Debt relief orders provide alternative to bankruptcy | Touch Financial

Despite the extended recession in the UK, the number of personal bankruptcies is falling. According to the Insolvency Service, this is due to the increased use of debt relief orders (DROs). The number of DROs in the second quarter of 2012 was more than 9% higher than in the same period in 2011.

This new tool for managing personal debt was introduced in 2009. The DRO is an alternative to bankruptcy where the debtor owns very few assets and has little chance of paying off their creditors. It is intended to be a quicker and cheaper way of allowing a debtor to put an end to debts they will never be able to repay, giving them the opportunity for a fresh start.

Anyone considering a DRO or any form of personal debt protection should take professional advice before making important decisions.

There are strict conditions around who can apply for a DRO rather than go bankrupt. The overall debt must be no more than ?15,000, including usual domestic costs and business creditors, such as money owed to employees and suppliers.

The debtor cannot be a homeowner and their total assets must not be worth over ?300, with the exception of a car or motorbike, which must not be worth over ?1,000. They must have less than ?50 a month spare after meeting all monthly payments, have no expectation of being able to pay their debts, and not have been subject to a DRO in the previous six years.

Certain types of debt are excluded from a DRO, including student loans, family maintenance payments and fines imposed by a court.

The debt relief order process

A DRO must be applied for through an approved intermediary, who is usually linked to a debt advice organisation, such as the Citizens Advice Bureau or National Debtline. They will discuss the situation with the applicant, and help them to decide whether a DRO is the right approach.

Once a DRO has been applied for and accepted, it is listed on the Individual Insolvency Register. This is used by firms carrying out credit checks, meaning that the applicant?s credit rating will be affected.

Usually a DRO will be in place for a year, during which time creditors cannot take any further action for recovery. The debtor must supply information to the Official Receiver about any changes to their circumstances which could allow for debts to be repaid. Any debt not paid off during the year will be written off, if it was part of the original DRO.

As with all insolvency measures, a DRO should not be entered into lightly and anyone considering one is recommended to take specialist advice.

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Source: http://www.touchfinancial.co.uk/debt-relief-orders-provide-alternative-to-bankruptcy/

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