Debt relief orders
This fact sheet covers England & Wales. You will need different advice if you live in Scotland.
This fact sheet tells you when a debt relief order (DRO) may be a good solution for you to deal with your debts. A DRO stops most creditors from taking further action against you and can help you to get a fresh start. The law about DROs can be complicated, but this fact sheet explains what you need to know step by step.
Use this fact sheet to:
- find out if you qualify for a DRO;
- find out which debts can be included in a DRO; and
- understand the effects of a DRO on you.
This fact sheet includes some useful contacts and links for you to get further help.
The sample letters mentioned in this fact sheet can be filled in on our website.
If you need time to get debt advice and find a debt solution, you may want to consider applying for breathing space.
Breathing space will stop most types of enforcement and also stop most creditors applying interest and charges for 60 days.
To find out more, see our Breathing space fact sheet.
Applying for a DRO
This fact sheet explains the rules that the Insolvency Service has about applying for a DRO. You can only apply for a DRO through a special adviser called an ‘approved intermediary’. If you decide that a DRO is the best solution for you, contact us for more advice. If a DRO is a suitable solution for you, we can explain how to apply for a DRO.
The decision on whether to approve your DRO application will be made by a government official known as the official receiver.
The fee for a DRO is £90. There is no reduction if you are on benefits or a low income. You are allowed to pay in instalments. If you cannot pay the fee, you might be able to apply to a charity for help. Contact us for advice.
You cannot apply for a DRO jointly with another person. If you and your partner both want a DRO, you each have to apply separately. This means you each have to pay a £90 application fee. Contact us for advice.
When can't you apply?
If you are already bankrupt or have an individual voluntary arrangement (IVA), then you will not be able to apply for a DRO. Contact us for advice.
Do I qualify?
There are strict rules that you have to meet to qualify for a DRO. You must:
- be unable to pay your debts;
- have total debts of £30,000 or less at the date the application is approved by the official receiver;
- have assets worth a total of £2,000 or less;
- not have a car or motor bike worth £2,000 or more (unless it has been adapted because you have a disability);
- have £75 a month or less spare income after normal household expenses are taken into account;
- live in England or Wales (or have lived or run a business in England or Wales in the last three years); and
- not have had a DRO in the last six years (although you may still qualify if your DRO was cancelled).
Debts that are included
You can include most types of debt in your application as long as your total debts are no more than the £30,000 limit.
You should include priority debts. Examples include:
- rent arrears;
- gas and electricity debts with your current supplier;
- arrears on your phone bill if you need to keep it as an essential service;
- council tax, business rates and community charge arrears; and
- income tax, VAT and National Insurance arrears.
Arrears on priority debts
When you are working out how much you owe, make sure you include any arrears you have on priority debts. You will need to pay your ongoing rent, energy, council tax bills and so on as normal.
Even if you include rent arrears in your DRO, your landlord can still take court action to evict you. However, they cannot recover rent arrears you build up before your DRO.
You must make sure you include all your credit debts in the application. If you leave a debt out, it cannot be included later. See After your application is sent in the later section The DRO application.
Examples of debts you should include are:
- water arrears;
- credit cards and store cards;
- bank overdrafts and bank loans;
- loans to finance companies;
- home-collected credit;
- benefit overpayments;
- family or personal debts;
- hire purchase and conditional sale agreements if you are in arrears (if you are not in arrears you may be able to exclude this type of debt in certain circumstances);
- hire agreements;
- parking penalty charges; and
- mortgage shortfalls (money you owe if your house was sold for less than the outstanding mortgage).
You may also owe debts from a small business such as:
- money owed to employees;
- debts to customers who have paid for goods or services that were unable to be supplied; and
- debts to suppliers.
Benefit overpayments cannot be recovered by any method, including deductions from your ongoing benefits, if they are included in a DRO.
Debts to include
If you are not sure what debts you should include in the DRO application, contact us for advice.
Some debts do not count towards the £30,000 limit, although you still have to list them in the DRO application. This means you are still liable to pay these debts in full. You cannot include:
- magistrates’ court fines;
- maintenance, Child Support Agency (CSA) and Child Maintenance Service (CMS) payments and arrears;
- student loans;
- budgeting loans and crisis loans;
- money owed under a ‘criminal confiscation order’; and
- debts resulting from certain personal injury claims against you.
