Dealing with debt collectors is a situation that you would want to avoid, and nobody knows this better than the one who has been dealing with it for quite some time. Leaving your debts unpaid can bring a lot of trouble in your life. The people you owe can even take you to court, though only as a last option. If that happens, you are at risk of losing your property or going bankrupt.
On top of that, your credit score would suffer from massive damage. In other words, your life can be turned upside down, if you keep ignoring it. So, you must act quickly and get on with writing off your debt legally. There are quite a few options that allow you to do that, and one of them is a Debt Relief Order (DRO). Keep reading to know more about what it is, how it works, how long does a DRO last and other information you might want.
How does a Debt Relief Order function?
When you find yourself unable to pay your debt, you can apply for a Debt Relief Order. If eligible, this would freeze all your debts for a certain period of time. Though you would have to convince your creditors that you can’t afford to repay their debt, only then would they generally agree to go for it.
So, you must keep in mind that this requires the agreement of both parties. During the life of the DRO, you won’t face any demands to clear your debt. Now, let’s suppose you return to good financial health in the middle of the period. In such a case, you’ll have to pay whatever you owe.
However, if your financial condition doesn’t recover till the end, all your debts would be written off. So, a DRO is only meant for the benefit of those who genuinely have no other way of repaying. Though there are some types of debts that you can’t write off with a Debt Relief Order.
What is the running time of a DRO?
How long does a DRO last? The duration of a debt relief order is one year. During this time period, you won’t be required to pay any debt. Though, if you regain good financial stability during this time, you have to pay in order to write off the debt.
What are the requirements for availing it?
First, you must note that this option is available to you only if you reside in Wales or England. A DRO is available only to those debtors whose debts don’t exceed £20,000. In addition to that, you must not have any property that can be sold to repay your debt.
Your savings account should have £1,000 in total or less. Moreover, there should be £50 or less left with you after paying for basic necessities every month. You must have been a resident of Wales or England, for at least three years, and owned a property there. Lastly, you must not be undergoing any other arrangements such as an IVA.
What Financial Information would you have to provide?
Generally, you have to give a lot of financial details to get into a debt-related arrangement, and a DRO is no exception. You would have to provide all the information on financial activities, based on the last 2 years, that is asked from you. Only after that, they would consider whether or not to pass your Debt Relief Order.
If you have sold a property at less than its worth, or if you have preferred to pay one debt over another, these would be seen as a red flag. Your application might be at risk of getting rejected in that case.
What are the benefits it will provide for you?
Getting a DRO comes with its own benefits. Thus, most of the people opt for it. After all, the main aim of this arrangement is to provide relief from the stress brought into your life due to an unaffordable debt.
You won’t be required to make repayments during the arrangement period
This is the utmost benefit that it offers you. You won’t have to worry about the repayment as long as the DRO is in effect. At the end of the arrangement, all your debts that were included in the order would be written off. You would be debt-free.
You creditors can’t contact you
You can get a DRO only when you’re genuinely unable to pay. So, you would be protected from any kind of hassles from your creditors. The arrangement would be legally binding them and you.
It provides an alternative to going bankrupt
It can be said that if you’ve reached insolvency, the next stop might be bankruptcy. But fortunately, there are some options open to you that can help you avoid that. A DRO is a more viable choice rather than opting for bankruptcy. Moreover, it doesn’t cost as much as some other arrangements, such as an IVA.
What are the disadvantages you’ll have to face?
Apart from providing benefits, a DRO also poses quite a few disadvantages that you must consider and also the fact of how long does a DRO last.
You might be barred from certain jobs
You most probably won’t be able to apply for certain job positions which are related to finance. Moreover, if you’re occupying such a position, you might be removed or your powers might be restricted.
You’ll have trouble getting loans
When you have a DRO, you are not supposed to borrow above £500. If you do, you would have to inform the lender about your insolvency. Most lenders wouldn’t want to lend you in such a case. Even if they do, they’ll ask for a high-interest rate.
It shows on your credit report
Even after your DRO is over, the record will show on your file for as many as 6 years. During that time, you’ll have a lot of difficulty in getting loans or mortgages at desirable rates.
DRO is not available to house owners
If you own a residential property, unfortunately, you can’t have a Debt Relief Order. This order is available only to those who have no as such property of significant value. Though there are other viable options for you in this case.
When can a DRO get Cancelled?
There are certain cases in which it is possible for your DRO to get cancelled. One of the most common causes is the increase in income of the debtor. If your earnings increase considerably, so would your savings. Then, you wouldn’t require this arrangement any more.
If you try to hide the improvement in your financial situation and get caught, that can cause termination of the DRO as well. In the same way, it can be cancelled if you hide some important financial information, or if you have fraudulently obtained the arrangement.
Now, suppose if you inherit some property, that could mean you’ll be able to repay your debt. So, in such cases, your DRO gets cancelled, provided that the value of the inheritance is £1,000 or above. Failing to follow the restrictions or cooperating with the official can also result in a revocation of the order.
What happens after the Completion of the DRO period?
After the end of the arrangement period, all your debts will be written off. Now, you’ll be finally free from all types of debts, except criminal fines, student loans, etc. Also, you won’t be getting any notice as such. The record in the Insolvency register itself would act as proof of the completion.