the procedure. Online research can help you get a clear picture of how it works.
Then, consider consulting with an authorized debt adviser. They can evaluate your eligibility for a DRO and assist you in considering its pros and cons. If you opt to move forward, they can guide you through the application process.
An official receiver then reviews your application, typically delivering a decision within 10 business days. If your DRO is granted, the official receiver will inform your creditors that they cannot demand repayment during the term.5
Debt Relief Order Alternatives
Though a DRO may be beneficial if you’re struggling with debt, it isn’t the sole solution. Bankruptcy is another method to relieve debts but is typically viewed as a last resort due to its enduring repercussions.
Other alternatives include individual voluntary arrangements, administrative orders, and debt management plans. Ensure you fully understand each solution and consider consulting with a debt advisor before proceeding.
Additionally, it’s noteworthy that DROs are only accessible in England, Wales, and Northern Ireland. For those residing or working in Scotland, a minimal asset process bankruptcy is a similar resolution for your debt issues.6
The Bottom Line
Debt relief orders present a solution for individuals in England, Wales, and Northern Ireland to resolve debts without resorting to bankruptcy. If you’re grappling with growing debt and investigating your options, a DRO might be an avenue to consider.
Remember, DROs come with benefits and drawbacks, so it’s vital to thoroughly analyze your options and seek expert advice before deciding. A debt relief order can provide debt clearance and financial relief, but it may not be the optimal choice for everyone.