Debt Relief Orders - Some Advice

By Melanie Taylor
When Debt Relief Orders (DROs) were introduced on April 6th 2009, many borrowers wondered whether this could help them put their debt problems behind them.

For many, the DRO could represent a way to access the insolvency that they've so far been unable to afford - while bankruptcy costs around £500, entering a DRO costs just £90. In other words, this could be their chance to ask for 'debt forgiveness', writing off their debts and starting again.

However, it's not as simple as paying £90 and bidding farewell to their debts!

First of all, a DRO isn't for everyone. Only people who fulfill very strict criteria can enter into a Debt Relief Order. To be eligible...

* They must be unable to pay their debts.

* They must owe no more than £15,000.

* Their total assets must not exceed £300 (although they may own a car worth up to £1,000).

* Their disposable income must be no more than £50 a month (after tax, national insurance contributions and normal household expenses).

* They must live in England or Wales (or have lived / carried on business in England or Wales at some time in the last 3 years).

* They must not have been subject to another DRO within the last 6 years (although clearly this isn't possible yet).

* They must not be involved in another formal insolvency procedure at the time they apply for a DRO.

Second, someone in a DRO 'will be subject to similar restrictions as in bankruptcy', according to The Insolvency Service's website. For example:

* They are not allowed to obtain credit of £500 or more without telling the lender that they are subject to a DRO.

* They may not be involved with the promotion, formation or management of a limited company, and may not act as a company director, without the court's permission.

Third, when a DRO starts, the assumption is that the individual's financial situation is unlikely to improve in the foreseeable future. If their circumstances do change - if they come into any money, property or inheritance, for example - they will be required to report this to the official receiver, who may decide that they are now quite capable of repaying their creditors. If this is the case, they may terminate the DRO.

Fourth, a DRO, like bankruptcy, doesn't write off certain debts. As in bankruptcy, any individual in a DRO will still be liable for various debts, including:

* Court fines and 'any other obligations arising from an order made in family proceedings or under a maintenance assessment made under the Child Support Act 1991' (according to The Insolvency Service's 'Guide to Debt Relief Orders').

* Student loans.

* Secured debts - although this is unlikely to be an issue, as anyone with substantial assets (against which they could secure a debt) is unlikely to qualify for a DRO.

In short, DROs are only the right solution for a relatively small percentage of the people currently in debt. Other people with debt problems will need to consider other debt solutions.

For more information about a debt relief order, debt management plan or debt advice, visit ThinkMoney.com