How Does a Debt Relief Order Work?

A Debt Relief Order (otherwise known as a DRO) is basically a type of insolvency which is designed by the government to help those who have low debts, little surplus income and very few valuable assets, to become debt free.

A Debt Relief Order is an official order that can be applied for by someone who is unable to clear their debts, has a low income and also debts less than £15,000.

During the Debt Relief Order period the debtor will be protected from any enforcement action by his or her creditors that are included in the application.  The debtor must be made aware however that some debts cannot be included in a Debt Relief Order.

A Debt Relief Order will usually last for a period of twelve months although a creditor can apply to the court to extend either the order or the restrictions placed on a debtor as a result of the order.

The debtor is expected to fully co-operate with the creditors via the official receiver and  the debtors financial situation improve, he or she will be expected to arrange to repay the creditors in full.

There are a large number of restrictions which are placed on the debtor throughout the life of the order and in some cases, even after the DRO has expired.

These restrictions are as follows:

• The debtor may not carry on a business (directly or indirectly) in a different name after being granted a DRO without telling all those with whom they do business with under the previous name.
• The debtor must not obtain credit of £500 or more, either alone or jointly with another person, without disclosing that they are subject to a DRO to the lender.
• A Debt Relief Order will show on the debtors credit history, and will usually remain there for six years. This means that although your DRO proceedings may come to an end after one year, you will still have difficulty obtaining further credit for five more years.
• The debtor may not be involved (directly or indirectly) with the promotion, management or formation of a limited company, and may not act as a company director, without the court’s permission.
• The debtor will only be able to obtain a DRO once every six years.

These restrictions could be extended should the official receiver deem that the debtor has acted improperly or dishonestly. This extension could last for up to 15 years.

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