DRO guide

Free, ImpartialDebt Advice

StepChange Debt CharityDRO Guide

Contents

Introduction How this guide will help you 3

Section 1 DROs 4­• What­is­a­debt­relief ­order?

• Debt­relief ­order­criteria­

• How­do­I­apply­for­a­debt­relief ­order?

­• What­debts­are­included­in­a­debt­relief ­order?

• What­assets­are­included­in­a­debt­relief ­order?

• What­happens­when­I­am­on­a­debt­relief ­order?

• What­happens­when­my­DRO­has­finished?

Section 2 Other debt solutions 10­• Debt­management­plan­(DMP)

• Bankruptcy­

• Temporary­Payment­Arrangement

Section 3 Our debt help 13­• How­can­we­help

• Contact­us

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StepChange Debt CharityDRO Guide

Introduction

Free anonymous debt adviceFree­debt­help­online­from­StepChange­DebtCharity­at­www.stepchange.org

How this guide will help you

StepChange­Debt­Charity­is­the­leading­UKdebt­charity.­Every­year­we­help­hundreds­ofthousands­of ­people­beat­problem­debt.­Wegive­free,­realistic­debt­advice­and­provide­arange­of ­debt­solutions.­

If ­you’re­struggling­with­debt­repayments­an­option­toconsider­may­be­a­debt­relief ­order­(DRO).­A­DRO­isa­form­of ­insolvency.­There­are­strict­qualifyingcriteria­that­you­need­to­meet­before­you­can­apply.

This­guide­will­give­you­all­the­information­you­needabout­DROs.­It’ll­help­you­to­decide­whether­a­DRO­isthe­best­solution­for­you.­­

The­guide­explains:

•­What­a­DRO­is­

•­Who­a­DRO­is­suitable­for­

•­What­to­expect­when­you­apply­for­a­DRO

•­How­we­can­help

Why­us?

We­have­a­specialist­team­who­can­help­and­supportyou­through­the­whole­application­process.­We­don’ttake­fees­for­our­advice­or­support­at­any­point.

To­see­if ­you­meet­the­DRO­criteria­use­our­onlineStepChange­Debt­Remedy­tool.­Or,­call­ourfreephone­Helpline­on­0800­138­1111­to­speak­to­oneof ­our­qualified­debt­advisors.­

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StepChange Debt CharityDRO Guide

DROs

What is a debt relief order?

A­DRO­is­a­form­of ­insolvency­costing­£90.­Itwas­introduced­by­the­Government­in­2009for­people­on­lower­incomes­who­are­unableto­pay­their­debts­back.­

DROs­are­suitable­for­people­whose­financialsituation­is­unlikely­to­improve­in­the­foreseeablefuture.­DROs­are­granted­by­an­official­receiver.­Ifyour­application­is­successful­you­will­become­debtfree­and­able­to­make­a­fresh­start.­

As­soon­as­your­DRO­application­has­been­submittedyour­creditors­are­no­longer­allowed­to­contact­you.This­means­no­more­letters­or­contact­from­them.­

Your­debts­will­then­be­written­off­after­12­monthsunless­your­circumstances­improve.­You­do­not­haveto­make­any­payments­to­creditors­included­in­theDRO­once­the­official­receiver­has­approved­yourapplication.­­

Free,­impartial­debt­relief ­order­advice

A­DRO­is­a­legal­procedure­with­implications­andrestrictions­you­must­abide­by.­We­stronglyrecommend­that­you­get­professional,­impartialadvice­before­applying.

