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Commonly Asked Debt Relief Order DRO Questions

General Debt Relief Order Information

What is the purpose of debt relief orders (DROs)?

The debt relief order is a form of insolvency for people that have a certain amount of debt, little disposable income and few assets. The debt relief order will help to place the least complicated debt discharge cases on a fast-track through the court system with no personal appearance at court required.

How many people will be eligible for debt relief orders (DROs)?

Approximately 11% of all bankruptcies would have qualified for a Debt Relief Order. The Insolvency Service anticipates that there will be within the first year of DRO availability up to 21,000 DRO applications. It is projected that this will rise to up to a maximum of 43,000 in the second year of operation.

What other names is a Debt Relief Order known by?

You may see references to a Debt Relief Order as a DRO or a Debt Relief Restrictions Order.

Who might DROs be suitable for?

People with relatively low liabilities, little surplus income and few assets and who are unable to pay off their debts in a reasonable time.

What are the requirements for a debt relief order?

The requirements will be detailed in secondary legislation which is not yet in force, but it is anticipated that the following will apply:

  • The debtor is unable to pay his/her debts;
  • The debtor’s total unsecured liabilities must not exceed £15,000;
  • The debtor’s total gross assets must not exceed £300;
  • The debtor’s disposable income, following deduction of normal household expenses, must not exceed £50 per month.
  • The debtor must be domiciled in England or Wales, or in the last 3 years have been resident or carrying on business in England or Wales.
  • The debtor must not have previously been subject to a DRO within the last 6 years.
  • The debtor has not entered into a transaction with any person at an undervalue during the last two years.
  • The debtor has not given a preference to any person in the last two years.
  • The debtor must not be involved in another formal insolvency procedure at the time of application for a DRO, such as:
    • An undischarged bankrupt;
    • A current Individual Voluntary Arrangement;
    • A current Bankruptcy Restrictions Order or Undertaking;
    • A current Debt Relief Restrictions Order or Undertaking;
    • An interim order
    • A current pending debtor’s bankruptcy petition in relation to the debtor but the debtor has not been referred to the DRO procedure by the court as a more suitable method of debt relief;
    • A current pending creditor’s bankruptcy petition against the debtor but the debtor has not obtained the creditor’s permission for entry into the DRO process.

What activities may prohibit an DRO acceptance or begin a further review by the court?

  • failing to keep records which account for a loss of property by the debtor, or by a business carried on by him, where the loss occurred in the period beginning two years before the application date for the debt relief order and ending with the date of the application for the debt relief restrictions order;

  • failing to produce records of that kind on demand by the official receiver;
  • entering into a transaction at an undervalue in the period beginning two years before the application date for the debt relief order and ending with the date of the determination of that application;
  • giving a preference in the period beginning two years before the application date for the debt relief order and ending with the date of the determination of that application;
  • making an excessive pension contribution;
  • a failure to supply goods or services that were wholly or partly paid for;
  • trading at a time, before the date of the determination of the application for the debt relief order, when the debtor knew or ought to have known that he was himself to be unable to pay his debts;
  • incurring, before the date of the determination of the application for the debt relief order, a debt which the debtor had no reasonable expectation of being able to pay;
  • failing to account satisfactorily to the court or the official receiver for a loss of property or for an insufficiency of property to meet his debts;
  • carrying on any gambling, rash and hazardous speculation or unreasonable extravagance which may have materially contributed to or increased the extent of his inability to pay his debts before the application date for the debt relief order or which took place between that date and the date of the determination of the application for the debt relief order;
  • neglect of business affairs of a kind which may have materially contributed to or increased the extent of his inability to pay his debts;
  • fraud or fraudulent breach of trust;
  • failing to co-operate with the official receiver.

How will a DRO be made?

DROs are applied for online, with an approved intermediary helping to complete an application.

Upon receipt of the application and payment of the fee, an Official Receiver is able to make the order, administratively, without the involvement of the court if it appears that the applicant meets the requirements.

The Official Receiver is able to refuse to make an Order or can choose to delay the decision pending further information from the applicant.

