If you’re struggling with debt and are thinking about bankruptcy, an IVA (Individual Voluntary Arrangement) or other form of insolvency, you might want to consider a Debt Relief Order (DRO) as well. A DRO is similar to bankruptcy and can be suitable if you are really struggling to repay your debts.
Here is the basic criteria of a DRO:
- You must have lived, or be working in England or Wales during the last 3 years
- You must have less than £300 worth of assets
- You must have less than £50 per month of disposable income
- You must not be a homeowner
- Your total debts must be below £15,000
- Your car (if you own one) must be worth less than £1000
- You must not be involved in another insolvency procedure (like bankruptcy, an Individual Voluntary Arrangement or a Debt Relief Order)
If you meet all of these criteria, then a DRO is a cheaper option than bankruptcy and an IVA. Bankruptcy costs a total of £700 and with an IVA you have to agree to repaying a certain amount over 6 years. For people who aren’t able to do either of these, a DRO might be an alternative choice. Once a Debt Relief Order has been declared, all the debts listed within it are written off after one year.
The downside to Debt Relief Orders
Just like bankruptcy and Individual Voluntary Arrangements, Debt Relief Orders have a number of disadvantages that you should consider as well before making a final decision on whether to declare one.
- You will find it very difficult to get any kind of credit once you apply for a DRO. If you are already in financial difficulty though, this may already be the case.
- There are only certain types of debt that can be listed in a Debt Relief Order. Because not all debts are covered by a DRO you might need to check with an approved intermediary to find out whether you are eligible.
- You have to declare any extra income you may receive. With a Debt Relief Order you have to stay in contact with the Official Receiver to keep them informed of financial changes which could affect your DRO.
If you still qualify and you are happy with the potential disadvantages, a Debt Relief Order can be an excellent alternative without any of the stigma attached to bankruptcy or the regular payments needed to complete an IVA. Ultimately though, the method you use to clear your debts is down to you and your individual situation.
Ian is a financial blogger who writes about debt relief, personal finance and budgeting at Debt Consolidation.