What is DRO or Debt Relief Order?

Till the beginning of 2009, if an individual had severe unsecured debts or no disposable income to repay, the only way out was bankruptcy. But for many people the bankruptcy procedure is too expensive to be a viable option to solve their debt problems.

Realising the need for a cost-effective method, The Tribunals, Courts and Enforcement Act 2007 introduced a new form of debt relief called a ‘Debt Relief Order’ (DRO) in April, 2009. It works like bankruptcy but it has been introduced to help those who have limited financial means. You must be from England and Wales to apply for DRO.

DRO Procedure:

A Debt Relief Order unlike bankruptcy does not require any court interference. They are run by The Insolvency Service in partnership with skilled debt advisers, called approved intermediaries. They will help you apply to The Insolvency Service for a debt relief order. Debt relief orders are made by an Official Receiver, and a special unit has been set up for this purpose at the Official Receiver’s Office in Plymouth.

Once a DRO is granted, all the debts are taken away from the debtor. One does not need to pay anything towards the debt. After one year, any outstanding dues will be written off by the creditors thus making the debtors debt free. Though the Official Receiver does not regularly review the affairs of debtors who have applied for a DRO, he possesses the power to enquire and enforce (ranging from revocation of the DRO to criminal and civil sanctions). After a DRO has been made, creditors who are included in the DRO are prevented from taking any action to recover or enforce their debts against the debtor.

Eligibility for DRO applicants:

A person may apply for a DRO only when he is unable to pay off his debts.
For a DRO, a debtor’s total liabilities should not exceed £15,000.
The total gross assets of the debtor should not be more than £300.
The debtor’s disposable income should not be more than £50 per month (normal household expenses should be excluded).
It is essential for a person to be domiciled in England and Wales, or in the last three years must have been a resident or conducting business in England or Wales.
The person must not have any record of being subjected to a DRO within the last 6 years.
The person must not be involved in any other formal insolvency procedures such as bankruptcy, IVA, current bankruptcy restrictions order, current debt relief restrictions order or undertaking and an interim order.

How can you apply for a DRO?

You can only apply for a DRO via an approved intermediary. The application form is only available online. However, after submitting it online you must also print and sign a copy and send this to:

The Debt Relief Order Unit

The Insolvency Service

1st Floor, Cobourg House

Mayflower Street

Plymouth

PL1 1DJ

DRO or Debt Relief Order Application fees:

To apply for a debt relief order, a debtor must pay a fee before the Official Receiver considers his application. The DRO fee is £90 as proposed and it is non-refundable. You can check the website: www.insolvency.gov.uk for latest details.

DRO fees must be paid in cash. However, if a charity is paying your fee, they can use cheque. Talk to your intermediary for a unique bar-coded letter and for information on approved outlets where you can pay your fee. You may also call the Insolvency Enquiry Line on 0845 602 9848 for more information.

Debtor’s role in DRO proceedings:

It is the duty of the debtor to inform the Official Receiver about any changes between the application and the determination date that would affect the determination of the application. There are some important details that the debtor needs to submit for a DRO:

The debtor must provide a proper and a complete disclosure of their affairs. The Official Receiver does not contact the debtors often. But if necessary, he may contact you for further information on your DRO application.
The debtor must provide the Official Receiver with full details of their assets and liabilities including the details of those to whom they are owed (this information is obtained via he online application form).
It is the duty of the debtor to inform the Official Receiver about any property or an increase in income that they have obtained after being subjected to DRO.
Debtors should not make any payments to creditors mentioned in the DRO.
During the moratorium period (moratorium period is a length of time during which the debts owed by a debtor are protected from the claims and actions of their creditors), the debtor must update the Official Receiver about their whereabouts. This is important so that the Official Receiver can contact the debtor as and when required.
The debtor cannot obtain credit of £500 or more from anyone without first telling them that a DRO has been made against him or her.
The Official Receiver may refuse to approve a DRO if it is established during consideration of the application that the debtor has omitted certain information.
If a DRO has been approved, and it is later found that the debtor omitted key information, the Official Receiver may also revoke the DRO.

