Debt Relief Orders

Debt Relief Orders

What is a debt relief order?

For people with little or no income and few assets Debt Relief Orders provide an attractive straightforward alternative to bankruptcy, debt management plans or an IVA. If your debts are preventing you from getting your finances in order a Debt Relief Order could be worth considering.

When you’re unable to make your monthly repayments or are limited to paying back only the minimum each month, which would mean you’re never able to clear the debt, that debt becomes ‘bad debt’. A debt relief order or DRO is a way of clearing ‘bad debt’. A DRO is one year, after which your debts are written off.

Bad debt relief comes in a variety of forms; you could take a bad debt consolidation loan, or use equity from your property or a mortgage loan to pay off the debt. However, it’s very important to think carefully before securing debt against your property. Once you proceed with this type of bad debt relief you could be in danger of losing your home if you don’t manage your finances prudently.

Bad debt relief is used to alleviate the financial pressure of debt. You should see it as a lifestyle change, meaning that you need to commit to dedicating all of your available finances to freeing yourself from debt - cut up credit cards and store cards once you have paid them off and only live within your means.

Advantages of a Debt Relief Order

• Debts will be written off after 1 year.
• Creditors can’t take further action against you without permission from the Court.
• The £90 fee is less than the cost of petitioning for bankruptcy.

Disadvantages of a Debt Relief Order

• Only people who are left with £50 a month after paying their expenses are eligible for a DRO.
• If you’ve assets of £300 or more, you won’t be able to get a DRO.
• Items that have a conditional purchase agreement may have to be returned for credit.
• You’ll be unable to obtain credit over £500 without first informing the lender of your DRO.
• A Debt relief order stays on your credit record for six years.
• If you are a homeowner, you are ineligible.
• Your employment may also be affected because a DRO appears on your credit report.
• Student loans and certain fines cannot be cleared through a DRO.
• You may be refused a bank account.