The criteria to qualify for a Debt Relief Order “DRO”
changes on 29 June 2021. This will mean
that around a further 13,000 people per year in England and Wales will be able
access the debt solutions.
WHAT IS A DRO?
A Debt Relief Order (DRO) is otherwise known as the
“bankruptcy-lite” procedure and is aimed at individuals with little or no
assets or surplus income and up to now debts under £30,000.
The criteria for a
DRO is due to change on 29th June 2021 and includes:
unable to repay your debts
debts must not exceed £30,000 (an increase from £20,000)
total gross assets must not exceed £2,000 in value (an Increase from
can own a car worth no more than £2,000 (unless it has been specially
adapted and an increase from £1,000)
disposable income must not be more than £75 a month (an increase from £50)
cannot have been subject to a DRO in the past 6 years
must reside in England, Wales or Northern Ireland (or you have done in the
past 3 years, however the rules are not changing in Northern Ireland
must not currently be the subject of another formal insolvency arrangement
The cost of a DRO is £90 which is payable to the
Official Receiver before your application is processed. You can only apply
through a skilled debt advisor known as a “licensed intermediary” such as CAB
who can help you draft your DRO paperwork.
You have to make sure that your information is
correct at the time you apply. If not your application for a DRO can be
rejected or you could have your DRO cancelled or action can be taken against
Your application is then vetted by The Official
Receiver who can accept, reject or ask for further information. If your DRO is
approved, your creditors will be notified. Following approval of your DRO there
is a moratorium period of 12 months during which creditors cannot take any
action against you. If your circumstances do not change in the 12 month period
i.e. your net surplus does not increase above £75, etc your debts are written
off after the expiry of the moratorium.
What if you still do
not meet the new criteria for a DRO?
There are other solutions available to people
struggling with unaffordable debts below is a brief synopsis of other procedures which may be appropriate or you
may wish to visit our Debt Solutions page for more information.
What is Bankruptcy?
Bankruptcy is one way of dealing with debts you
cannot pay. Bankruptcy can provide a fresh start but the rules relating to
Bankruptcy are complex and its vital you get advice before you opt for
bankruptcy. The bankruptcy proceedings can:
you from overwhelming debts so you can make a fresh start, subject to some
sure your assets are shared out fairly among your creditors.
Once you are made bankrupt you have a duty to
provide information to the official receiver and the trustee, and attend their
office as and when required.
Discharge from bankruptcy is usually 12 months
after the order but if you fail to co-operate with your Trustee – the automatic
discharge can be suspended indefinitely. During bankruptcy you will face a
number of restrictions including not being able to act as a director of a
limited company and also not being able to obtain credit of more than £500
without disclosing that you are undischarged bankrupt.
Even though the discharge is 12 months, if you have
surplus net income, your Trustee will ask for income contributions for 3 years.
The normal term for a bankruptcy is 12 months.
During this time you will face a number of restrictions. Any changes in your
circumstances must be reported to the official receiver.
If you have a property, any equity in the property
which belongs to you will have to be realised during the period of your
bankruptcy. The Trustee has a duty to see if any family are available to able
to buy your share of equity. If this is not possible, the Trustee, who only has
3 years from the date of bankruptcy to get in your share of equity, will look
to secure their interest in the property by obtaining a charge against the
property and/or apply to court for a possession order.
Bankruptcy does have a sting in the tail!! If you
are found to have racked up debts knowing you could not pay for them, or your
debts are the result of gambling or fraud, you could face action to obtain a
bankruptcy restriction order “BRO” against you which could last up to 15 years.
All bankruptcies, DRO’s and IVA’s are entered onto
a searchable register.
A bankruptcy is often considered a last resort and
it is recommended that you first look into other insolvency solutions such as
Debt Management or an Individual Voluntary Arrangement (IVA).
What is an IVA?
An IVA is a legally binding arrangement with your
creditors which allows you to repay your debts in affordable monthly payments
over a fixed period of time, usually five years. An IVA can only be put forward
for you by a licensed Insolvency Practitioner “IP”. The IP has a duty care to
ensure they properly advise you on all your options. If you decide an IVA is
appropriate, then your IP will become your Nominee and will help you put
together your proposals to creditors.
Your proposals need to include all details of your
assets and debts plus details of your income and expenditure. IVA’s are
generally a payment plan over 5 years. However, an IVA can be tailored to suit
your circumstances. So if you have no surplus income and little in the way of
assets or equity in your property, it is possible to offer a “full and final
settlement” to creditors which could be a 3rd party lump sum to
settle your debts.
The proposals are sent to your creditors so they
can consider your offer. A meeting of creditors is held (creditors very rarely
attend) and creditors get to vote on whether they wish to approve your IVA
If your assets are at risk because of action taken
by creditors, your Nominee we can apply to court for an Interim Order. This
means that creditors cannot commence or continue with any action against you
and your assets unless the court permits them to do so.
A meeting is then held with your creditors where
they are able to vote on whether to accept, alter or reject your proposals –
75% of creditors must agree to the proposal in order for the IVA to go-ahead.
As long as your proposal demonstrates a genuine desire to repay as much of your
debt as you can afford, it is likely that creditors will accept your IVA. It is
your Nominee’s duty to guide you on what creditors will find acceptable.
Once your IVA is approved all interest and charges
on your unsecured debt is frozen. If creditors accept that you can only repay a
proportion of your debt, the balance of your debt will be written off as long
as you keep to the terms of your agreement.
Debt Management Plan (DMP)
What is a DMP?
A Debt Management Plan
(DMP) is an informal arrangement between you and your creditors which allows
you to repay your debts, normally in full, at a rate that you can afford
without relying on further borrowing.
Your affordable monthly
payment would be calculated by deducting your reasonable household and living
costs from your household income. This payment would then be distributed to
creditors on a monthly pro rata basis, after any management fees have been
Since the FCA took over
regulations of DMPs it is evident that creditors’ attitudes towards the plan
have hugely improved. We find that creditors generally co-operate really well
and will accept the pro rata payment offer whilst also agreeing to freeze interest
and charges on each of the accounts.
If during your DMP you
are able to offer creditors a lump sum to settle your debts, it is possible to
agree discounted settlements.
If you’re not sure which debt solution is right for
you, call The Debt Advisor today and speak with one of our advisors on 0800 085
1825. Alternatively you can use our debt calculator tool or request a callback.