How do I apply for a government debt relief order in the UK?
What is a debt relief order?
Up until 2009, if you were in over your head in debt, the only way to wipe the slate clean and clear all your debts was to declare yourself bankrupt. The government then brought out a new process available in England and Wales called a debt relief order. A different solution is available in Scotland called LILA. A debt relief order is significantly cheaper to arrange than bankruptcy and the payment can be spread over several months. Declaring bankruptcy can cost over £500 to arrange.
What is the criteria for getting a DRO?
Debt relief order criteria – One of the main differences with bankruptcy is that you cannot have total debts over £15,000. With bankruptcy if you are a home-owner, your property may be sold off in order to pay any outstanding debts. With a debt relief order, this is not possible, so is you own your own home you are unlikely to qualify. If you have other things of value (e.g. car – if it is worth more than £1000, timeshare etc), you may not meet the criteria. Anything that is essential to your job will not disqualify you. Pension funds and other investments over a certain level may also disqualify you. If you have applied for an IVA, been bankrupt in the past or you have already had used this process in the past six years, then you will definitely not qualify.
If you are unsure whether you would meet the criteria or not, it is a good idea to write down on a sheet of paper, a list of your total assets along with your income and outgoings and talk over your options with a professional debt counsellor or adviser. They will be able to tell you pretty quickly if this is for you.
How long does a debt relief order last?
They typically last for 1 year, the same as bankruptcy, although you do need to realise that you will be on the insolvency register for on average 15 months. Once it has been set up for you, all your debts will be cleared and all calls from companies you owe money to will stop. If you have any hire purchase agreements, you may have to return any goods you have bought. If you have a student loan you will still need to continue to make your payments as student loans are not covered by DROs, neither are any court fines you may owe. During the period of the debt relief order, applications for credit will be restricted and you must inform credit card companies and lenders of you debt relief order if you are applying for further credit. Unfortunately, a this kind of settlement, like bankruptcy will have a longer lasting effect on your credit rating.