There are three types of insolvency in England for people whose debts are impossible to manage: bankruptcy, IVAs and Debt Relief Orders (DROs). Everyone has heard of bankruptcy and IVAs are widely advertised – if you have ever had a call call or text offering “a little known government scheme to write off 70% of your debts”, that was from a commercial firm trying to sell you an IVA.
DROs are much less well known. Introduced in 2009, they are the simplest, quickest and cheapest form of insolvency – so if you have major financial problems find out if a DRO might suit you.
You have to meet several criteria to be able to start a DRO including:
- your total debts have to be less than £20,000. This was increased from £15,000 in October 2015 so that more people would qualify;
- you can’t own a property, even if has negative equity;
- you can’t own a car that is worth more than £1,000;
- you can’t have savings or assets worth more than £1,000. Normal clothes and household things such as TVs, washing machines and furniture don’t count and it is only the second-hand value that matters, not what you paid for something;
- you have to have less than £50 a month available to pay towards your debts. If your only income comes from benefits, you will automatically meet this.
A DRO lasts for a year. During this time you don’t have to make any payments towards your debts and your creditors are not allowed to hassle you or take you to court. At the end of the year, your debts are wiped out. If you would like to know more about how DROs work and what the criteria are, there is a guide here.
DROs are a good debt solution for people who meet the criteria and whose situation isn’t likely to improve soon.The DRO fee is only £90, much less than bankruptcy. And it is over in a year, unlike an IVA where you have to make monthly payments for five years.
If you have just lost your job and are struggling, but will be fine when you find another job, then a DRO isn’t a good idea. A token payment debt management plan would be a better temporary solution, to give you a breathing space.
Citizens Advice is the largest organiser of Debt Relief Orders in the country. We have several advisers in Merton and in Lambeth that can help you look at a DRO, decide if you meet all the criteria and set one up for you – and also talk through what your other possible debt solutions might be if a DRO isn’t right for you.