What is a Debt Relief Order and who is eligible?

Full answer

A Debt Relief Order provides a simpler, cheaper route than bankruptcy for people who are genuinely unable to pay their debts but do not have significant assets or income, making full bankruptcy proceedings unnecessary and disproportionate. **The eligibility criteria** To qualify for a DRO, you generally need to meet several conditions simultaneously: your total qualifying debts must be below a set limit, your disposable income (after reasonable living expenses) must be below a set monthly amount, and the total value of your assets (excluding certain protected items such as reasonable household goods, a car below a certain value if needed for work or a disability, and tools of your trade) must be below a set threshold. You must also have lived or worked in England or Wales in the past three years and not have used a DRO within the previous six years. **How to apply** Unlike bankruptcy, which involves the courts directly, a DRO application must be made through an authorised debt adviser (called an 'approved intermediary'), typically at a debt advice charity, who assesses your eligibility and submits the application on your behalf to the Insolvency Service -- you cannot apply for a DRO directly yourself without going through an approved intermediary. **What happens once granted** Once a DRO is granted, creditors included in the order cannot pursue you for the included debts, and no interest or charges can be added, for the duration of the DRO (normally 12 months) -- referred to as the 'moratorium period'. If your financial circumstances do not significantly improve during this period (for example, you do not receive a large inheritance or start earning substantially more), the included debts are then written off entirely at the end of the 12 months. **What happens if your circumstances improve** If your income or assets significantly increase during the 12-month moratorium period -- for example, you get a much better paid job or come into money -- you must inform the Insolvency Service, and your DRO could be revoked, potentially leaving you liable for the debts again (though you may then have other debt solutions available, such as an IVA or bankruptcy, depending on your new circumstances). **Impact on your credit file and restrictions** A DRO is recorded on your credit file for six years from the date it is approved, similar in length to an IVA or bankruptcy, making it harder to obtain credit during this period. Similar restrictions to bankruptcy also generally apply during the moratorium period, such as not being able to obtain credit above a certain amount without disclosing the DRO, and restrictions on certain business activities. **Debts that cannot be included** Some debts cannot be included in a DRO, such as court fines, child maintenance arrears, student loans, and certain other specific debt types -- these remain payable in full even after the DRO's other included debts are written off. **Worked example** Someone with £12,000 of credit card and overdraft debt, low income from part-time work leaving little disposable income after essential costs, no property, and only modest personal possessions and an old car of low value, is assessed by a debt advice charity as eligible for a DRO. The order is approved, freezing action from creditors and any interest for 12 months. Their circumstances do not improve significantly during this time, and the full £12,000 of included debt is written off at the end of the moratorium period. **Practical tip** Always seek free advice from a reputable debt advice charity to check DRO eligibility and whether it is the right solution for you compared with other options like an IVA or bankruptcy, since eligibility depends on several specific financial thresholds that can change and should be confirmed at the time you apply.

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