February 28, 2024

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Debt Relief Order: A Guide to Regaining Financial Stability

Being overwhelmed with debt can be a stressful and daunting experience. The feeling of not being able to keep up with repayment schedules, constantly getting calls and letters from creditors, and struggling to make ends meet can have a detrimental effect on one’s mental health and wellbeing. Fortunately, there are options available when it comes to seeking debt relief, and one of them is through a Debt Relief Order (DRO).

A Debt Relief Order is a form of debt management tool that was introduced by the UK government in 2009 to help people who are in significant debt, experiencing financial difficulty and have a low income. A DRO aims to provide a way for individuals to regain their financial stability by having their debts cleared within a year and without the need to make any further payments towards them.

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To be eligible for a DRO, a person must meet certain criteria, including:

– Their total debts must be less than £20,000
– Their assets cannot be valued at more than £1,000, and they cannot own a property
– They have no more than £50 left over after paying for any essential living expenses (such as housing, utility bills, and food)
– They must live in England, Wales, or Northern Ireland
– They must not have received a DRO within the last six years

If you meet all these criteria, a DRO could be an option to help you regain control of your financial situation.

How Does a Debt Relief Order Work?

A Debt Relief Order works by placing a hold on all debt repayments for one year. During this time, a DRO advisor is appointed to your case and will help you to create a suitable budget plan to ensure that your essential living expenses are covered. After the one-year period has ended, and as long as your financial situation has not improved beyond what is agreed in the DRO, your debts will be written off entirely.

Once you have submitted your application, the DRO advisor will review your financial situation, including all of your outstanding debts, income, expenses, and any assets you may have. They will then send your application to the Official Receiver, who will make a decision on whether you are eligible for a DRO.

If you are eligible, the Official Receiver will inform your creditors and place a hold on all collection activity, including telephone calls, letters, and legal action. Once the one-year period has passed, your debts will be written off, and you will be discharged from any further obligation to repay the debts included in the DRO.

Benefits of a Debt Relief Order

One of the significant benefits of a DRO is that it allows you to regain control of your financial situation without the need to make any further repayments. This means that you can focus on essential living expenses and saving money to help you get back on track without worrying about repaying debt.

Another advantage is that once your debts have been written off, you can start to rebuild your credit score. It’s important to note that a DRO will remain on your credit file for six years, which may make it difficult for you to obtain credit during this time. However, after the six-year period has passed, it’s possible to improve your credit score by making regular payments towards your bills and managing your finances effectively.

FAQs

Q: Can I apply for a DRO if I’m self-employed?
A: Yes, you can still apply for a DRO if you’re self-employed, as long as you meet the criteria listed above.

Q: Will a DRO affect my credit rating?
A: Yes, a DRO will remain on your credit file for six years, which may impact your ability to obtain credit during this time.

Q: Can I include secured debts in a DRO?
A: No, you cannot include any secured debts, such as a mortgage or car loan, in a DRO.

Q: What happens if my circumstances change during the one-year period?
A: If your circumstances change during the one-year period, such as an increase in income or a change in living circumstances, you must contact your DRO advisor immediately. Depending on the change, your DRO may be cancelled, and you may need to explore alternative debt management options.

Q: Can I apply for a DRO if I have a CCJ or IVA?
A: No, if you have a CCJ or IVA, you are not eligible to apply for a DRO.

Conclusion

A Debt Relief Order can be a valuable tool for regaining financial stability and getting on top of debt. If you’re struggling with debt and feel overwhelmed by your financial situation, a DRO may be worth considering. However, it’s important to speak to a qualified debt advisor before making any decisions. They will be able to assess your situation and recommend the most suitable options for your circumstances. With the right support and guidance, you can take steps towards regaining control of your finances and working towards a debt-free future.

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Article Summary:

A Debt Relief Order (DRO) can help individuals struggling with significant debt and low income to regain financial stability. Introduced by the UK government in 2009, a DRO allows for debts to be cleared within a year without needing to pay loan repayments. To qualify, individuals should have total debts less than £20,000, have no assets valued at more than £1,000, less than £50 leftover after paying for living expenses, and not own properties. Moreover, DRO advisors can help build a suitable budget plan during the one-year debt repayment freeze. This plan can then allow better financial control and stable living conditions.

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