How much debt do you need for a DRO?

30 August2011

If you have serious debt problems, insolvency could be the most suitable way of regaining control of your finances.

Bankruptcy is perhaps the best-known insolvency solution, but it isn't always the best approach: for a start, the high cost of applying for bankruptcy (700) and the potential personal and financial consequences (such as the risk of home repossession) can be off-putting for some.

However, a Debt Relief Order (DRO) is a low-cost alternative to bankruptcy designed to help people with low assets and low available income who can't afford to repay their unsecured debts - and who don't actually own property.

Let's look at precisely what a DRO is and how much debt you need to be eligible.

What is a DRO?

A Debt Relief Order (DRO) is an insolvency solution first introduced in 2009. It's an approach designed for people who are unable to pay their unsecured debts, and who also have low valuable assets and low disposable income to put towards their debts.

Could I be eligible for a DRO?

There are certain criteria you must meet to qualify for a DRO. You could be eligible if:

  • You have unsecured debts of 15,000 or less that you can't repay
  • You have total assets worth 300 or less (and if you're a car owner, it must be worth less than 1,000)
  • You have a monthly disposable income of less than 50 (after essential living costs)
  • You haven't had another DRO in the last six years
  • You're not currently involved in any other form of insolvency solution.

How does a DRO work?

A DRO can only be applied for through an approved intermediary, authorised to complete DRO applications. Think Money are an approved intermediary, so you can apply for a Debt Relief Order with us if you'd like to find out whether a DRO could help you.

The approved intermediary will talk you through your finances and help you decide whether a DRO is the best approach for your circumstances. If you decide a DRO is the most suitable approach and you're eligible to apply, the approved intermediary can complete the application on your behalf.

If The Insolvency Service accepts your application, under the terms of the DRO you'll have a 'moratorium' that lasts for 12 months granted on your unsecured debts. You won't have to make any payments during this term, and interest and charges will also be frozen on your included debts.

If after 12 months your circumstances haven't improved, your lenders will write off any debts included in the DRO.

How much does a DRO cost?

The application fee for a DRO is 90. This can be paid in instalments if necessary.

What are the benefits of a DRO?

There are several potential benefits to entering a DRO:

  • You'll be protected from any further action from your lenders
  • You don't have to attend court
  • It costs much less than bankruptcy
  • It writes off any unaffordable debt.

What are the downsides of a DRO?

As with all debt solutions, there are some downsides to a DRO to consider too:

  • Details of the DRO will be recorded on the Insolvency Register for the length of the Order - and for three months afterwards
  • A DRO will remain on your credit file for six years, which can make getting credit during this time difficult.

Could a DRO be right for me?

If you have no more than 15,000 worth of unsecured debt that you can't afford to repay, along with very few valuable assets and low disposable income (after you've covered your essential living costs every month), a DRO could be the ideal approach to getting on top of your debts.

It's important to speak to a professional debt adviser first to discuss your options.

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Tags: DRO, debt relief order, bankruptcy, how much, cost, price, insolvency

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