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Managing overwhelming debt can be stressful, but a Debt Relief Order (DRO) can provide much-needed relief. This guide will walk you through the process of obtaining a DRO, eligibility criteria, the application process, and the benefits. By following these steps, you can take control of your financial situation and work towards a debt-free future.
What is a Debt Relief Order?
A Debt Relief Order is a legal solution for individuals with low income and minimal assets who are unable to pay off their debts. It is an alternative to bankruptcy and provides a fresh start by freezing debts for 12 months. After this period, if your financial situation hasn’t improved, the debts are written off.
Eligibility Criteria for a Debt Relief Order
Before applying for a DRO, you must meet certain eligibility criteria:
- Debt Amount: Your total debts must not exceed £20,000.
- Disposable Income: Your disposable income should be £50 or less per month.
- Assets: Your assets must be worth £1,000 or less (some exceptions apply, such as a car worth up to £1,000).
- Residency: You must live in England, Wales, or Northern Ireland, or have resided or carried out business in these regions within the last three years.
- Previous DROs: You must not have had a DRO in the last six years.
Debts Covered by a Debt Relief Order
Not all debts can be included in a DRO. Eligible debts typically include:
- Credit card debts
- Personal loans
- Overdrafts
- Store card debts
- Utility bill arrears
- Rent arrears
- Council tax arrears
The Application Process for a Debt Relief Order
Step 1: Consult an Approved Intermediary
To apply for a DRO, you must consult an approved intermediary. These professionals, often found in organizations like Citizens Advice, will assess your financial situation and determine if a DRO is the best option for you.
Step 2: Prepare Your Financial Information
Gather all necessary financial documents, including details of your income, expenses, debts, and assets. This information will be crucial for your intermediary to complete your application accurately.
Step 3: Complete the Application
Your intermediary will help you fill out the DRO application form. They will ensure all details are correct and submit the application on your behalf. There is a fee of £90, which can be paid in installments if necessary.
Step 4: Wait for Approval
The Insolvency Service will review your application. If approved, your DRO will be in place, and your debts will be frozen for 12 months. During this time, creditors cannot take any legal action against you.
Benefits of a Debt Relief Order
A DRO offers several advantages:
- Debt Relief: Eligible debts are written off after 12 months if your financial situation hasn’t improved.
- Legal Protection: Creditors cannot take legal action against you during the DRO period.
- Affordable Solution: The £90 fee is significantly lower than the cost of other debt relief options.
- Peace of Mind: Knowing your debts are managed can reduce stress and anxiety.
Potential Drawbacks of a Debt Relief Order
While a DRO can be beneficial, it’s important to be aware of potential drawbacks:
- Credit Impact: A DRO will negatively affect your credit rating for six years, making it harder to obtain credit in the future.
- Asset Limitations: You may have to sell valuable assets if their total value exceeds £1,000.
- Public Record: The DRO will be recorded on a public register, which can be viewed by anyone.
Maintaining Financial Stability After a Debt Relief Order
Once your DRO period is over and your debts are written off, it’s crucial to maintain financial stability:
- Budgeting: Create and stick to a budget to manage your income and expenses effectively.
- Saving: Build an emergency fund to cover unexpected expenses and avoid future debt.
- Credit Monitoring: Regularly check your credit report to ensure all information is accurate and up-to-date.
- Financial Advice: Seek ongoing financial advice to make informed decisions and avoid falling back into debt.
Conclusion
A Debt Relief Order can be a lifeline for those struggling with unmanageable debts. By understanding the eligibility criteria, application process, and benefits, you can take the necessary steps to regain control of your finances. If you meet the criteria and believe a DRO is right for you, consult an approved intermediary to begin your journey towards financial freedom.