You will need to make sure you pay ongoing payments on these debts and include them in your outgoings.
Hire purchase and conditional sale
If you are not in arrears with your hire purchase (HP) or conditional sale agreement, you can choose to exclude the debt from your DRO application. However, if you are in arrears, you must include it. Any further payments to the creditor must stop.
If you have a vehicle on an HP or conditional-sale agreement and it is worth more than £2,000, payments would not usually be an allowable expense in your DRO. Therefore, you would have to include the debt in your application unless:
- a third party is willing to take over the agreement for you; or
- there are exceptional circumstances which mean your payments for the vehicle meet a basic domestic need.
For goods other than vehicles, you may decide to leave out your HP or conditional-sale agreement from your DRO if you are not in arrears. If you do this, future payments towards the agreement can only be allowed if the item is necessary to satisfy the basic domestic needs of you and your family. Otherwise, if you want to keep the item, payments under the agreement would need to be made by a third party, such as a family member or friend.
For more information on HP or conditional sale agreements and DROs, contact us for advice.
Creditor ends the agreement
Some hire purchase or conditional sale agreements may contain a clause which allows your creditor to end the agreement if you get a DRO. Check your agreement and contact us for advice.
What if my debts are near the £30,000 limit?
Creditors can add interest and charges to your debts up until the date the official receiver approves your DRO. Therefore, if your debts are near the £30,000 limit when you start the application process, your debts could rise to above £30,000 by the time the official receiver considers your application. If this happens, the official receiver will not approve your DRO. You will not get the money you have paid in fees back if this happens.
You need to think about the following ideas and get further advice.
- Check what sort of debts you have. Some creditors may not be adding extra interest and charges. But you may have a credit card or a store card which has a high interest rate that is building up each month.
- Think realistically about how long it will take you to save up the money for the fee, as you may miss your chance to apply for a DRO if your debts grow to more than £30,000.
- If saving the £90 will delay your application, you could ask a charity to help with the fee. This could help speed the process up. If you need help with the fee, contact us for advice.
- Try to persuade your creditors to freeze the interest. You can send your creditors the sample letter Hold action while you apply for a debt relief order. However, this letter should only be sent to your creditors when you have an approved intermediary dealing with an application for you.
- If you are able to, make payments to your creditors to prevent the debts reaching the £30,000 limit. Contact us for advice as you need to be careful to treat all your creditors fairly if you decide to do this.
- Think about whether anyone can help you make the payments to help keep your debt below £30,000.
- You may be able to apply for a time order. This is a way of asking the court to give you more time to pay a particular type of debt, which may help to prevent the debts reaching the £30,000 limit. See our Time orders on unsecured debt fact sheet for more information.
- With a time order, the court can also change some of the terms of the agreement, such as the rate of interest. This is a complicated area, so contact us for advice.
You can have assets worth up to £2,000 and still qualify for a DRO. Lots of basic household items such as cutlery, crockery, cookers, televisions, beds or furniture do not count as assets.
The value of your assets is worked out using the resale value, not how much the item was worth when you bought it, unless it is brand new. Assets may include antiques, luxury items or valuable collections, stocks, shares, premium bonds and savings.
If you own a car or motorbike, then your adviser will need to check the value using Parker’s Guide. See Useful contacts towards the end of this fact sheet. If it is worth less than £2,000, then it will not be taken into account as an asset. If you have a specially adapted car because of a disability, contact us for advice.
Pensions approved by Her Majesty's Revenue and Customs (HMRC) do not count towards your £2,000 asset limit. A small number of pensions not approved by HMRC will count as assets.
If you are 54 years old or older and have a personal or work pension that you have not yet drawn on, the pension may affect your debt relief order application. Contact us for advice if this affects you.
Any money you receive from a pension will be treated as income when deciding whether you qualify for a DRO.
Cars on hire purchase or conditional sale agreements
Don't include a car you have on a hire purchase or conditional sale agreement as an asset. The car belongs to the creditor until you have paid off the total debt. Don't forget to count the balance you owe in your list of debts.
