For a significant time it was a common perception that bankruptcy proceedings are a better option for those individuals who find themselves in a position that they cannot repay their debts – thereby seeking sanctuary away from the stress of aggressive creditors and debt collectors. But what is not commonly known or understood is that to avail of this protective measure, the same individual has to stump up £680 (in England and Wales) to pay for a Court fee and deposit payable to the Official Receiver.
For the socially excluded – such as single parent families or persons whose only income is derived from state benefits or pensions - this can effectively deny them from this option leaving them to the mercy of unscrupulous loan sharks or never-ending repayment plans where they will be lucky to be ever freed from the burden of unmanageable debt.
In order to address this anomaly, the Debt Relief Order was been introduced. It’s available in England, Northern Ireland and Wales. Scotland has different but similar procedures.
Who can apply for a Debt Relief Order (DRO)?
Debt Relief Orders are designed to give those who have debts of £20,000 or less, assets of less than £1,000 excluding a modestly valued car, and surplus income of less than £50 per month, the opportunity to apply for an Order that will lead to the debts being discharged after just one year. During this period, the people party to the Order will be protected from enforcement action from their creditors and subject to similar restrictions which are currently instigated under more formal bankruptcy proceedings.
How do Debt Relief Orders (DRO’s) work?
The process for obtaining a Debt Relief Order will be to apply via an approved intermediary – often accessed via the Money Advice Service. The application fee is £90.
Debt Relief Orders are recorded on a public register.
Using a DRO will have a serious effect on your credit rating.