Some Facts on Debt Relief Orders You Need to Know
Debt Relief Orders (DROs) were suggested several years ago but were only introduced in England and Wales in April 2009. A similar scheme had been introduced in Scotland some time ago. They are intended to provide debt relief for people that find themselves in a moderate amount of debts that they are unable to repay and who have very little in the form of assets and income. They are particularly intended for people who find themselves in this unfortunate position due to some life crisis such as loosing their job or partner.
They are quite different from bankruptcy in some ways; in particular they are not administered by a court of law, but are dealt with directly by the official receiver. The application is prepared by intermediaries working in partnership with the debtor. The debtor must have received some professional debt advice.
There are strict rules that govern the eligibility of a debtor to take out a DRO. The debtor must have less than £15,000 in total liabilities and assets of less than £300. Additionally the total disposable income must be less than £50 a month. A fee of £90 must be paid at the time of application.
Similar restrictions will apply to the debtor with a DRO as to a bankrupt, although the DRO will be discharged after one year. A permanent record will be kept of the DRO and credit rating will be permanently impaired. As a debtor with a DRO will have no significant assets such as a house, the official receiver will not attempt to liquefy assets to repay debtors as would be done in the case of a normal bankruptcy.
Despite the severe restrictions, it is anticipated that under current economic conditions and increasing job losses the uptake of debt relief orders will be significant as progressively more people find themselves in these conditions. In fact approximately 11% of previous bankruptcies would have fallen into this bracket and could have been handled with a DRO. Evidence from the Scottish scheme indicates that the uptake will be considerably higher than earlier estimates.