Debt Relief Orders – What are they and what’s changing in 2024?

What is a Debt Relief Order?

Debt Relief Orders (DROs) are a simplified, quicker and cheaper alternative to bankruptcy as an insolvency measure in the United Kingdom coming into effect in England and Wales on 6 April 2009.

A DRO is a solution to deal with personal debts. An application has to be made through an approved debt adviser and have to meet certain eligibility criteria.

• A DRO normally lasts 12 months.
• If approved, payments towards the debts are stopped (and interest) listed in the DRO during that time.
• After the 12 months, the debts are written off.
• Certain rules (‘restrictions’) have to be followed during that time.

A DRO stays on a credit reference file for six years from the date it was approved, which is the same for other debt relief options. It is also added to the Individual Insolvency Register and will be removed three months after the DRO ends.

Active DROs are taken into consideration by lenders when applying for a loan or other forms of credit, and may affect how they view creditworthiness.

Eligibility for a Debt Relief Order

You’re generally eligible if you meet all of these criteria:

• owe less than £30,000 in total;
• don’t own your own home;
• have savings or valuable items worth less than £2,000 in total;
• own a vehicle worth less than £2,000 (if you were to sell it today);
• do not have enough money left at the end of the month to make your debt repayments;
• have lived or worked in England and Wales in the last three years;
• are not currently bankrupt, have an interim order or an individual voluntary arrangement;
• have not had a DRO in the last six years.

Restrictions of a Debt Relief Order

There are restrictions on what you can do while you have a DRO.

You cannot:

• borrow more than £500 without telling the lender about your DRO;
• act as the director of a company;
• create, manage or promote a company without the court’s permission;
• manage a business without telling those you do business with about your DRO;
• open a bank account without telling the bank or building society about your DRO.

You may be prosecuted if you break any of these restrictions while you have a DRO.

Debts you will still have to pay

There are some types of debts that cannot be included in a DRO. You’ll still have to pay:

• child maintenance or anything you owe under family proceedings;
• student loans;
• budgeting and crisis loans from the Social Fund;
• debts secured against any possessions you own;
• damages for personal injury or death a court has ordered you to pay;
• unpaid TV licence fees.

A creditor’s responsibilities and restrictions during a DRO

When a creditor receives notice of a DRO notice they must stop:

• requesting payments from the individual named in the DRO;
• any proceedings against them;
• all bailiff enforcement action;
• all recovery action if the debt is under a collection agent;
• any attachment of earnings deductions (court ordered deductions from an individual’s wages to pay their debts).

A creditor can continue to provide statements to the individual and can send a default notice. A creditor cannot start insolvency proceedings against someone in a DRO without a court’s permission. There are some exceptions, such as debts under a controlled goods agreement.

Upcoming changes to DRO rules

Changes to DROs were announced in the 2024 Spring Budget.

• No fee from the 6 April 2024. The £90 fee payable to the Insolvency Service to apply for a DRO has been abolished from 6 April.
• Increase to maximum debt from the 28 June 2024. To obtain a DRO you must have a maximum debt level of £30,000. Anyone over that limit would have to apply for bankruptcy which costs £680. From the 28 June, the maximum debt level will increase to £50,000.
• Permitted car value doubles from the 28 June 2024. Currently, if your car is worth more than £2,000, you wouldn’t be eligible for a DRO. However, from the 28 June, that will increase to £4,000.

DRO Statistics

It’s clear to see that DROs are increasingly being used to help people struggling with problem debt.

With the cost-of-living crisis continuing to impact the UK, more people than ever before are seeking support with managing their debts. In fact, data from the Insolvency Service found that 8,438 people in England and Wales took out a Debt Relief Order (DRO) between July and September 2023. This is a 49% increase on the same quarter in 2022 and the highest number since DROs were first introduced in 2009.

Furthermore, there were 3,007 DROs in February 2024. This was 44% higher than February 2023. DRO numbers have increased over the past year, with the annual 2023 number being a record high.

This content is correct at time of publication