What is a Debt Relief Order (DRO) and how do they work?

What is a Debt Relief Order (DRO)?

A Debt Relief Order, or ‘DRO’, is a way to deal with debt if you can’t afford to pay one or more debts. They are intended for people on a low income with limited assets. 

If you don’t own your home and don’t own many valuable possessions, a DRO may be a way to help you get back on your feet if you’re having difficulty paying your debts. 

If you meet the criteria, you may be able to apply for a Debt Relief Order, which usually lasts for 12 months. At the end of that period, if your circumstances are still the same, the debts included will be written off. 

Please note, Debt Relief Orders aren’t available if you live in Scotland, but the Minimal Assets Process (MAP) bankruptcy is an alternative option. For more information, StepChange have a dedicated guide on how MAP bankruptcy works. 

If you’re worried about a debt that’s owned by Lowell and are planning on applying for a Debt Relief Order, please get in touch and let us know, and we’ll see if there’s anything we can do to make things easier for you. No matter what your circumstances may be, we’ll always try to help and let you know what support we can offer. 

Is a Debt Relief Order the same as an IVA?

No, Debt Relief Orders and IVAs are two different types of debt solutions. For instance, a DRO usually lasts 12 months whilst an IVA normally lasts 5 years. For more information, you can read our separate guide on Individual Voluntary Arrangements. 

Is a Debt Relief Order the same as bankruptcy?

No, a Debt Relief Order is not the same as bankruptcy. Whilst both are formal insolvency processes, they’re two different ways to help you deal with your debts. For more information, we’ve got a helpful guide all about bankruptcy and how it works.  

How does a Debt Relief Order work?

When you get a Debt Relief Order, it works by initially freezing named debts, including any interest on those debts. While the DRO is in place, you won’t have to pay anything to any of the creditors, the people you owe, listed in the DRO, and they won’t chase you for any of those debts. 

There are also a few restrictions when you’re under a DRO – you won’t be able to borrow more than £500 without telling the lender about the DRO, and you can’t create, manage or promote a company without the court’s permission. You cannot act as the director of a company, and you cannot manage a business without telling those you do business with about your DRO. If you apply for a new bank account, you may also have to tell the bank about your DRO. 

If you have a DRO, Lowell will support you by giving you the time and space you need to get back on your feet. If you have any questions about getting a Debt Relief Order on debts that are owned by Lowell, speak to your debt adviser. 

You can also seek free independent debt advice from a number of organisations. 

How long does a Debt Relief Order last?

Generally speaking, a Debt Relief Order (DRO) will last for 12 months, this is also referred to as the ‘moratorium period’. This starts from the date the DRO was made by the ‘official receiver’, who is a civil servant working on behalf of the Insolvency Service. 

It’s worth bearing in mind that if your finances improve to the point that you’re able to start paying off your debts, your DRO may come to an end. 

What happens at the end of a Debt Relief Order?

At the end of the DRO, if your circumstances are still the same, all of the debts included will be written off. You’ll still need to pay your usual bills and rent, as well as any debts that aren’t covered by the DRO. 

How long does a Debt Relief Order stay on your credit file?

A Debt Relief Order will stay on your credit file for up to 6 years from the date it is approved. This may make it harder for you to take out credit as potential lenders can see you’ve struggled to keep up with repayments in the past. 

If you’d like to find out more, Citizens Advice have a guide on the impact of a Debt Relief Order on your credit rating.

DRO eligibility: Can I apply for a Debt Relief Order?

You can apply for a Debt Relief Order if: 

• You have eligible debts totalling £50,000 or less 
• You have less than £75 a month spare income after paying tax, National Insurance and normal household bills 
• Your assets are worth less than £2,000 
• You do not own a vehicle worth £4,000 or more (or £2,000 in Northern Ireland) 
• You live in England, Wales or Northern Ireland 

It’s worth bearing in mind that while your assets can’t be worth more than £2,000, you can own a personal domestic vehicle worth the amount specified above on top of that. 

