A DRO is a formal debt management solution and can help people with low incomes who are struggling with debt. However, positive new reforms could mean they’ll now be even more accessible to the people who need them most
What is a DRO?
DRO is short for Debt Relief Order, a type of debt solution that can help people with a low income who are struggling to manage their debts to start afresh. These legally binding agreements were introduced in 2009 and offer an alternative to options like Individual Voluntary Arrangements (IVAs) and Bankruptcy.
DROs typically last for 12 months. During this time, your debt repayments and interest will be frozen, and your creditors shouldn’t take any further action against you. Once the DRO comes to an end, assuming your circumstances haven’t changed, your debts will be written off. However, it’s worth keeping in mind that the DRO can stay on your credit report, and affect your ability to get a new loan, for up to six years.
To qualify for a DRO, you must:
- Apply through an approved intermediary
- Have been a resident of England, Wales, or Northern Ireland for at least three years
- Not have had another DRO in the past six years
- Have less than £75 disposable income per month
- Not be a homeowner
- Have assets worth no more than £2,000 (not including the essentials)
When did the changes come into force?
In his 2024 Spring Budget, former Chancellor Jeremy Hunt announced three important changes to the existing DRO rules. All three of these amendments have been widely welcomed by debt professionals and advocates for the poorest in society as they improve access to DROs for those who arguably need it most.
The first change to come into force was abolishing the £90 set-up fee, which became law on 6th April 2024. This was followed by increases in the maximum debt amount and car allowance on 28th June.
Let’s look at these three changes in more detail:
Abolishing the £90 fee
One of the most controversial aspects of applying for a DRO used to be that there was a charge of £90.
This fee was a significant hurdle for those struggling with debt, especially when you consider that to qualify for a DRO, individuals must have less than £75 disposable income available each month. With that in mind, saving to pay for a DRO could take at least two months, if not more.
Now that the fee has been abolished, DROs should be more accessible for people with low incomes trying to make a fresh start and escape their debts.
Increasing the maximum total debt to £50,000
When DROs were first introduced in 2009, you had to have debts worth less than £15,000 to be eligible. This figure has since increased twice, rising to £20,000 in 2015 and £30,000 in 2021.
However, this relatively low limit meant that people with more debt and a low income had to resort to bankruptcy to escape their situation. Bankruptcy is a much more expensive process overall, which could put even more pressure on people already struggling. Increasing the maximum debt amount to £50,000 means DROs can now be used by more people.
Doubling the allowed car value
For many people, cars aren’t a luxury, but an essential. Whether you need to get to work, live in a remote location, or have to get the kids to and from school in a place where public transport isn’t reliable, having access to a car could be a make or break.
Under the previous rules, there was a £2,000 limit in place for vehicles owned by people in a DRO. While this amount may have been sufficient in the past, today it can be very difficult to find a used car worth less than £2,000. It’s even harder if you’re looking for a £2,000 car that’s reliable, doesn’t need expensive repairs, and will meet the emissions requirements of inner-city congestion zones like ULEZ. Increasing the car allowance to £4,000 should solve some of these problems and make it easier for people in a DRO to get around.
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