Online DRO Application Form:

To apply for a DRO online, visit https://www.dro.insolvencydirect.gov.uk and follow the simple steps. All mandatory fields must be completed on the DRO application form and submitted to The Insolvency Service for DRO consideration.

Restrictions imposed on a debtor who has applied for a DRO:

Following are restrictions imposed on a DRO applicant:

For obtaining a credit of £500 or more, whether jointly or alone, you must inform the lender about your DRO application. The same is applicable in case you are borrowing money or getting credit or having an intention to do so. For example, ordering certain goods without requesting credit and then being unable to pay for the goods when they are delivered.
If you carry on a business (directly or indirectly) in a name that is different from the name under which you were granted a DRO, you must first tell all those with whom you do business the name under which you were granted a DRO.
You may not be involved (directly or indirectly) with the promotion, management or formation of a limited company, and may not act as a company director, without the court’s permission.
Once applied for a DRO, you will not be able to apply for another DRO within the next 6 years.

DRO and Bank Account Operation:

A debtor can open a bank account or a building society account even after having a DRO. But they must be informed about your DRO status. Therefore it solely depends on the bank or the building society if they want to allow the debtor to open an account with them.

Intermediaries should be assisting the debtors regarding operation of any bank accounts following the grant of their DRO. Note that even if you have been granted a DRO, your bank account will not be frozen.

Although it is a matter of public record, the Insolvency Service will not be contacting a bank or building society unless they are a creditor. However the debtors should keep this in mind that any money in their account can be used to add to increase the value of their assets. This obviously excludes normal living expenses.

Debt Relief Restriction Orders/Undertakings

The Official Receiver can apply to Court for a Debt Relief Restrictions Order/Undertaking (DRRO/DRRU). This happens if the Official Receiver finds out that the debtor has been dishonest or has been irresponsible, either before or during the period of the DRO.

This is similar to a Bankruptcy Restrictions Order. In this situation the debtor will be subjected to the restrictions listed previously for an extended period of 2 to 15 years even after the DRO is over. If the debtor gets a DRRO/DRRU issued against him or her, it will remain on the Individual Insolvency Register for another three months apart from the regular DRO duration.

Payments to creditors in a DRO:

If the official receiver approves your application and grants a DRO, they will notify all the creditors listed in the order that a DRO has been made. This means that they cannot recover the debts you owe them. You must not make any further payments to the creditors who are included in the DRO. If the listed creditors ask you for payment during the period of the DRO, you should tell them that you are subject to a DRO.

However, as in bankruptcy, you will remain liable for certain debts in DRO. These are:

Court fines and any other obligations arising out of an order made in the family proceedings under a maintenance assessment made under the Child Support Act 1991;
Student loans for which you are responsible.
Any obligation arising due to a confiscation order made under section 1 of the Drug Trafficking offences Act of !986 or section 1 of the Criminal Justice (Scotland) Act 1987 or section 71 of the Criminal Justice Act 1988 or under Parts 2, 3 or 4 of the Proceeds of Crime Act 2002;
A DRO does not affect the rights of secured creditors to deal with their security. However, if you own secured property you are unlikely to qualify for a DRO, as your gross assets are likely to exceed £300.

Advantages of DRO:

The payment in a DRO is manageable that is amount of £50 or less every month. This is based on your financial statement of income. This does not include your essential living costs.
Once you are granted a DRO, you can be free from creditor attacks. You will be subjected to restrictions like in a bankruptcy.
DRO helps you to write off all your unsecured debts.
Unlike a bankruptcy, in a DRO one does not have to pay an amount of £470.

Disadvantages of DRO:

DRO is applicable only when the unsecured debt level is less than £15k.
A Debt Relief Order is not applicable for people who have assets valued over £300. So everyone cannot apply for a DRO.
You are expected to make arrangements to repay their creditors adequately if your financial circumstances improve during the order. However if anyone is found not abiding by the DRO regulations, there can be severe civil and criminal penalties.
Debt Relief Orders are only available to debtors in England and Wales and not to debtors in Scotland.
Debt Relief Orders are not applicable if you have an existing Bankruptcy Order, Bankruptcy Restrictions Order or Individual Voluntary Arrangement or have had a Debt Relief Order in the last six years.