Be honest about your assets
When you apply for a DRO, you will need to discuss your assets with your approved intermediary. It is important to be open about any assets you have. The official receiver could end your DRO and take further action against you if they find out that you have not told them about an asset that takes you over the £2,000 limit. You also have to tell them about any asset you gave away, or sold for less than it was worth, in the last two years.
The DRO application
Before making your application, you will need to think about the following steps.
- Getting advice about whether you may qualify.
- Completing a personal budget to see how much money you have coming in and going out.
- Collecting details about your debts and how much you owe each creditor.
- Checking your credit reference file to make sure you haven’t forgotten any debts.
- Starting to save up money towards the £90 application fee.
Paying the fee
- You can make payments by cash only.
- Your approved intermediary will provide you with a special bar code that you will need to make payments.
- Payments can be made at either a post office or a Payzone outlet.
- The Insolvency Service does allow the fee to be paid in instalments. You can pay in as many instalments as you like, but the full £90 must be paid within six months of an approved intermediary starting your application. However, your approved intermediary may request that you pay the fee within a shorter timescale.
- You can ask the official receiver for a refund if you have made some payments towards your fee and then change your mind about applying for a DRO. However, you cannot get a refund once your application has been sent in by your intermediary and you have paid the fee in full.
It is important that you provide accurate amounts for what you owe when you apply for a DRO. This is because the official receiver will only include the amount of debt that is stated on your application form in your DRO.
If you use an out-of-date statement to find out how much you owe a creditor, you may find that the creditor asks you to pay the difference.
For example, if you have a credit card debt that was £3,200 when you complete an application form and some interest gets added on that takes the debt to £3,225, the creditor may ask you to pay the extra £25.
Ask your intermediary when they will submit your application to the official receiver. If there is a delay between you filling in an application form and your approved intermediary sending the application form, it is a good idea to provide up-to-date balances just before your final application is submitted.
After your application is sent
- The official receiver will decide whether to grant your application for a DRO. They can ask you for more information and you must be as helpful as you can. You may want to seek more advice if this happens. Contact us for advice.
- The official receiver will also ask a credit reference agency for information about your credit file. This will help them to check the details that you have provided in your application.
- If the official receiver approves your application, they will send you a letter to confirm that you have been given a DRO.
- The official receiver will also send the order to all the creditors listed in your application.
- Your creditors may object to the DRO being made. They can also object to being included in the DRO or to the details of their debt as listed in the DRO. They can only make such objections on certain grounds, for example that you are not eligible for a DRO. It is not a valid ground for a creditor to object just because they don’t want to be included in the order.
- If your DRO stands, all the debts that are included in the order are put on hold for 12 months. This is called the ‘moratorium period’.
- You should not usually make any more payments on your debts. There are some exceptions to this rule (for example in some situations if you have rent arrears). Contact us for advice.
- Your creditors that are included in the order are not usually allowed to ask you to make any more payments. If this happens, tell the creditors about your DRO using our sample letter Creditors asking for payments after debt relief order approved. You should also let the official receiver know. Contact us for advice.
- If your application is rejected, the official receiver will tell you and your intermediary the reasons.
Future statements from creditors
Under the rules in the Consumer Credit Act 1974, your creditors will usually have to keep sending you annual statements, as well as arrears and default notices in a set format. This will happen even when you are in the 12-month moratorium period under your DRO but should stop after that. Don’t worry. This does not mean that there is a problem with your DRO. If you receive other letters demanding payment, contact us for advice.
What happens if a debt is left out?
If you forget about a debt and find out about it after the DRO has been agreed by the official receiver, the debt cannot be included in the DRO. The creditor can continue to take action against you to recover the debt. This means you will need to negotiate repayments separately with that creditor. If this happens to you, contact us for advice. If this debt takes your total debts over £30,000, the official receiver will consider ending or ‘revoking’ your DRO.
Possible action against you
If you do not tell the official receiver about the extra debt, the official receiver may be able to take criminal or civil action against you. Contact us for advice.
The official receiver
It is very important that you co-operate with the official receiver throughout your DRO application.
- You must tell the official receiver about any changes in your circumstances after you apply for a DRO.
