Debt relief orders

What is a debt relief order?

A debt relief order (DRO) gives relief from debt recovery actions and debt repayments. It is granted by the Official Receiver (OR) on application.

A debt relief order is only available where the debtor has very little income and few assets, and has no means of repaying the qualifying debts.

The effect of a debt relief order on the creditors

While a DRO order is in place, the debtor can't be forced to make payment of any of the qualifying debts listed in it. Other debt management arrangements, such as an administration order, an enforcement restrictions order, and a debt repayment plan arranged with a debt management scheme will cease to be effective on the date the DRO is made.

A creditor owed a qualifying debt can only act against the debtor for recovery of the debt with permission of the court. A secured creditor, however, remains free to enforce their security.

The qualifying debts listed in the debt relief order will be written off at the end of the debt relief period unless the debt relief period was terminated early.

The effect of a debt relief order on the debtor

Duties of the debtor

Once the debtor has made an application for a debt relief order they are under a duty to give all such information about their affairs to the OR, attend on the OR at such times and do all such other things as the OR may require for purposes of carrying out their functions.

The debtor remains under an obligation to inform the OR should they become aware of any error or omission in the information given in the application to the OR. If there is any change in the debtor's circumstances after application is made that could have an effect on the decision of the OR the debtor must inform the OR as soon as possible.

If the OR believes that the debtor has in any way misled them or behaved dishonestly (either before or during the DRO) they can apply to the court for a Debt Relief Restriction Order (DRRO). This could extend the conditions imposed under the DRO for between 2 – 15 years.

Once the DRO is made the debtor must inform the OR if they acquire any property or there is any increase in their income.

Restrictions on the debtor

Similar restrictions apply to a debtor subject to a debt relief order as applies to a debtor who is an undischarged bankrupt, some of which are:

• The debtor can't get credit (and this includes buying goods under a hire-purchase or conditional sale agreement), without disclosing that they are subject to a DRO.
• The debtor may not, without the court's permission, act as a director of a company or be involved in the creation or management of a company.
• The debtor can't act as trustee of a charity (unless given permission under the Company Directors Disqualification Act) or as a trustee of a pension trust.
• The debtor can't work as a solicitor without permission from the Solicitors Regulation Authority or as an insolvency practitioner.
• The debtor can't be appointed as an attorney in a lasting power of attorney (England & Wales) or enduring power of attorney (Northern Ireland) relating to the donor's property and financial affairs.

A DRO will affect your credit rating. All DRO's are registered in a public register kept at the Insolvency Service and remain on the register until three months after the DRO comes to an end.

Eligibility to apply for a debt relief order

A debtor who is unable to pay their debts can apply for a debt relief order (DRO) if:

• their total debt is not more than £30,000;
• they own assets of £2,000 or less; and
• they only have £75 p/m or less income left after tax, national insurance and household expenses.

If the DRO is granted the debtor will be protected for a period of one year against any debt recovery actions in respect of any qualifying debt listed in the DRO. When the DRO comes to an end (except if terminated early) the qualifying debts listed in the debt relief order will be written off and the debtor will never have to pay it.

The debtor can't get a DRO if:

• they have had a DRO in the preceding 6 years;
• they are subject to any other insolvency procedure; or
• they aren't domiciled in the place the application is being made (England & Wales or Northern Ireland, as applicable), or haven't lived or carried on business there in the preceding 3 years.

How does the debtor apply?

The debtor has to find an approved intermediary to make the application for the DRO to the official receiver (OR) through the Insolvency Service.

An approved intermediary is a person that has been approved by a competent authority such as:

• Citizen's Advice Bureau
• The Foundation of Credit Counselling (Consumer Credit Counselling Service).
• Baines & Ernst Limited.

A complete list of organisations and their contact details for Northern Ireland can be found online on the GOV.UK site (opens a PDF)

The approved intermediary will be a member of the institute or of the competent authority's staff.

The application for the DRO must include:

• a list of the debts the debtor is subject to at the date of the application;
• details of any security held for those debts; and
• any other information about the debtor's affairs as may be required by law, such as their income, assets and supporting documentation.

The application must be submitted to the Official Receiver together with the applicable fee.

After application to the Official Receiver

What happens after an application to the Official Receiver has been made?

Once the application for a DRO has been submitted, the Official Receiver (OR) will only progress with it once the debtor has given answers to all their queries.

The OR may refuse to grant the DRO in the following circumstances:

• the application has not been properly made;
• the debtor has not answered all the OR's queries within the time allowed; or
• the debtor provided false information to the OR in the application.

However, the OR must refuse the application if they are not satisfied that:

• the debtor is an individual who can't pay their debts;
• the debts owed are not more than £30,000;
• the debtor has less than £75 to spend after paying tax, NI and normal household expenses;
• the debtor's assets are less than £2,000;
• at least one of the debts specified in the application was a qualifying debt at the time of the application;
• the debtor has not had a DRO in the preceding 6 years;
• the debtor is not subject to any other insolvency procedure; or
• the debtor is domiciled in the place the application is made (England & Wales or Northern Ireland as applicable), or has lived or carried on business there in the preceding 3 years.

Qualifying debts

A debt can only be included in a debt relief order if it is not an excluded debt and it is liquidated and payable either at the time of the debt relief order or in the future. To the extent that a debt is secured it can't be a qualifying debt. Examples of qualifying debts are:

• Arrears with rent
• Arears with council tax (rates in NI), utility bills and telephone accounts
• Credit cards and loans
• Business debts

Excluded debts

Some of the excluded debts, that will not be affected by a debt relief order and will still have to be paid, are, for example:

• Any debt not listed in the DRO
• Any fine imposed for an offence
• The obligation to pay any sum ordered in family proceedings
• The obligation to make payment of a child maintenance assessment under child support legislation
• The liability to pay
• A student loan

Challenging the DRO

Any of the creditors who are owed a listed qualifying debt can object to the making of the DRO, the inclusion of the amount they are owed as a qualifying debt or the details of the debt mentioned in the DRO.

The objection has to be made within 28 days from the date the creditor received notice of the making of the DRO.

The objection can only be made on the following grounds:

• there is an error or omission in the DRO;
• the debtor is already an undischarged bankrupt or subject to an IVA; or
• the OR was wrong in concluding that the debtor could apply for a DRO.

At the end of the DRO period

A debt relief order usually comes to an end after one year unless the OR extends it or it ends earlier. When the DRO comes to an end (except if terminated early) the qualifying debts listed in the debt relief order will be written off and never have to be paid.

More information on DROs can be found:

• In England & Wales through Citizen's Advice
• In Northern Ireland through the Insolvency Service