Author : 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 GBP500, entering a DRO costs just GBP90 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 GBP90 and bidding farewell to their debts!

First of all, a DRO isn’t for everyone Only people who fulfil 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 GBP15,000

* Their total assets must not exceed GBP300 (although they may own a car worth up to GBP1,000)

* Their disposable income must be no more than GBP50 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 GBP500 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 on a debt relief order and further debt advice, visit http://www.thinkmoney.com/

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Tagged with: Credit and Loans • Insurance

Filed under: Credit • Finance • Insurance

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