What are the effects of a DRO?

During the period that an order is in force, the debtor will:

  • Be protected from enforcement action by the creditors included in the application (bar certain creditors whose debts cannot be scheduled in the DRO and those creditors whose debts are included in the DRO but who have successfully obtained leave from the court to pursue their debts).
  • Be free from those debts at the end of the period (normally12 months from Order).
  • Be obliged to provide information to and co-operate with the Official Receiver.
  • Be expected to make arrangements to repay their creditors should their financial circumstances improve.

As with other forms of personal insolvency, a DRO debtor’s credit rating will be affected and there will be civil and criminal penalties for those who abuse the system.

The Official Receiver is able to investigate, either on his own account or as the result of an objection from creditors, and is able to revoke the order if the debtor is found to have failed to provide a full and accurate account of their financial affairs (for example, an understatement in their assets or income). Failure to provide such an account may result in civil and criminal sanctions.

What restrictions will be placed upon a person who has a DRO?

For the duration of the Order, the debtor will be subject to similar restrictions as in bankruptcy, and their details will be on the publically available Individual Insolvency Register (available at www.insolvency.gov.uk)

These restrictions include the following:

  • The debtor must not obtain credit of £500 or more, either alone or jointly with another person, without disclosing that they are subject to a DRO to the lender.
  • The debtor may not carry on a business (directly or indirectly) in a name that is different from the name under which they were granted a DRO, without telling all those with whom the debtor does business the name under which they were granted a DRO.
  • The debtor may not be involved (directly or indirectly) with the promotion, management or formation of a limited company, and may not act as a company director, without the court’s permission.
  • The debtor will only be able to obtain a DRO once every six years.

Furthermore the Official Receiver will be able to apply for a Debt Relief Restrictions Order, similar to the bankruptcy restriction order, which will extend the period of restriction for up to fifteen years for debtors who are dishonest or culpable.

Information for Debtors Regarding Debt Relief Orders

How can I get a DRO?

By seeking financial advice from a debt advisor and if a DRO appears to be appropriate, an approved intermediary will be able to help you complete the online application. The intermediary may be the same person from whom advice was originally sought, or may be a further advisor that you are referred to once it is considered that a DRO is appropriate.

You cannot apply for a DRO without the assistance of an intermediary.

To apply for a DRO involves payment of a fee which will be less than £100.

What activities can get a debtor in trouble while in or entering a Debt Relief Order?

  • False representations or omissions in making an application for a debt relief order.
  • Failing to comply with duty in connection with an application for a debt relief order.
  • False representations or omissions in connection with duty in relation to an application for a debt relief order.
  • Failing to comply with duty in connection with a debt relief order.
  • False representations or omissions in connection with a duty in relation to a debt relief order.
  • Failing to deliver books, records and papers to official receiver, concealing or destroying them or making false entries in them by person in respect of whom a debt relief order is made.
  • Person in respect of whom debt relief order is made doing anything falling within paragraphs (c) to (e) of section 251P(1) during the period of 12 months ending with the application date or doing anything falling within paragraphs (b) to (e) of section 251P(1) after that date but before the effective date.
  • Fraudulent disposal of property by person in respect of whom a debt relief order is made.
  • Disposal of property that is not paid for by person in respect of whom a debt relief order is made.
  • Obtaining property in respect of which money is owed by a person in respect of whom a debt relief order is made.
  • Person in respect of whom a debt relief order is made obtaining credit or engaging in business without disclosing his status or name.

What debt can I not include in a debt relief order?

You may not include the following debts in a DRO:

  • Any fine imposed for an offence
  • Certain obligations arising under an order made in family proceedings
  • Obligations arising under a maintenance assessment under the Child Support Act 1991
  • Obligations arising under a confiscation order under s1 Drug Trafficking Offences Act 1986
  • Obligation arising from a liability under a Student loan

Such debts are excluded as a matter of public policy. It would not be right that, for example, an individual could evade payment of a fine by seeking the protection of insolvency proceedings. Student loans became non provable debts in bankruptcy as a result of the Higher Education Act 2004 and are excluded to protect public funds, because of the unique, non-commercial nature of these loans and their terms of repayment.

