What Are the Pros and Cons of a DRO?

A Debt Relief Order – or DRO – is often known as “bankruptcy lite”. It’s tailored for those with lower incomes, working much like bankruptcy, but at a much lower cost.

While this makes a Debt Relief Order sound like an obvious choice, DROs do carry their own negatives. One of the biggest things to consider is the strict eligibility requirements.

So what are the advantages and disadvantages of a DRO? And is it the right solution for you?

What Are the Advantages of a DRO?

No Upfront Fee

This is probably the most distinctive benefit of a Debt Relief Order.

Applying for bankruptcy is a costly process; once you’ve paid the adjudicator’s fee and the Official Receiver’s fee, you’re looking at a total sum of £680.

A DRO, however, has no application fee.

Your Debts Are Written Off After 12 Months

Once you formally enter into your Debt Relief Order, all of your debts will be frozen and any charges stopped.

During this time, you won’t have to make repayments towards your debts, with a few exceptions. After 12 months, all of your outstanding debts will be written off and you can begin a new debt-free life.

Provides Legal Immunity from Creditors

One of the most stressful parts of living with debt is the fear of impending legal action. Entering into a DRO can put an end to these worries.

Once you begin your DRO, your creditors are prevented – by law – from beginning legal proceedings against you to recover their money.

You May Be Able to Keep Your Vehicle

In a regular bankruptcy, surrendering your vehicle is usually par for the course. While your debts are written off, you’re expected to surrender your assets to help repay your creditors, although there are exceptions.

Quick Compared to Some Other Insolvency Procedures

A Debt Relief Order is typically completed in 12 months, although this may vary. This is much faster than some other procedures, such as IVAs, which usually last for 5 years.

What Are the Disadvantages of a DRO?

It’s Hard to Qualify for a DRO

In many ways, a Debt Relief Order functions in the same manner as a regular bankruptcy. However, it is tailored to those with low income and little assets. As a result, DROs have eligibility criteria that can make it tough for most people to qualify:

owe less than £50,000 in total
have savings or valuable items worth less than £2,000 in total
own a vehicle worth less than £4,000 (if you were to sell it today)
do not have enough money left at the end of the month to make your debt repayments
have lived or worked in England and Wales in the last 3 years
are not currently bankrupt, have an interim order or an individual voluntary arrangement
have not had a DRO in the last 6 years

For those who are eligible, a DRO can be the perfect solution. However, the criteria are very stringent. Most will need to pursue another option – such as bankruptcy or an IVA – instead.

Restrictions Are Placed On You for 12 Months

Once you enter into a DRO, you’ll be subject to restrictions until it resolves and your debts are written off.

During this time, you won’t be able to borrow more than £500 from someone without telling them that you’re in a DRO. You also won’t be allowed to act as a company director or be involved in the management of a company.

Failing to stick to the restrictions of a DRO can result in a Debt Relief Restrictions Order, extending the time you have to follow the restrictions for up to 15 years.

Doesn’t Stop Bailiffs if They Have a Controlled Goods Agreement

Sometimes, to keep your possessions in the face of bailiff removal, you might enter into something known as a controlled goods agreement. This is a repayment plan that you can make towards your debts. As long as you pay it, your goods will be safe from bailiff removal.

Having a DRO allows you to stop paying your debts. However, it won’t stop bailiffs from taking items inventoried under a controlled goods agreement. If you want to keep these items you’ll have to carry on paying the debt.

Bailiffs cannot pursue you for debts once you’ve entered into the DRO, but any items already placed into a controlled goods agreement are up for grabs.

May Violate Your Tenancy Agreement

Some tenancy agreements have clauses in them relating to insolvency procedures. These often allow the landlord to evict you at their discretion if you enter a process such as a DRO.

You may also be evicted due to rent arrears. You can include rent arrears in your DRO, but your landlord can still evict you for not paying them. To avoid this, you’ll need to carry on paying your rent and any outstanding amounts.

Is a DRO Right for Me?

A DRO is a great choice for people who are struggling with debt and don’t have much in the way of personal income or assets.

However, meeting the requirements of a DRO doesn’t necessarily mean it’s the best option for you. For example, you may be better suited to a more informal option such as a Debt Management Plan. Our expert team of insolvency practitioners can assess your situation and let you know what route is right for you.

Get in touch to book a free consultation today.