Our­debt­advisors­and­online­StepChange­DebtRemedy­tool­can­give­you­the­free,­realistic­debtadvice­you­need­to­find­out­which­solution­is­best­for­you.­

If ­it­is­a­debt­relief ­order­our­specialist­DRO­team­canhelp­you­through­the­process.­

Free debt adviceFree­debt­help­from­StepChange­Debt­Charitycall­0800 138 1111

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StepChange Debt CharityDRO Guide

DROs

Debt relief order criteria

Debt­relief ­orders­are­designed­for­the­mostfinancially­vulnerable­so­the­qualifying­criteria­is­strict.Your­application­must­be­true­and­accurate­and­The­Insolvency­Service­will­not­return­the­fee­paid­if ­declined.­

Eligibility

The­information­you­submit­must­be­true­andaccurate­as­it­is­an­offence­to­mislead­the­OfficialReceiver­about­your­situation.­

Not­everyone­will­qualify­for­a­DRO.­To­be­eligible­fora­DRO­you­need­to­meet­the­following­criteria:

•­Your­current­debt­balances­must­not­total­more­than­£20,000­

•­You­cannot­own­assets­worth­more­than­£1000

•­You­must­have­no­more­than­£50­left­over­eachmonth­after­paying­your­household­bills

•­You­cannot­own­a­domestic­vehicle­that­is­worthmore­than­£1,000

•­You­must­not­currently­involved­in­other­insolvencyproceedings­or­had­a­previous­DRO­within­the­lastsix­years

•­You­must­have­lived,­had­a­property­or­carried­outbusiness­in­England,­Wales­or­Northern­Ireland­inthe­last­three­years.

The­Official­Receiver­can­perform­an­investigation­aspart­of ­the­application­process­and­can­reject­theorder­if:

•­You­have­given­away­property­or­other­assets,­orsold­it­for­less­than­its­true­value­in­the­last­two­years.

•­If ­you­have­shown­preferential­treatment­in­thepayments­to­some­of ­your­creditors­over­others­inthe­last­two­years.­

Free anonymous debt adviceFree­debt­help­online­from­StepChange­DebtCharity­at­www.stepchange.org

How do I apply for a debt relief order?

Debt­relief ­orders­are­administered­by­an­OfficialReceiver­at­The­Insolvency­Service.­You­can­onlyapply­for­a­debt­relief ­order­through­an­approvedthird­party­who­are­deemed­to­be­a­CompetentAuthority­in­debt­advice.

DRO­Competent­Authorities­

We­are­one­of ­the­few­organisations­that­can­submit­a­debt­relief ­order­application.­A­full­list­of ­theCompetent­Authorities­is­available­from­TheInsolvency­Service.

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StepChange Debt CharityDRO Guide

DROs

Debt­relief ­order­fee

A­DRO­costs­only­£90­which­makes­it­a­low­cost­formof ­insolvency­for­people­unable­to­afford­bankruptcy.The­fee­should­be­paid­straight­to­the­InsolvencyService­in­cash­at­any­Payzone­outlet­either­in­full­orin­instalments­over­a­period­of ­six­months.­

However­the­fee­does­need­to­be­paid­in­full­beforethe­Official­Receiver­will­consider­your­debt­relieforder­application.­

Benefits­of ­DRO­application­process­with­us

We­have­a­dedicated­DRO­team­that­will­help­youthrough­every­stage­of ­making­an­application.­

As­the­£90­fee­is­non-refundable­and­you­can­onlymake­a­DRO­application­every­six­years­it­is­crucialthat­you­meet­the­qualifying­requirements­and­yourinformation­is­true­and­accurate.­

We­can­check­your­application­to­ensure­it­isaccurate­and­fits­the­qualifying­criteria­to­greatlyincrease­the­likelihood­an­application­is­accepted­byThe­Insolvency­Service.­If ­the­fee­is­paid­and­you­fitall­the­qualifying­criteria­your­order­will­begin.­

What debts are included in adebt relief order?Only­certain­types­of ­debts,­called qualifying­debts,­can­be­included­in­a­debt relief ­order­and­these­must­not­exceed£20,000.

The­Insolvency­Service­can­investigate­your­financialsituation­as­part­of ­the­debt­relief ­order­applicationprocess.­It­is­an­offence­to­mislead­the­OfficialReceiver­or­omit­information­about­your­level­of ­debt.

