Debt Relief Orders

Introduced under the Tribunals, Courts and Enforcement Act 2007, Debt Relief Orders (DROs) came into force on 6 April 2009. In a nutshell, a DRO is a way for a debtor to have his/her debts written off if they have a relatively low level of debt and few assets. To apply for a DRO, the applicant must satisfy strict eligibility criteria.

Assuming a debtor qualifies for a DRO, the order will freeze his/her debt repayments and interest for 12 months. During this time creditors cannot take debt recovery action without the court’s permission (i.e. there is a moratorium). At the end of the year, the debtor will be free of all the debts listed in the order provided his/her circumstances have not changed. In effect, debts are written-off (i.e. “discharged”); the debtor won’t have to pay them.

DROs are a cheaper option than going bankrupt. Another important benefit is that DROs are administrative rather than court-based; they are made by Official Receivers working in partnership with the professional debt advice sector. In a nutshell, the aim of a DRO is to provide:

• a low-cost debt remedy aimed at the financially excluded who have relatively low liabilities, little surplus income and few assets;
• a workable debt relief remedy for those who cannot take advantage of other debt remedies, such as Individual Voluntary Arrangements (IVAs), and where bankruptcy would be disproportionate;
• a fresh start for vulnerable people trapped in debt.

It should be noted that a DRO is only available if the debtor lives in England, Wales or Northern Ireland. DROs are not available in Scotland. However, a “Minimal Assets Process” bankruptcy offers a similar solution to Scottish debtors, but has different benefits, risks and fees associated with it.

This briefing paper summarises the main features of DROs with emphasis on the eligibility criteria.