Debt Relief Orders (DROs) ? what they do and why ? Finance, Loan ...

Before 1986, ?personal insolvency? meant bankruptcy and bankruptcy meant personal insolvency. In 1986, however, we saw the introduction of IVAs (Individual Voluntary Arrangements), providing a new way for people to enter insolvency without actually being declared bankrupt.

Then, in 2009, Debt Relief Orders (DROs) were introduced. Much more similar to bankruptcy than an IVA, a DRO can help people write off the debt they can?t afford to repay without paying bankruptcy?s substantial up-front costs ? and without being required to make a regular contribution towards their debts.

How does a DRO work?

First of all, you can only apply for a Debt Relief Order via an ?approved intermediary? (an adviser from the debt advice sector). The Official Receiver will then look at your application.

The main thing a DRO does is place a moratorium on the debts listed in the DRO ? a period of time in which the borrower doesn?t have to make any payments and the lenders aren?t allowed to do anything to recover the money they?re owed.

This normally lasts for a year, and when it comes to an end, the debts in question will be discharged, meaning the borrower won?t have to repay them. That?s if your situation doesn?t change by enough to let you start making payments again ? if it does, the Official Receiver will need to decide whether to terminate the DRO or not.

Who could enter a DRO?

DROs aren?t available to everyone. In order to enter a DRO, you?d need:

• To be a resident of England, Wales or Northern Ireland
• To be unable to repay the debts you?re carrying
• To owe ?15,000 or less
• To have total assets worth ?300 or less
• To have a monthly disposable income of ?50 or less
• Not to have been subject to a DRO in the last six years
• Not to be involved in another formal insolvency procedure today.

Entering a DRO does, however, mean you?re entering insolvency, which will have a serious impact on your credit rating for six years. Even so, the criteria for entering a DRO are very strict ? and if you qualify for a DRO, it does indicate you have little chance of getting back on top of your debts without insolvency.

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