Debt­relief ­order­debts­

The­following­types­of ­qualifying­debts,­includingarrears,­can­be­included­in­your­debt­relief ­order­application:

•­Credit­card­debt,­overdrafts,­loans

•­Rent,­utilities,­telephone,­council­tax

•­Social­loans­or­benefit­overpayments

•­Conditional­sale­or­hire­purchase­(HP)­agreements

•­Items­bought­on­finance.­

You­must­list­all­of ­your­debt­accurately­including­any accumulating­interest­up­until­the­point­you­submit your­application.­The­Insolvency­Service­may­reject an­application­if ­the­accrued­interest­takes­the­level of ­debt­over­the­£20,000­limit.

Hire­Purchase­(HP)

You­do­not­own­conditional­sale­or­HP­items­until­theyare­paid­off­and­you­cannot­continue­paying­themwhen­on­a­DRO.­The­items­would­usually­have­to­bereturned­or­transferred­over­to­another­person­alongwith­the­responsibility­of ­the­monthly­payments.­Youmay­be­allowed­to­keep­the­items­if ­they’re­essentialand­you­have­no­arrears.

Are­any­debts­excluded­from­a­debt­relief ­order?

There­are­certain­types­of ­debt­that­you­are­unable­toinclude.­You­would­still­be­liable­to­pay­the­following:

•­Student­loans

•­Child­support­and­maintenance

•­Criminal­fines

•­Secured­loans­or­mortgage­payments­

•­TV­licence­arrears

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StepChange Debt CharityDRO Guide

DROs

What assets are included in adebt relief order?

A­debt­relief ­order­is­an­insolvency­option­for­people with­low­asset­wealth.­If ­your­assets­total­more­than£1000­in­value,­you­will­not­be able­to­apply­for­a­DRO.

What­are­assets?

Assets­are­items­of ­value­that­you­own­that­could­besold­or­converted­into­money.­These­can­include:

•­Vehicles

•­Property

•­Antiques

•­Shares

•­Savings

It’s­worth­noting­that­your­assets­are­valued­by­theamount­you­would­receive­if ­they­were­re-sold­in­theircurrent­condition­and­not­the­amount­you­purchasedthem­for.

Debt­relief ­order­and­your­vehicle­

To­qualify­for­a­debt­relief ­order­the­total­value­of ­your­assets­must­not­be­more­than­£1000­in­value.­If ­you­own­a­car­then­this­cannot­be worth­more­than­£1,000.

How­is­a­car­valued?­

The­intermediary­who­submits­your­DRO­applicationwill­work­out­the­value­of ­your­car­based­on­typicalsale­prices.­If ­your­car­is­worth­more­or­less­thanaverage,­you­can­provide­your­own­independentvaluation­from­two­garages.

Can­I­apply­for­debt­relief ­order­if ­I­own­my­home?

If ­you­own­a­property,­even­if ­it­is­in­negative­equity­oryou­own­it­outright,­it­is­still­an­asset.­So­your­debtrelief ­order­application­will­not­be­accepted.

What­assets­are­excluded­from­a­debt­relief ­order?

There­are­a­few­everyday­items­that­the­OfficialReceiver­will­not­consider­when­totalling­up­yourasset­wealth.­This­includes­the­following:­

•­Household­items­like­bedding,­clothing­and­furniture.

•­Anything­used­for­your­employment­including­toolsor­books

•­A­vehicle­worth­less­than­£1,000

•­A­vehicle­that­has­been­adapted­to­help­with­aphysical­disability.­

Pensions

A­pension­fund­could­be­considered­an­asset. However­it­is­not­counted­towards­the­£1,000­asset limit,­even­if ­you­have not­yet­retired.­If ­your­pension­fund­is­not­approved by­HMRC,­your­pension­savings­may­be­treated­as­an­asset.

Free­advice­

If ­your­asset­wealth­is­too­large­for­a­DRO­but­stillless­than­your­total­debt­bankruptcy­could­be­a­moreappropriate­insolvency­option.­But­this­is­a­complexissue­and­it’s­important­you­get­expert­help­beforemaking­any­moves­towards­bankruptcy.

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StepChange Debt CharityDRO Guide

DROs

What happens when I am on adebt relief order?