There are also a few things that stop you from being able to apply for a DRO, you won’t be eligible if: 

• You’ve had a Debt Relief Order in the last 6 years 
• You have an Individual Voluntary Arrangement (IVA) or you’re currently applying for one 
• You’re bankrupt, your creditors have applied to make you bankrupt, or you’ve petitioned for bankruptcy.

What debts can be included in a Debt Relief Order?

A Debt Relief Order can cover most kinds of debt, including: 

• Household utility bills 
• Rent arrears 
• Council tax 
• Loans and overdrafts 
• Credit card and store card debt 
• Catalogues 
• Income tax and National Insurance contributions 

If you have one or more of these debts being managed by Lowell and you have concerns about being able to repay them, please get in touch so we can do all that we can to help and support you. 

We may be able to give you time to consider your options by pausing your payments.

If you want to apply for Statutory breathing space, please seek free debt advice from an independent organisation. 

Debt Relief Orders and rent arrears

If you’re thinking of applying for a DRO and including your rent arrears, it’s very important to check your tenancy agreement and speak to a debt advice expert about any arrangements with your landlord. 

This is because your landlord may be able to start court action against you if you put rent arrears into a DRO and don’t have any arrangement to pay the rent arrears. 

Some tenancy agreements have something called an ‘Insolvency Clause’. With this clause in place, taking out a DRO could be breaking that part of your agreement, which may lead to eviction proceedings. 

If you’re not sure how a Debt Relief Order could affect your rent and housing, including whether your tenancy agreement has an Insolvency Clause and what that means for your situation, speak to a specialist debt advice service like StepChange or National Debtline. 

What debts can't be included in a Debt Relief Order?

Some debts can’t be covered in a Debt Relief Order, such as: 

• Child maintenance arrears or anything you own under family proceedings
• Criminal fines or court fees
• Magistrate’s Court fines
• Unpaid TV license fees
• Student loans
• Social Fund loans
• Any debts you incur after the DRO is granted

How to apply for a Debt Relief Order

You can’t apply for a Debt Relief Order on your own. To get one, you’ll need to speak to an approved debt adviser, sometimes referred to as an ‘approved intermediary’. 

Most debt advice services, like StepChange or National Debtline, can put you in touch with authorised advisers who can help. A full list of organisations who can help you find an approved debt adviser can be found on the UK Government website. 

When you’ve found a debt adviser, they’ll help you apply for a Debt Relief Order. You’ll then get a DRO from the ‘official receiver’. 

How much is a Debt Relief Order?

There are no fees involved with getting a Debt Relief Order (DRO). 

It’s worth mentioning that, in the past, there used to be a £90 application fee in England, Wales, and Northern Ireland, but this no longer applies. 

How long does a Debt Relief Order take to process?

Once you’ve submitted your application with the help of your DRO adviser, it might only take a few days to have your application approved.

What are the advantages of a Debt Relief Order?

• It gives you 12 months to get back on your feet without creditors trying to contact you 
• You don’t pay anything towards qualifying debts for 12 months, and they’ll be written off at the end of those 12 months if there are no changes in your financial circumstances 
• Creditors listed in the DRO won’t take any action against you without the court’s permission 
• You don’t have to go to court to get one, the approved intermediary will send the application for you 
• It is an alternative solution to being declared bankrupt 
• There is no fee to apply 
• Interest and charges will also be removed unless your DRO is cancelled in which case they can be put back on

What are the disadvantages of a Debt Relief Order?

• If you own your own home, or have assets over a certain amount, you won’t be able to apply 
• It only covers certain kinds of debt, so you may still have to pay your other debts even while you’re covered by the DRO 
• A DRO will appear on the insolvency register for a total of 15 months and stay on your credit file for 6 years 
• It is only available if you owe less than £50,000 and live in England, Wales or Northern Ireland 
• It may be cancelled if your finances improve during the 12 months after it’s approved or if you break the rules of your DRO. In this instance, your creditors may ask you to pay back the debts that you owe, including interest and other charges