how does a dro work

Introduction

In the realm of UK debt solutions, a Debt Relief Order (DRO) is a significant tool that can help individuals struggling with debt. This article aims to provide a thorough understanding of what a DRO is, who qualifies for it, and how it impacts your financial standing according to the HMRC.

What is a Debt Relief Order?

A Debt Relief Order is a form of insolvency that is designed to assist individuals in managing their debts. This legal recourse is available to those who have little to no disposable income, low-value assets, and a relatively low level of debt. A DRO freezes your debts for a year, and if your financial situation hasn’t improved by the end of this period, these debts are written off.

Who qualifies for a DRO?

Not everyone is eligible for a DRO. The HMRC has outlined specific conditions to qualify for a DRO:

• Debt Amount: Your total debt should not exceed £20,000.
• Asset Value: You must not own assets worth over £1,000. However, essential household items and vehicles that are worth less than £1,000 are excluded.
• Disposable income: After paying tax, national insurance, and regular household expenses, you should have less than £50 left over each month.
• Residency: You must be living in England, Wales, or have been a resident or had a business in these countries in the last three years.
• DRO record: You should not have applied for a DRO within the last six years, and you should not be involved in any other insolvency procedures.

For more detailed information about eligibility, you can visit the HMRC guide on DRO.

How does a DRO work?

1. Application: A DRO application must be made through an authorized debt advisor. They will guide you through the process by checking your eligibility, helping you fill out the application, and submitting it to the Insolvency Service.
2. Approval: If you meet the criteria, the Official Receiver will grant the DRO, and your creditors will be informed. From this point, your debts are frozen for 12 months, and your creditors cannot take any action against you.
3. Completion: At the end of the 12-month period, if your financial situation has not improved, the debts included in the DRO will be written off.

Impact of a DRO on your financial situation

While a DRO can ease your debt situation, it is important to understand its impact on your financial standing:

• Credit Rating: A DRO will appear on your credit file for six years, making it difficult for you to borrow money during this period.
• Public Record: Your DRO is listed on the individual insolvency register, a public record.
• Property and Possessions: If you own a house, it is likely you will have to sell it. You may also have to sell other possessions if they are of high value.
• Employment: Some professions do not allow individuals with a DRO to practice. Ensure to check whether a DRO will affect your job.

In conclusion, a Debt Relief Order can be a lifeline for individuals struggling with debt in the UK. However, it is essential to understand the implications fully before applying for one. Always seek advice from a professional debt advisor and read the official HMRC guidance for more information.