If ­the­Insolvency­Service­accepts­your­debt­relieforder­application­it­generally­lasts­for­12­months.When­you­are­on­a­debt­relief ­order­you­are­subjectto­certain­protections­and­limitations.­

Moratorium­period

Once­your­DRO­is­approved­a­‘moratorium’­period­isplaced­on­the­debts­listed­in­the­order.­This­meansyour­creditors­cannot­take­any­action­to­recover­theirdebt.­If ­they­do,­you­should­inform­them­you­aresubject­to­a­debt­relief ­order.

When­the­moratorium­period­ends,­if ­your­financialsituation­has­not­improved,­the­debts­that­wereincluded­in­the­original­application­are­written­off.­Butyou­would­need­to­continue­paying­your­currenthousehold­bills­and­expenses­including­rent,­counciltax,­gas,­electricity­and­water­rates­as­well­as­any­additional­debts­taken­out­since­the­DRO­was­granted.­

Can­I­get­credit­while­on­a­debt­relief ­order?

The­DRO­will­appear­on­your­credit­file­and­on­apublic­register.­It­will­affect­your­credit­rating­so­youmay­struggle­to­obtain­further­credit.­Also,­you­mustinform­the­bank­you­are­on­a­DRO­if ­you­are­applyingfor­an­overdraft­over­£500.­

If ­you’re­struggling­to­open­a­current­account,­nearlyevery­bank­offers­a­basic­bank­account.­Most­basicaccounts­allow­direct­debits­and­standing­orders­aswell­as­a­cash­card,­with­some­providing­debit­cards.But­none­will­have­an­overdraft­facility.­

What­can’t­I­do­if ­I­am­on­a­debt­relief ­order?

For­the­length­of ­your­DRO­there­are­certain­thingsyou­cannot­do.­These­are­called­restrictions­and­include:

•­Getting­credit­over­£500­without­informing­thelender­you’re­on­a­DRO

•­Carrying­on­a­business­under­a­different­namewithout­revealing­your­previous­business­wassubject­to­a­DRO

•­Setting­up­a­Limited­company­or­acting­as­acompany­director­without­permission­from­a­court.

Debt­Relief ­Restriction­Order

If ­the­Insolvency­Service­believes­you­have­beenintentionally­dishonest­they­can­apply­for­a­DebtRelief ­Restriction­Order­to­extend­the­restrictions­forup­to­15­years.­The­DRO­would­still­end­after­a­yearand­the­debts­written­off­but­failure­to­abide­by­therestriction­extension­is­a­criminal­offence­punishableby­a­fine­or­imprisonment.

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StepChange Debt CharityDRO Guide

DROs

What­happens­if ­I­am­on­a­DRO­and­mysituation­changes?­

If ­your­situation­changes­you­should­tell­the­OfficialReceiver­who’ll­consider­terminating­the­order.Reasons­for­this­can­be:

•­Taking­out­new­debt­that­is­over­£500

•­Any­improvement­in­your­income­

•­Receiving­lump­sums­of ­money­or­assets­

The­Official­Receiver­can­also­terminate­the­DRO­ifthey­uncover­any­intentional­inaccuracies­in­youroriginal­application

It’s­your­responsibility­to­inform­the­Official­Receiverof ­changes­in­your­situation.­It’s­an­offense­to­giveaway­or­hide­assets­and­you­must­co-operate­withThe­Insolvency­Service­if ­asked­to.

What happens when my DROhas finished?

If ­you­have­followed­the­restrictions,­co-operated­withthe­Official­Receiver­and­acted­honestly­during­themoratorium­period­a­DRO­should­leave­you­debt­freeand­able­to­make­a­fresh­financial­start­within­a­year.­

Creditor­action­after­a­DRO

When­your­debt­relief ­order­finishes­all­of ­thequalifying­debts­named­in­the­order­will­be­written­offalong­with­any­liability­to­pay­them­back.­

The­DRO­does­not­protect­you­from­creditor­action­forany­debt­you­may­have­taken­out­that­was­not­listed­inthe­original­application.­

You­can­only­apply­for­a­debt­relief ­order­once­everysix­years.­

Can­I­get­credit­after­a­debt­relief ­order?­

A­debt­relief ­order­is­a­form­of ­insolvency­so­it­willremain­on­your­credit­file­for­six­years.­Creditors­willbe­able­to­see­this­when­you­apply­for­new­credit­soyou­may­find­it­difficult­to­take­out­credit­during­this­time.­

If ­you­struggle­to­open­a­bank­account,­there­is­theoption­of ­a­basic­bank­account.­Every­bank­offers­abasic­account.

