What is a Debt Relief Order?

In this article, we’ll explain what a Debt Relief Order is, how to determine if you’re eligible, what the process looks like and what a Debt Relief Order might mean for you and your debt problems.

Let’s start with what exactly a Debt Relief Order is.

A Debt Relief Order is described by gov.uk as "a way of dealing with debts if you cannot afford them". If you are granted a Debt Relief Order you will be given a break period of around 12 months where you will not need to pay toward certain debts. At the end of the 12 months the rest of the debt in the Debt Relief Order will be written off, meaning you won't have to pay them anymore.

If during your Debt Relief Order, your financial situation changes for the better, the Debt Relief Order may be cancelled, and you will have to start paying off your debts again.

A Debt Relief Order is only really for people who are really struggling financially, they shouldn’t be seen as an easy way out as there are repercussions.

Now let’s find out more about who Debt Relief Orders are intended to help.

If you are really struggling financially, and are unable to pay your debts, a Debt Relief Order could help you with some of your debt. However, there are certain criteria you must meet to be eligible, these are:

• You owe £30,000 or less
• You have less than £75 to spend each month after paying tax, national insurance and normal household expenses
• You have lived or worked in England or Wales in the last three years
• Your assets aren't worth more than £2,000 in total
• You have not had a Debt Relief Order in the last six years

It is important to note at this point, if you are involved in bankruptcy proceedings or any other formal insolvency proceedings like Individual Voluntary Arrangements (IVAs), you can’t apply for a Debt Relief Order.

If you’ve read the above criteria, and you feel you might be eligible for a Debt Relief Order, read on to find more about the application process.

So, you’ve read the criteria and you feel this could be an option for you. To get the process started, you’ll need to find an "approved intermediary" which basically means an authorised debt advisor. This could include, the Insolvency Practitioners Association, Step Change Debt Charity, the Citizens Advice Bureau (CAB), National Debt Line and others.

The debt advisor will ask you for some information about your debt. They specifically want to know if you have paid some creditors over the last two years but not others. They’ll also want to know if you have given away any assets or sold them for less than they were worth in the last two years.

Depending on what you have done over the last two years to handle your debt, you may be refused.

If you are struggling financially and considering a Debt Relief Order, it’s important you have a clear understanding of the cost of the process.

To make the application, there is a one-off fee you will need to pay the official receiver of £90 which will be non-refundable, even if your application is refused. There is the possibility that you might be able to get a charity to pay the fee for you and the “debt advisor" should help you with this.

After you have completed your application with the “debt advisor", it will be sent to the Official Receiver. The Official Receiver will then take charge of your finances. The Official Receiver will review your financial affairs to get a full understanding of your financial situation.

If you’re granted a Debt Relief Order, you will be informed by the official receiver who will tell you what you can and cannot do for the 12 month period. The Official Receiver is also responsible for informing the eligible creditors that they cannot ask you for any payments for the next 12 months. However, the creditors can send you statements and default notices. If the creditors do approach you to request payments, inform them you are in a Debt Relief Order.

During your Debt Relief Order it’s important you are completely transparent with your Official Receiver. If you receive any salary increases or increase in your regular income, or if you feel you can start paying towards your debts again, you must inform them.

Any withheld information that is discovered may negatively affect your Debt Relief Order.

As part of the Debt Relief Order process, you will be placed on a publicly accessible register called the Individual Insolvency Register. This is a register for people who have been made bankrupt or are in an Individual Voluntary Agreement (IVA). However, you will be removed from the register three months after your Debt Relief Order ends.

As with Bankruptcy, when you are granted a Debt Relief Order there are some restrictions you need to be aware of that could impact your life; it’s important to consider this aspect before deciding to make an application. We’ll break these down for in the next section.

There are always pros and cons to consider for every route that you consider when handling your debt. So far, we’ve focused a lot on the benefits and practicalities, however there are restrictions that you need to be aware of, including:

• You cannot borrow more than £500 without telling the lender about your Debt Relief Order
• You can't create, manage or promote a company without the court’s permission
• You cannot manage a business under a different name without telling those you do business with about your Debt Relief Order
• You cannot apply for an overdraft without telling the bank or building society about your Debt Relief Order
• You cannot write cheques that are likely to bounce

It’s important to consider all of these restrictions carefully before committing to a Debt Relief Order.

As you probably expect by now, there are some debts that cannot be placed into a Debt Relief Order, that you will be required to keep paying, these are:

• child maintenance or anything you owe under family proceedings
• student loans
• budgeting and crisis loans from the social fund
• secured debts i.e., debts secured to any of your assets
• fines for drug offences
• damages or fines a court has ordered you to pay
• unpaid TV Licence fees
• any debts you occur after the Debt Relief Order is granted

In addition, if you run up new debts while in your Debt Relief Order, you could be placing yourself at risk of bankruptcy or prosecution if you incurred the debt without informing the lender about your Debt Relief Order.

If you have been dishonest about something relating to your Debt Relief Order, or you accrue new debt dishonestly, the Debt Relief Order can be extended for 2 -15 years. You can also volunteer to keep yourself in a Debt Relief Order for longer.

The positives? Once your Debt Relief Order is over, you will be discharged, and the debts related to the Debt Relief Order will be null.

The Debt Relief Order will remain on your credit file for a minimum of six years depending on whether you have any extensions. In terms of obtaining future credit, a Debt Relief Order will affect you in a similar way to bankruptcy. Unfortunately, if you’ve had a Debt Relief Order, you may find it very difficult to obtain credit for the six years (or longer) that it sits on your credit file.

The information in this article is considered to be true and correct at the date of publication.