How quickly can a DRO be put in place instead of a bankruptcy petition?

The changes to the debtor petition bankruptcy process would benefit the debtor by allowing them to gain quicker access to debt relief. The current average waiting time for debtors is between one and two months. We estimate that, under the proposed system, the waiting time would be reduced to one week, even allowing for a cooling off period, and without unfair geographical variations. By obtaining faster access to debt relief, the debtor will be relieved of the financial, psychological and physiological consequences of over-indebtedness in a shorter period of time.

Debtors would also benefit from the fact that they will not have to attend court in order to file their petitions and obtain their bankruptcy order, therefore reducing the stigma associated with attending court, saving time and money, as well as reducing the burden faced by some debtors associated with journeys to court.

Information for Creditors Regarding Debt Relief Orders

If I have information to indicate that the debtor does not meet the criteria, what should I do?

Provide that information to the Official Receiver who will consider every valid objection and is able to revoke a DRO if appropriate.

Are DROs just an easy way for people to run up debts then get them written off?

DROs are aimed at people with no assets and a low income with no other access to debt relief and no prospect of the situation improving. If people do have assets or there is a possibility of an improvement in financial circumstances, a DRO is not an appropriate solution and other debt remedies are available.

Whilst the official receiver will not automatically investigate cases, he or she is able to do so. Investigations may lead for example to a revocation of the order or an application to court for a restrictions order, the effect of which is to extend the restrictions placed upon a person under a DRO for a period up to 15 years.

Information for Advisers Regarding Debt Relief Orders

What is an intermediary?

A trained debt advisor who has been approved to act as an intermediary by a ‘competent authority.’

What is the role of the intermediary?

An intermediary is an experienced debt adviser. It is only an intermediary that can assist a debtor to complete an application for a DRO.

The intermediary may have provided the initial advice to the debtor but otherwise needs to be satisfied that the debtor has received such advice and that a DRO is the appropriate solution.

It is anticipated that the intermediary will have completed basic checks on the information provided by the debtor, such as considering paperwork and evidence of income, liabilities. If it is considered that a DRO is suitable in the circumstances detailed by a debtor, the intermediary will help to complete the online application upon the debtor’s request.

How can I become an intermediary?

By application to a competent authority. A list of the competent authorities will be made available on our website very shortly. You will need to contact the relevant competent authority, not The Insolvency Service.

The application will include demonstration that the legislative criteria have been met, as detailed in Part 2 of The Debt Relief Orders (Designation of Competent Authorities) Regulations 2009 ie ‘the draft regulations’ on the Debt Relief Order page of our website.

As an authorised intermediary to provide the public with access to the DRO will we be able to charge a fee to cover the cost of providing this service?

It is the intention of the government and the original group of Competent Authorities that the adviser not charge a fee for the work of completing a DRO for the consumer. This is an unwise position. If intermediaries are unable to recapture the cost of providing the service then access to the DRO will be artificially limited and fewer consumer will be helped. It is estimated that the time to assist the consumer with the DRO application and submission will be 75 minutes. For each person that the intermediary assists, they will be losing money and will thus either have to charge for the service or limit access to control the loss of money by the organisation.

Will I need training?

It is for the competent authority to be satisfied that its intermediaries are appropriately trained and that body will provide relevant details of its requirements.

What is a competent authority?

A body designated by the Secretary of State as being able to authorise intermediaries. It will be a matter for the competent authority to determine the suitability of each intermediary that they authorise and to ensure those intermediaries have, for example, appropriate training, experience, complaints procedures, equal opportunities procedures.

Further Information Regarding Debt Relief Orders

Where can I get more information?

The primary legislation, the Tribunals, Courts and Enforcement Act 2007 is available at www.opsi.gov.uk. Debt relief orders appear in Schedule 18.
»  Style: Ahren Ahimsa
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