Free anonymous debt adviceFree­debt­help­online­from­StepChange­DebtCharity­at­www.stepchange.org

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StepChange Debt CharityDRO Guide

Other debt solutions

The­qualifying­criteria­for­a­debt­relief ­orderis­very­strict­and­dependent­on­yoursituation­remaining­the­same­for­12­months.­

If ­you­do­not­qualify­for­a­DRO­or­you­are­on­an­orderand­your­situation­changes,­there­will­be­other­debtsolutions­for­you­to­consider.­

We­recommend­you­get­impartial,­professional­debthelp­to­ensure­you­get­the­best­solution­for­you.­Ouronline­StepChange­Debt­Remedy­tool­can­help­youwith­this.­

In­the­meantime,­this­part­of ­the­guide­will­summarisesome­other­debt­solutions­which­may­be­better­for­you:

•­Debt­management­plan­(DMP)

•­Token­Payment­

•­Bankruptcy.

Debt management plan (DMP)

A­debt­management­plan­(DMP)­is­suitable­for­peoplewho­have­some­money­left­over­each­month,­but­notenough­to­cover­all­their­debt­repayments.­If ­you­havemore­than­£50­spare­money­left­over­each­month­aDMP­could­allow­you­to­make­a­single,­affordablemonthly­payment­towards­your­debts.­

How­does­a­DMP­work?

A­debt­management­plan­is­normally­arrangedthrough­a­third­party.­The­third­party­will­work­out­howmuch­you­can­realistically­afford­to­pay­each­month.They­will­then­contact­your­creditors­to­ask­them­toaccept­a­reduced­monthly­payment.­

They­will­also­manage­the­distribution­of ­the­moneybetween­all­your­creditors,­so­that­you­don’t­have­todeal­with­them.

•­A­DMP­will­take­longer­to­repay­your­debts

•­Interest­and­charges­will­increase­the­total­balanceyou­pay­

•­A­DMP­will­affect­your­creadit­rating

How­much­does­a­DMP­cost?

Many­commercial­debt­management­companies­willset­up­a­DMP­for­you,­but­will­charge­fees­for­theirservices.

There­is­no­need­to­pay­for­a­DMP.­Charities­likeourselves­can­set­up­your­DMP­free­of ­charge;­withno­fees­attached.

All­the­money­you­pay­into­your­plan­will­go­towardsclearing­your­debts.­We­will­also­make­sure­that­youonly­pay­what­you­can­afford,­so­you­can­keep­upwith­your­day-to-day­living­costs­as­well.­ 

Free debt adviceFree­debt­help­from­StepChange­Debt­Charitycall­0800 138 1111

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StepChange Debt CharityDRO Guide

Other debt solutions

Bankruptcy

Bankruptcy­is­suitable­for­people­who­are­unable­topay­off­their­debts­within­a­reasonable­time.­Like­thedebt­relief ­order­it­is­a­form­of ­insolvency­but­withoutthe­restriction­on­debt­level­or­your­monthlydisposable­income.­

How­does­bankruptcy­work?

Bankruptcy­writes­off­most­unsecured­debts,­allowingyou­to­make­a­fresh­financial­start.­But,­you­will­besubject­to­a­number­of ­restrictions­during­bankruptcy,which­is­usually­12­months.

To­file­for­bankruptcy,­you­must­apply­to­the­court­and­pay­a­fee.­You­may­be­exempt­from­paying­partof ­the­fee­if ­you­receive­certain­welfare­benefits.

