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Debt Relief Orders Remain at Record Levels

Debt Relief Orders Remain at Record Levels

Debt Relief Orders (DROs) are a lifeline for many individuals struggling with debt in the UK. In 2024, they have surged to record levels, offering relief for those with limited income and assets. This blog post explores why DROs are at an all-time high and answers some common questions around them.

What is a Debt Relief Order (DRO)?

A Debt Relief Order (DRO) is a type of debt solution available in the UK for people with low income, few assets, and limited disposable income. It is designed to help individuals who cannot afford to pay their debts by freezing repayments and interest for 12 months. After this period, if the individual’s financial situation hasn’t improved, the debts covered by the DRO are written off. A DRO can be a viable alternative for those who do not qualify for more formal insolvency solutions like an Individual Voluntary Arrangement (IVA) or bankruptcy.

Key Features of a DRO:

  • Debts are frozen for 12 months.
  • If no changes in financial circumstances occur, the debt is written off.
  • Ideal for individuals with debts under £30,000 (current limit) and minimal assets.

Why Have DROs Reached Record Levels?

As of September 2024, DRO registrations have soared to unprecedented numbers. The statistics are clear:

  • In August 2024, DRO registrations were nearly double the long-term monthly average.
  • In September 2024, the number of DROs increased by 91% compared to the long-term monthly average.

What is Driving This Surge?

  1. Removal of the £90 Fee: One of the most significant changes in 2024 was the elimination of the £90 application fee for DROs, making them accessible to more people struggling with financial difficulties.
  2. Expansion of Eligibility Criteria: Earlier in 2024, the UK government extended the eligibility criteria, allowing a broader group of people to qualify for a DRO. This included raising the asset and debt thresholds, making it easier for those with modest financial struggles to seek relief.

Who Can Benefit from a DRO?

DROs are specifically designed for people with:

  • Low or no income.
  • Debts under a specified threshold (currently £30,000).
  • Few or no valuable assets.
  • Minimal disposable income to contribute to debt repayments.

This makes DROs particularly suitable for individuals who have no realistic way to pay off their debts and need a fresh start.

What Are the Downsides of a DRO?

While a DRO can be a relief for many, it comes with certain consequences and limitations:

  • Credit Impact: A DRO stays on your credit report for up to six years, which can negatively affect your ability to obtain credit or loans during that time.
  • Banking Restrictions: Opening a new bank account during the DRO period can be challenging, and some banks may impose restrictions on your existing account.
  • Financial Restrictions: During the DRO period, you must adhere to specific restrictions, such as not borrowing more than £500 without notifying the creditor. Failing to follow these rules could have legal consequences.

How Does a DRO Work?

  1. Application: You must work with an approved intermediary, such as a debt adviser, to apply for a DRO. They will assess your eligibility and submit the application to the Insolvency Service.
  2. Freeze Period: If approved, a DRO will freeze your debts, interest, and charges for 12 months, giving you time to stabilize your financial situation.
  3. Debt Write-Off: After 12 months, if your financial situation has not improved, your debts included in the DRO are written off, providing a fresh start.

Is a DRO the Right Choice for You?

A DRO can be an excellent option for individuals with severe financial challenges, but it’s crucial to understand the implications. It’s best to speak with a qualified debt adviser to explore all your options. They can help you weigh the benefits against the potential drawbacks, considering how a DRO may impact your future financial decisions.

Conclusion

Debt Relief Orders are currently at record highs, reflecting the changing landscape of debt relief in the UK. With the removal of the application fee and expanded eligibility, more individuals now have access to this valuable tool for managing unmanageable debt. However, understanding both the benefits and consequences is key to making an informed decision.

For more guidance on whether a DRO is the right solution for your situation, contact MyDebtPlan today. Our team are here to provide tailored advice to help you navigate your financial journey.

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Credit Score Pop Up Wording : An Individual Voluntary Arrangement (IVA) is a formal agreement with creditors to repay a portion of your debts over time, but it does have an impact on your credit score and it will be difficult to obtain further credit whilst on an IVA. Once an IVA is approved, it is recorded on your credit report and will typically remain there for six years from the date it starts.
However, it’s important to note this is the case for most debt solutions and your credit score will likely already have been affected by being in debt in the first place.
Once your IVA is complete you will get a fresh start to begin rebuilding your credit rating.

Fees

IVA costs are charged for the preparation of your proposal and the administration of the arrangement for the full term (usually 5 years) these costs are charged from the monthly contributions you make into the IVA and are not in addition. Costs will only be recovered on approval of your arrangement and once you commence making payments to it. The fees for preparation of the proposal to creditors and calling the meeting for creditors to vote on its approval are called nominees fees, the fees for running the arrangement once approved are called supervisors fees. There are also some expenses incurred in the running of the arrangement such as the registration fee and the statutory insurance that needs to be taken by law, these are called disbursements. For our arrangements, the total of all of these is £3,650 although this may be adjusted by creditors when they vote on whether to accept. No matter what the end total of costs come to, you can be rest assured that these will be taken from the monthly payment we agree with you.