New Legislation was introduced from 06 April 2009 to provide a further alternative to bankruptcy for an individual who is insolvent and cannot pay their debts and provides for a Debt Relief Order (DRO).
The introduction of DROs is intended to minimise the cost of dealing with your insolvent financial affairs and allow you to obtain relief from them. Bankruptcy can cost in excess of £500.
Qualifying for a DRO There are a number of requirements that you must meet before you qualify to apply for a DRO:
• You must be unable to pay your debts.
• Your total debts must not be more than £15,000.00 This does not include unliquidated debts (debts where the amount due is not yet known) or debts that cannot be included in a DRO (such as Student Loans, Fines etc.)
• Your total assets must not be more than £300.00 It is important to note here that the £300 relates to the total value of your assets before charges such as a mortgage. In other words if you have a house with a mortgage (even if it is in negative equity) you will not qualify for a DRO.
• Your disposable income after deducting all normal living expenses, must not be more than £50.00 per month
• You must be living in England or Wales, or at any time during the last 3 years have been resident or carrying on business in England or Wales.
• You must not have been subject to a DRO within the last 6 years.
• You must not be involved in any other formal insolvency procedure at the time of the application for a DRO e.g. already be bankrupt or subject to an IVA.
• If you have presented your own petition for bankruptcy the court must have referred you to the DRO procedure.
• If you have been notified that a creditor has presented a bankruptcy petition against you, then you must get that creditors permission to apply for a DRO.
How to obtain a DRO
Providing you meet the criteria, the procedure for obtaining a DRO is relatively simple:
• The application can only be made on-line with the assistance of an approved intermediary (details of these are given below).
• A fee of £90.00 must be paid (compared to £500.00 or so for a bankruptcy) to the Official Receiver.
• The Official Receiver then assesses the on-line application and if appropriate makes the DRO.
How does a DRO affect you ?
When a DRO is made the effect of this is:
• It provides you with protection from enforcement action by your creditors, ie. they cannot pursue you any more for their debt.
• The DRO normally lasts for up to 12 months and after that period the debts are written off
• It imposes certain restrictions (very similar to bankruptcy) on you. The main restrictions are not being able to obtain credit of more than £500.00 without saying you have a DRO, and you cannot be a director of a limited company or be involved in the promotion, formation or management of a limited company.
• There are some other restrictions not detailed here.
A DRO is very similar to bankruptcy and virtually all the restrictions placed on you are the same.
It is important to note that a DRO is a very good solution for someone with relatively uncomplicated financial affairs. The Official Receiver will not generally investigate your affairs but is able to do so if he suspects you have not made a full disclosure in your application or if a creditor makes a complaint about you obtaining a DRO.
A DRO should therefore not be considered as an ‘easy way out’ of dealing with your financial affairs. It is there to assist someone who would normally have gone down the bankruptcy route, but has a relatively low level of debts and assets and cannot afford the costs of their own bankruptcy petition. If you are found to have been ‘less than honest’ then rather than lasting for 12 months, a DRO can be extended (together with all of its restrictions on you) for up to 15 years depending on how serious it is!