Kiran Mistry a leading Insolvency Practitioner said he welcomes the new Debt Relief Orders which have now been introduced by the government to assist people that are facing debts.

Debt Relief Orders (DROs) were introduced by the Government in their 2007 Tribunals Courts and Enforcements Act and they came into existence on 6th April 2009.  They are designed to provide an alternative to formal bankruptcy or an Individual Voluntary Arrangement (IVA) and are a cheaper and easier alternative to formal court proceedings.

What is a DRO?

A DRO is a new alternative to an IVA or bankruptcy for people unable to pay their debts.   As it costs just £90 it is also significantly cheaper than these other options.  A DRO is issued by the Insolvency Service and is designed to “fast-track” the less complicated debt cases through the court system without the need for an individual to personally appear in court.

Who is eligible for a DRO?

DROs are aimed at the least complicated, smaller debt cases.  Applicants for a DRO must have less than £15,000 of unsecured debt (credit cards, loans or overdrafts or debts relating to rent, council tax or other utilities) and have assets of under £300.  This means that homeowners will be ineligible, as will anyone who owns a vehicle worth more than £1,000 (unless it has been specifically adapted for a physical disability).

Anyone applying for a DRO must also have less than £50 per month surplus disposable income after all their household expenses have been paid.

DROs are designed to be suitable for people with little surplus income and relatively low debt liabilities but who are unable to pay these debts off in a reasonable time.

Anyone who is already involved in court proceedings for an IVA or bankruptcy is ineligible for a DRO even if such an Order has not yet been forthcoming.  Anyone who has had a DRO in the previous six years is also ineligible.

How do I obtain a DRO?

Moe Nawaz a turnaround consultant explains how to apply for a DRO, first you must speak to an authorised intermediary.  This is likely to be a registered insolvency practitioner, turnaround consultant or debt counsellor who has been authorised to deal with DRO applications.  These can be found through your local Citizen’s Advice Bureau or online through the Insolvency service.

Once the advisor has helped you establish eligibility for a DRO an application must be made online and the £90 charge must be paid.  This fee can be paid in six monthly instalments if required.

The Official Receiver then determines whether all the conditions of the DRO have been met and if so a DRO is issued.  The Official Receiver may also ask for any additional information they deem necessary to make a decision on your application.

What does a DRO do?

Once a DRO has been granted you are protected from enforcement by the creditors involved and you no longer have to deal with them directly.  During the period of the DRO (ordinarily twelve months) you do not have to make any payments towards these debts, although you will be expected to continue paying your rent and other household expenses (plus any debts not included in the DRO).  You will also expect to have to contribute something towards the debts if your financial circumstances improve significantly during the DRO period.

You should remember that as with other debt relief solutions a DRO will remain on your credit file for six years and so will impact on your ability to obtain credit in the future.

Whilst not suitable for everyone (particularly anyone who owns their own home or has any significant assets) a Debt Relief Order is another useful method for dealing with debt issues.  As there are now several options available it is important to obtain specialist advice from an insolvency practitioner or other debt specialist to determine which is the most appropriate path for you.

Filed under: Bankruptcy

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