Debt Relief Order (DRO)

What it is

A Debt Relief Order is a formal, court-based insolvency solution introduced in 2009. It is designed for people who have few assets, low income and relatively low levels of debt, and who cannot afford the fees associated with bankruptcy.

A DRO is granted by the Official Receiver (an officer of the court) rather than a judge. The process is administered online and is simpler and cheaper than bankruptcy. Once a DRO is made, your debts are frozen for a period of 12 months — known as the "moratorium period".

Who it may apply to

A DRO may be suitable if you:

• Have total debts below a set threshold (currently £20,000)
• Have very low disposable income (no more than £50 per month)
• Do not own a home
• Have assets worth no more than £1,000 (excluding a vehicle worth up to £2,000)
• Cannot afford to pay the bankruptcy fee
• Live in England, Wales or Northern Ireland
• Have not had a DRO in the last 6 years

How it works

A DRO must be applied for through an approved intermediary — a debt adviser who is authorised to submit DRO applications. You cannot apply for a DRO on your own. Free debt advice organisations such as StepChange, Citizens Advice and National Debtline have approved intermediaries.

The intermediary helps you complete an online application, which includes details of your debts, income, assets and personal circumstances. You pay a fee of £90 (currently) when the application is submitted.

The Official Receiver reviews the application and, if satisfied that you meet the criteria, grants the DRO. From that point, your debts are frozen for 12 months. Creditors named on the DRO cannot contact you, add interest or charges, or take legal action.

During the 12-month moratorium, you are expected to keep your finances stable. If your situation improves significantly — for example, you get a well-paid job or acquire assets — the DRO can be revoked.

If your situation has not improved by the end of the 12 months, the debts included in the DRO are written off. You are no longer liable for them.

Advantages and disadvantages

A DRO can be a lifeline for people with low income and few assets, but it has consequences.

Advantages

• Debts are written off after 12 months if your situation has not improved
• Much cheaper than bankruptcy (£90 fee vs £680)
• Creditors cannot contact you or take action during the moratorium
• You do not lose your home (because you cannot have a DRO if you own one)
• Simpler process than bankruptcy — no court hearing required
• Interest and charges are frozen

Disadvantages

Consider these drawbacks carefully:

Disadvantages

• Strict eligibility criteria — only suitable for people with low debt and low income
• Your credit file is affected for 6 years
• Your name appears on the Individual Insolvency Register
• If your circumstances improve during the moratorium, the DRO can be revoked
• You cannot get another DRO for 6 years
• Some debts cannot be included (e.g. student loans, court fines, child maintenance)
• You cannot act as a company director during the DRO period

Eligibility and qualifying conditions

To qualify for a DRO, you must meet all of the following conditions. These thresholds are set by legislation and may change over time — always check current limits with a debt adviser.

• Total qualifying debts must not exceed £20,000
• Disposable income (after reasonable living expenses) must not exceed £50 per month
• Assets must not exceed £1,000 in total (a vehicle worth up to £2,000 is excluded if reasonably needed for work or caring)
• You must not own a home (freehold or leasehold)
• You must be unable to pay your debts
• You must not have had a DRO within the last 6 years
• You must live in England, Wales or Northern Ireland (or have conducted your business there in the last 12 months)

What happens to creditors

Once the DRO is granted, all creditors named on the order are legally prevented from contacting you, adding interest or charges, or taking legal action to recover the debt. This protection lasts for the full 12-month moratorium period.

If a creditor was not named on the DRO application (because you forgot to include them), they are not bound by it. It is therefore essential to list every qualifying debt. Your debt adviser will help you ensure all debts are included.

If a creditor objects to the DRO, they can contact the Official Receiver, but objections are rare and usually only succeed if the creditor believes you do not meet the eligibility criteria.

What happens to debts

During the 12-month moratorium, your debts are frozen. No interest or charges can be added, and no payments need to be made. The debts remain legally in existence but are effectively on hold.

At the end of the moratorium, if your financial situation has not improved, the debts are written off in full. You are no longer liable for them and creditors cannot pursue you for them.

If your situation does improve during the moratorium — for example, you gain employment that gives you more than £50 per month disposable income, or you acquire assets worth more than £1,000 — the Official Receiver can revoke the DRO. The debts then become due again, and you may need to consider an alternative solution.

Costs and fees

The DRO application fee is currently £90. This is paid when the application is submitted through the approved intermediary. Unlike bankruptcy, the fee is much lower, reflecting the fact that DROs are designed for people with limited financial means.

The fee can be paid in instalments before the application is submitted — you do not have to pay it all at once. Once it is paid in full and the application is submitted, the Official Receiver processes it.

Some charities and trusts may be able to help with the DRO fee if you cannot afford it. Your debt adviser can advise on whether any help is available.

How long it normally lasts

A DRO lasts for 12 months from the date it is granted. During this period, your debts are frozen and creditors cannot take action.

After 12 months, the DRO ends. If your situation has not improved, the debts are written off. If your situation has improved, the DRO may be revoked and the debts become due again.

The DRO remains on your credit file for 6 years from the date it was granted, regardless of when the moratorium ends.

Potential consequences

A DRO has several consequences you should be aware of:

• Your credit file is affected for 6 years from the date the DRO is granted
• Your name appears on the Individual Insolvency Register during the DRO period and for 3 months after
• You cannot obtain credit of £500 or more without disclosing the DRO during the moratorium
• You cannot act as a company director without court permission during the moratorium
• If your situation improves, the DRO can be revoked and debts reinstated
• You cannot get another DRO for 6 years

Alternatives

If a DRO is not suitable, consider these alternatives:

• Bankruptcy — for people with higher debt levels or who do not meet DRO criteria
• Individual Voluntary Arrangement (IVA) — if you have a regular income to make monthly payments
• Debt Management Plan (DMP) — if you can afford some monthly repayment
• Administration Order — if you have CCJs and debts under £5,000
• Breathing Space — temporary protection while you decide