- You must give information about your finances to the official receiver if they ask.
- Make sure you have given the official receiver a full list of your debts and assets.
- Tell the official receiver if your income increases, or if you come into any property or a lump sum whilst you have a DRO.
Changes in your circumstances
If the official receiver finds out that you have not given them accurate information about your income, assets or debts, they can end or ‘revoke’ your DRO and even take further criminal or civil action against you. You must also tell the Insolvency Service about changes in your circumstances, including any increase in your income, a change of address, or if you come into money. If your circumstances change so much during the moratorium period that you no longer meet the criteria, your DRO may be revoked.
Effects of a DRO
If your DRO application is approved, it can affect you in the following ways.
- Certain restrictions will be placed on you for 12 months from when the DRO is approved.
- In certain circumstances a ‘debt relief restrictions order’ can be placed on you.
- Your bank account may be frozen.
- The DRO will be recorded on your credit reference file.
- The DRO will be recorded on a public register called the ‘Individual Insolvency Register’.
- Your job could be affected. This is only likely to be the case where your contract of employment states that you are not allowed to have a DRO.
- If you rent your home, your tenancy could be affected. Check your tenancy agreement to see if it states that you are not allowed to have a DRO and contact us for advice.
What restrictions will be placed on me?
The main restrictions are as follows.
- You must not take out credit of £500 or more without telling the lender that you have a DRO.
- You cannot run a business in a different name without telling everyone you do business with the name you used for your DRO.
- You cannot be involved with the promotion, management or formation of a limited company, or act as a company director without getting permission from the court.
- You may not hold certain public offices.
- You cannot apply for a DRO again for six years.
Debt relief restrictions orders
If the official receiver finds that you have not been honest and open about your finances either before or during the DRO, or they decide that you have behaved irresponsibly, they may ask you to agree to a ‘debt relief restrictions undertaking’.
If you refuse, they may apply to the court for a ‘debt relief restrictions order’. This means that you will still have certain restrictions on you for between 2 and 15 years after the date of the DRO. Your details will also be kept on the Individual Insolvency Register for the lifetime of the order plus an extra three months.
What will happen to my bank account?
If your DRO application is successful, your bank account will not necessarily be frozen. It will be up to your bank or building society to decide if you are allowed to keep the account open. If you have a debt with your bank or building society, it is likely that your account will be frozen after your DRO is approved. Even if you do not have any debts with your current bank, you account may still be at risk. Check the terms and conditions of your account and contact us for advice.
There is nothing to stop you applying to open a new bank or building society account when you have a DRO, but the bank or building society may ask you if you have a DRO. It is then up to the bank or building society to decide whether they will let you open an account with them. You may be able to open a basic bank account instead. It is a good idea to open a basic bank account after your DRO is approved to try to avoid any problems. See our Safe bank accounts fact sheet for more information.
How will a DRO affect my credit rating?
Credit reference agencies keep information on DRO’s for six years in the same way as they do for most other information. See our Credit reference agencies fact sheet for more information.
Even after six years, your ability to get a mortgage could be affected. This is because some lenders may ask if you have ever been made bankrupt or had a DRO.
How long will my DRO be on the Individual Insolvency Register?
- Your DRO will be displayed on the Individual Insolvency Register in the same way as a bankruptcy order.
- Your details will be held on the Individual Insolvency Register for the 12 months your DRO lasts, plus an extra 3 months. This means 15 months in total.
What other solutions are there?
If you do not qualify for a DRO, there may be other solutions available to deal with your debts such as bankruptcy, a debt management plan or an individual voluntary arrangement. National Debtline can advise you on the solutions available to you in your circumstances. Contact us for advice.
Debt Relief Order Unit Insolvency Service Phone: 0300 678 0015 Email: DRO.Unit@insolvency.gov.uk
Individual Insolvency Register www.insolvencydirect.bis.gov.uk/eiir/
Insolvency Service www.gov.uk/government/organisations/insolvency-service
Parkers Guide www.parkers.co.uk/cars/prices/
Payzone UK Ltd Phone: 0844 2090 555 www.payzone.co.uk
Post Office Phone: 08456 11 29 70 www.postoffice.co.uk