You­may­also­have­to­make­monthly­paymentstowards­your­debts­as­part­of ­an­Income­PaymentArrangement­for­up­to­3­years.

How­could­bankruptcy­affect­me?

Bankruptcy­could­have­significant­consequences­foryour­personal­and­professional­life.­You­may­have­tosell­your­home­and­there­could­also­be­an­impact­onyour­job,­business,­car­and­bank­account.­

Bankruptcy­will­also­seriously­affect­your­credit­ratingfor­six­years­from­the­date­you­are­made­bankruptand­your­bankruptcy­will­appear­on­a­public­register.

Free­bankruptcy­advice

Bankruptcy­is­a­big­step­to­take­with­seriousimplications.­If ­you’re­thinking­about­making­yourselfbankrupt,­talk­to­us­first­and­we­will­give­you­the­debthelp­you­need.

Free anonymous debt adviceFree­debt­help­online­from­StepChange­DebtCharity­at­www.stepchange.org

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StepChange Debt CharityDRO Guide

Other debt solutions

Temporary paymentarrangement

Temporary­token­payments­are­a­suitablearrangement­for­someone­with­little­or­no­money­topay­their­credit­debts­once­living­costs­have­beencovered.­They­are­to­show­willingness­to­pay­towardsa­credit­debt­but­they­are­not­a­long­term­solution­toyour­debts.

How­does­it­work?

If ­your­circumstances­change­and­you’re­unable­tomake­your­normal­credit­re-payments­it’s­importantyou­pay­something.­A­token­payment,­even­a­verysmall­amount,­should­be­paid­until­you­can­afford­tomake­your­normal­payments.

When­working­out­how­much­to­offer,­essential­costssuch­as­mortgage­or­rent,­food­and­utilities­should­bebudgeted­in­full,­and­then­the­spare­money­is­sharedwith­the­creditors.­

Your­creditors­may­not­accept­your­offer,­but­in­manycases­they­are­prepared­to­be­flexible­especially­as­you­are­making­an­effort­to­try­and­solve­your­problems.­

If ­they­do­accept,­you­should­keep­to­thearrangement­and­use­the­breathing­space­you’vebeen­given­to­solve­your­financial­difficulties­for­good,which­means­resisting­the­temptation­to­add­to­thedebt­by­borrowing­more­money­as­a­short-term­fix.

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StepChange Debt CharityDRO Guide

Our debt help

How we can help

Millions­of ­people­in­the­UK­are­worried­about­theirdebt­problems­so­it’s­important­to­remember­that­youare­not­alone.­Each­year­we­help­hundreds­ofthousands­of ­those­people­with­all­sorts­of ­debtproblems,­both­big­and­small.­

Act­now

No­debt­problem­is­unsolvable­but­the­longer­youwait­to­take­action,­the­worse­it­is­likely­to­get­and­theharder­it­will­be­to­tackle.­By­acting­now­you­canbegin­your­journey­towards­becoming­debt­free.Beginning­to­solve­your­debt­problem­will­lift­thestress­and­worry­you­feel­about­your­debts.

What­you­can­do

We­can­help­you­whatever­stage­your­debts­are­at­butthere­are­some­things­you­can­do­to­stop­your­debtproblem­getting­any­worse:

•­Don’t­extend­your­overdraft­or­take­payday­loans

•­Stop­using­your­credit­cards­

•­Don’t­consolidate­your­debts­into­a­debtconsolidation­loan­without­getting­advice­from­us­first

•­Never­secure­any­of ­your­debts­against­your­homeand­seek­free,­professional­debt­advice­as­soon­asyou­can

We­can­help­

If ­you­have­problem­debt­it­can­be­difficult­to­knowwhere­to­turn.­Many­companies­offer­differentsolutions­and­knowing­where­to­start­can­be­daunting.­

We’ll­take­an­impartial­view­of ­your­situation­in­detailand­advise­you­on­your­options.­You­can­be­confidentthat­the­solution­we­recommend­is­best­for­you.­

Contact us

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