If you're struggling to pay off your debts because you're on a low income and you don't want to go through bankruptcy, a Debt Relief Order (DRO) may be a better option for you.
A Debt Relief Order is an alternative to bankruptcy for those who have less than £300 in assets, aren't homeowners and have less than £50 in disposable income per month.
It can give you a reprieve from debt repayments and stop creditors taking action against you for up to a year, but it will affect your credit file for six years and will likely affect your future borrowing.
It's worth considering whether you qualify for a DRO before considering bankruptcy. There are a few advantages of applying for a DRO over bankruptcy:
A Debt Relief Order won't cost you as much as bankruptcy.
The courts won't be involved in the process.
Many of your creditors won't be able to take action against you for a year (this excludes child support, court fines and confiscation orders, maintenance and student loans)
At the end of the year, you'll be free of all the debts listed in the order and you'll no longer have to pay them off.
There are rules and restrictions that determine whether you qualify for a DRO. You can only apply for a DRO if you fulfil these criteria:
You have less than £15,000 in qualifying debts.
You have £50 or less per month available in household income after paying for your everyday needs (this includes salary, welfare benefits, pensions, as well as any rent and family contributions).
The things you own and any savings amount to less than £300 (these are your assets).
You have either no vehicle, or a vehicle worth less than £1,000 (there are special allowances for vehicles which have been adapted for disabilities).
You're eligible to apply if you've had a property, run a business, or if you've lived in England or Wales in the last 3 years.
You haven't had an existing Bankruptcy Order, Bankruptcy Restrictions Order or Individual Voluntary Arrangement or a Debt Relief Order in the last six years.
You won't be eligible for a DRO if:
You're currently bankrupt.
You have an Individual Voluntary Arrangement (IVA) or are applying for an IVA.
You're waiting for a hearing on bankruptcy or your case hasn't yet been dealt with (though your creditors may still agree to an application for debt relief).
You own a property (though there are some exceptions in this case).
The kinds of debt that qualify for a DRO include rent, council tax, telephone and household utility bills. As well as this, you may be able to include credit cards, overdrafts and loans.
If you have any hire purchase, conditional sale agreements, or 'buy now, pay later' goods these can be included, but you may have to return the items to the creditor unless someone can pay your future monthly instalments
A DRO normally lasts a year. In that time, you won't have to make any payments to creditors listed in the order, and those creditors won't be able to take any action against you.
Bear in mind that you'll still need to keep paying your normal expenses, including utility bills, council tax and rent. If you have any other debts that aren't included in the Debt Relief Order then you will have to pay these off, as you can't add any new debts to the DRO.
Having a Debt Relief Order will affect your credit rating and stay on file for six years. This can have various implications:
You might have difficulty opening a bank account.
You won't be able to get credit over £500 without telling the lender you have a DRO.
You won't be allowed to set up a limited company without permission from court.
You'll be expected to make arrangements to repay the creditors if your financial circumstances improve.
If you're considering a DRO, you need to contact an approved debt adviser like the Citizen's Advice Bureau who can check whether you meet the conditions, give you advice on Debt Relief Orders and help you fill in the forms. There will be a £90 fee when you apply, which can be paid in instalments.