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Your Money > Budgeting Articles > A new way...
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By Emma Lunn
If you've got debts of £15,000 or under and are struggling to repay them then a little-known alternative to bankruptcy and individual voluntary arrangements (IVAs) could be the answer. Debt relief orders (DRO) were introduced by the Government in April 2009 and are designed for non-homeowners with few assets, minimal surplus income and no improvement in their circumstances likely for some time. People who take out a debt relief order could be free of their debts in as little as a year. Debt relief orders are a form of insolvency procedure somewhere down the scale after bankruptcy and individual voluntary arrangements (IVAs). They are aimed at people with less than £50 a month to live on after paying their rent and bills, yet have debt repayments to keep up too. To be eligible you must have £15,000 or less "qualifying" debts, and assets worth less than £300 - although you can own a car worth up to £1,000. Assets also include your pension. Qualifying debts include loans, overdrafts, credit cards and demands from utility companies. However they don't include child maintenance, court fines or student loans. During the period the debt relief order runs (normally 12 months), your creditors will not be allowed to take action against you to get their money back. At the end of the 12 months you'll have effectively wiped the slate clean. This might sound like a sure-fire way to write off your debts in record time but there are downsides too. You'll find it very difficult to borrow money during the debt relief order period and afterwards. If you apply for credit of £500 or more during the time period you have the debt relief order, you'll have to tell the lender about the order (which probably means they'll turn you down). The debt relief order will stay on your credit report for six years after it's finished which won't make you a very good prospect for lenders. If your financial situation improves while you have the debt relief order - for example, if you get a better paid job or inherit some money - you're obliged to inform the Official Receiver (the body which grants debt relief orders) and make arrangements to repay the people you owe money to. If you break the rules of your debt relief order you may also be subject to a "debt relief restriction order". This can extend the period of restriction for up to 15 years for debtors who are deemed dishonest or borrow money knowing they will be unable to make the repayments. To get a debt relief order you need to go to a "competent authority". The Insolvency Service has approved six organisations as competent authorities. These are: Citizens Advice Bureau, Consumer Credit Counselling Service, the Institute of Money Advisers, Baines & Ernst, National Debtline and Payplan. Your adviser will be able to give advice on debt relief orders, confirm whether you're eligible for one, complete the paperwork and send it to the Official Receiver. They will be a fee to pay up to a maximum of £100. Your debt relief order will contain a list of creditors the order applies to. They'll be told about the debt relief order and won't be able to pursue you for money. Facing up to your debts can be difficult, but remember you're not alone. And the sooner you face up to your debts, the quicker you can tackle them. There are plenty of places you can turn to for free advice. More from lovemoney.com |
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