For anyone facing a large amount of debt, the beginning of a new year may not be a time of optimism. If you are on a low income with nothing to lose, then a Debt Relief Order may be the perfect solution.
A Debt Relief Order is a very specific means of getting free from debt, and it may not be right for you. It’s important to discuss all available options with a debt adviser. They will help you find the right way forward.
Get in touch with any of these organisations for expert advice:
It’s good to know that you are not alone in this situation. While average credit card debt in 2021 was just over a manageable £1,000 per adult, banks were still writing off as much as £4 million in credit card debt per day.
So, how do you get out of control debts written off without bankruptcy? A Debt Relief Order is one alternative.
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What is a Debt Relief Order?
A Debt Relief Order (DRO) isn’t just for credit card debt. It can cover tax and council tax arrears, store cards, money owed to utility companies, rent, overdrafts and loans.
You can deal with debts of £30,000 or less with a DRO.
With a Debt Relief Order in place, your debts are frozen for a year so that you don’t have to pay anything. If your circumstances are still the same after 12 months, the debts are written off. If not, other options to solve the problem (bankruptcy, a debt management plan or an individual voluntary arrangement (IVA)) are still available.
During the 12-month freeze, creditors are not allowed to demand payments and bailiffs will be called off.
Who is eligible for a DRO?
A DRO is aimed at people who cannot pay their debts and have limited or no savings. If you have anything of substantial value to sell, you are unlikely to fit the criteria.
To get a Debt Relief Order you must:
- Possess savings and items of value that are not worth more than £2,000.
- Have less than £75 per month after paying household expenses.
- Live and work in England or Wales (in the last three years).
Homeowners are not eligible to apply for a DRO. While Debt Relief Orders are suitable for renters, check your tenancy agreement for clauses about insolvency. It’s best to keep your landlord informed about the process if you are in arrears.
Anyone who is on the road to an IVA or bankruptcy will not be able to apply for a DRO. That’s why it’s important to consider a DRO as your first option.
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How do I apply for a DRO?
There is a fee of £90 to pay before a DRO can be granted. This can be paid in instalments – it may seem difficult to get £90 organised when you are in circumstances that require a DRO.
It’s necessary to apply through an approved intermediary, who can be found through your debt adviser (like StepChange). An ‘official receiver’ handles Debt Relief Order applications. Once your adviser has helped you submit the paperwork, the official receiver makes a decision within 10 working days.
How will a Debt Relief Order affect my credit score?
It’s inevitable that a DRO will have some effect on your credit rating, but anyone needing to apply for debt relief is unlikely to have an enviable credit rating anyway. One of the main reasons credit is declined is because of a high debt-to-income ratio.
A DRO will show up on your credit reference file for up to six years. This will affect your ability to open a new bank account and get more credit. It will also have an impact on the likelihood of being accepted as a tenant.
Should I consider getting a Debt Relief Order?
First of all, try paying down your debts for a month or two using these sensible measures:
- Budget and cut back on spending.
- Work extra hours or start a side hustle to deal with debt.
- Transfer credit card debt to a 0% balance transfer credit card.
However, avoid favouring one creditor or consolidating as this may make you ineligible for a DRO.
Ask yourself these questions:
- Am I failing to meet my family’s basic needs and still pay my debts?
- Is my credit score already badly damaged by my debts?
- Are debts affecting my physical or mental health?
If the answer is yes to any of the above, it’s worth exploring the possibility of a Debt Relief Order. If you don’t fit the criteria, StepChange, National Debtline and Citizens Advice can guide you towards the next best option.
It’s important to remember that Debt Relief Orders are only one solution. There are plenty of other ways to get help with problem debt.
The post Debt Relief Order: how to cut and run in 2022 appeared first on The Motley Fool UK.
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