Debt relief orders

Debt relief orders

Contents

What is a debt relief order?

A debt relief order (DRO) gives relief from debt recovery actions and debt repayments. It is an order granted by the Official Receiver (OR) on application.

A debt relief order is only available where you have very little income and few assets, and have no means of repaying the qualifying debts.

What is the effect of a debt relief order on the creditors?

While a DRO order is in place, you can't be forced to make payment of any of the qualifying debts listed in it. Other debt management arrangements, such as an administration order, an enforcement restrictions order, and a debt repayment plan arranged with a debt management scheme will cease to be effective on the date the DRO is made.

A creditor owed a qualifying debt can only act against you for recovery of the debt with permission of the court. A secured creditor, however, remains free to enforce their security.

The qualifying debts listed in the DRO will be written off at the end of the debt relief period unless the debt relief period was terminated early.

What is the effect of a debt relief order on the debtor?

Duties of the debtor

Once you've made an application for a debt relief order you are under a duty to give all such information about your affairs to the OR, attend on the OR at such times and do all such other things as the OR may require for purposes of carrying out their functions.

You remain under an obligation to inform the OR should you become aware of any error or omission in the information given in the application to the OR. If there is any change in your circumstances after application is made that could have an effect on the decision of the OR you must inform the OR as soon as possible.

If the OR believes you have in any way misled them or behaved dishonestly (either before or during your DRO) they can apply to the court for a Debt Relief Restriction Order (DRRO). This could extend the conditions imposed under the DRO for between 2 – 15 years.

Once the DRO is made you must inform the OR if you acquire any property or there is any increase in your income.

Restrictions on the debtor

Similar restrictions apply when you are subject to a debt relief order as apply when you are an undischarged bankrupt, for example:

  • You can't get credit (and this includes buying goods under a hire-purchase or conditional sale agreement), without disclosing that you are subject to a DRO.
  • You may not, without the court's permission, act as a director of a company or be involved in the creation or management of a company.
  • You can't act as trustee of a charity (unless given permission under the Company Directors Disqualification Act) or as a trustee of a pension trust.
  • You can't work as a solicitor without permission from the Solicitors Regulation Authority or as an insolvency practitioner.
  • You can't be appointed as an attorney in a lasting power of attorney (England & Wales) or enduring power of attorney (Northern Ireland) relating to the donor's property and financial affairs.

A DRO will affect your credit rating. All DRO's are registered in a public register kept at the Insolvency Service and remain on the register until three months after the DRO comes to an end.

Eligibility to apply for a debt relief order

If you are unable to pay your debts you can apply for a debt relief order (DRO) if:

  • your total debt is not more than £20,000;
  • you own assets of £1,000 or less; and
  • you only have £50 p/m or less income left after tax, national insurance and household expenses.

If the DRO is granted you will be protected for a period of one year against any debt recovery actions for any qualifying debt listed in the DRO. When the DRO comes to an end (except if terminated early) the qualifying debts listed in the debt relief order will be written off and you will never have to pay it.

You can't get a DRO if:

  • you have had a DRO in the preceding 6 years;
  • you are subject to any other insolvency procedure; or
  • you aren't domiciled in England or Wales, or haven't lived or carried on business there in the preceding 3 years (or if applying in Northern Ireland, you aren't domiciled in Northern Ireland, or at any time in the preceding 3 years, haven't been resident or carrying on business in Northern Ireland).

How do you apply?

You have to find an approved intermediary to make the application for the DRO to the official receiver through the Insolvency Service.

An approved intermediary is a person that has been approved by a competent authority.

In England & Wales, this includes such bodies as as:

  • The National Association of Citizens Advice Bureaux.
  • The Foundation of Credit Counselling (Consumer Credit Counselling Service).
  • Baines & Ernst Limited.
  • Institution of Money Advisers.
  • Money Advice Trust trading as National Debtline
  • Totemic Limited trading as Payplan

(A list of the Northern Ireland competent authorities can be found on the gov.uk website (opens a PDF))

The approved intermediary will be a member of the institute or of the competent authority's staff.

The application for the DRO must include:

  • a list of the debts you are subject to at the date of the application;
  • details of any security held in respect of those debts; and
  • any other information about your affairs as may be prescribed, such as your income, assets and supporting documentation.

The application must be submitted to the Official Receiver together with the applicable fee.

After application to the Official Receiver

What happens after an application to the Official Receiver has been made?

Once the application for a DRO has been submitted, the Official Receiver (OR) will only progress with it once you've given answers to all their queries.

The OR might refuse to grant the DRO in the following circumstances:

  • the application has not been properly made;
  • you have not answered all the OR's queries within the time allowed; or
  • you provided false information to the OR in the application.

However, the OR must refuse the application if they are not satisfied that:

  • you are an individual who can't pay their debts;
  • the debts owed are £20,000 or less;
  • you have less than £50 to spend after paying tax, NI and normal household expenses;
  • your assets are less than £1,000;
  • at least one of the debts specified in the application was a qualifying debt (see below) at the time of the application;
  • you have not had a DRO in the preceding 6 years;
  • you are not subject to any other insolvency procedure; or
  • you are domiciled in England or Wales, or has lived or carried on business there in the preceding 3 years (or if applying in Northern Ireland, you are domiciled in Northern Ireland, or at any time in the preceding 3 years, have been resident or carrying on business in Northern Ireland).

Qualifying debts

A debt can only be included in a debt relief order if it is not an excluded debt (see below) and it is liquidated and payable either at the time of the debt relief order or in the future. To the extent that a debt is secured it can't be a qualifying debt. Examples of qualifying debts are:

  • Arrears with rent
  • Arears with council tax (England & Wales) or rates (Northern Ireland)
  • Utility bills and telephone accounts
  • Credit cards and loans
  • Business debts

Excluded debts

Some of the excluded debts, that will not be affected by a debt relief order and will still have to be paid, are, for example:

  • Any debt not listed in the DRO
  • Any fine imposed for an offence
  • The obligation to pay any sum ordered in family proceedings
  • The obligation to make payment of a child maintenance assessment under child support legislation
  • The liability to pay damages for the death or personal injury of a person
  • A student loan

How can a DRO be challenged?

Any of the creditors who is owed a listed qualifying debt can object to the making of the DRO, the inclusion of the amount they are owed as a qualifying debt or the details of the debt mentioned in the DRO.

The objection has to be made within 28 days from the date on which the creditor received notice of the making of the DRO.

The objection can only be made on the following grounds:

  • there is an error or omission in the DRO;
  • you are already an undischarged bankrupt or subject to an IVA; or
  • the OR was wrong in concluding that you could apply for a DRO.

What happens at the end of the DRO period?

A debt relief order usually comes to an end after one year unless the OR extends it or it ends earlier. When the DRO comes to an end (except if terminated early) the qualifying debts listed in the debt relief order will be written off and never have to be paid.

More information on DROs on the Insolvency Service's website in England & Wales and Northern Ireland.