DEBT RELIEF ORDER

DEBT RELIEF ORDER
DEBT RELIEF ORDER
Are you in a burden of debt? And don’t have much income or assets to repay it? Then you may have heard the name of a Debt relief order from your family or a friend. They may have explained to you that this is the only solution for you but it's not true as with every ease comes a problem. Same is the case with the Debt Relief order (DRO). Keep engaged so that I can explain you in detail my point of view.

WHAT IS DEBT RELIEF?

A debt relief order (DRO) is a helpful option for you if you possess minimal assets, meaning that you do not own a home or have valuable items exceeding £2,000, and have a disposable income of less than £75 per month. In my opinion, DRO is a workable alternative to bankruptcy, especially for those of you who don’t own a home. It can be an effective relief from debt.

Debt relief orders provide a similar level of debt relief to IVAs and bankruptcy, but they are specially created for those who don't have any assets to use as collateral for the repayment of their debts.

WHO IS ELIGIBLE FOR A DEBT RELIEF ORDER?


Not every person is eligible for a Debt relief order, and if you want to qualify you must fulfil the specific criteria:

⦁ It is obvious that if you are going to opt for debt relief, then you must not be able to pay the instalments of your loans.

⦁ Debt relief order is not compatible with any other insolvency agreement. So, if you have any other insolvency agreement, like Individual Voluntary Arrangement (IVA) then forget about DRO.

⦁ Your monthly disposable income must not exceed £75. However, in case you are a resident of Northern Ireland, then this disposable income threshold is more low, i-e £50 or less.

⦁ £30,000 is the amount that can’t be exceeded as the total amount of an unsecured loan. However, for the residents of Northern Ireland, the maximum debt limit is lower amounting to a maximum of £20,000.

In addition to above mentioned criteria, there is one more that you have to meet. All the assets you own except your car must have a value below £2,000.

HOW YOU CAN APPLY FOR A DEBT RELIEF ORDER?


Suppose you are thinking that this is the only solution for all your stress. Then stop here! First, understand that however, it is a significant debt solution comparable to bankruptcy, it has similar implications as well. Yes you have read right. A debt relief order can have a negative impact on your credit score (I will explain this in detail later in the article).

If you want to ensure your protection that obviously any person will want, it is essential that you take the services of a company that is officially approved for providing a DRO. Do check that the company that you have selected is accredited. Also ensure that the selected company is a member of Financial Conduct Authority. If you have checked both things then you are on safe side.

Once you provide them with all the information that is required, they will manage the process of application on your behalf, You don’t have to worry about anything.

The processing of a debt relief order typically takes 12 months. When this period ends you will be free from your debts. Sounds great right? But there are some implications as well. So, continue reading.

Once you enter a debt relief order, the initial 12 months are known as the moratorium period. During this time, specific restrictions are imposed, and you will be unable to:

⦁ Take any loan of £500 or more of this amount unless and until you disclose to the lender that you have a debt relief order.

⦁ Start a business under a different name than the one you used while obtaining the DRO. However, you can do this after informing all the parties involved in your business transactions of the name you used in the order.

⦁ Engage in activities that involve advertising, management, or establishment of limited company. You can only do this after obtaining permission from court.

I have some more bad things to explain you here. During the moratorium period of a debt relief order, you are not allowed to:

1. Serve as a company director without obtaining permission from the court.

2. Address tax and national insurance underpayments.

3. Most importantly, Acquire credit cards.

4. Utilize overdraft facilities.

5. Take out personal loans.

6. Manage or address benefit overpayments.

WILL IT HAVE AN IMPACT ON YOUR CREDIT RECORD?


Yes, as I have told you earlier: A Debt Relief Order (DRO) will indeed have an impact on your credit record, as you may know, that credit rating is the measure of your ability to repay loans. It plays an important part in obtaining further credit, insurance and mobile or electronic items on instalments.

It's essential for you to understand that DRO will have a very negative impact on your credit rating. Obviously, if you have used DRO in the past, it will give a sense to lenders and banks that you are not in a position to repay your loans.

However, it's obvious that a DRO will have a less severe impact compared to having multiple ongoing arrears or facing legal action due to debts. As you regain control over your debts, you can try to improve your credit rating.

IS IT POSSIBLE TO GET ANOTHER CREDIT WITH A DEBT RELIEF ORDER?

I don’t have good news for you: while you have a Debt Relief Order (DRO) in place, there are very high chances that you will not be able to secure a mortgage or other forms of credit. Mortgage lenders have strict criteria for affordability and creditworthiness, which are unlikely to be met while a DRO is active.

Obtaining credit will also be challenging due to your disposable income being less than £75. Lenders conduct affordability checks, and with such limited disposable income, you are unlikely to meet their criteria.

Despite all the circumstances, if your luck remains with you and you manage to find a lender willing to offer credit, it is important to note that it is not legal to borrow more than £500 without first disclosing that you are in a DRO.

IS A DEBT RELIEF ORDER A GOOD IDEA OR NOT?

Whether a Debt Relief Order (DRO) is a good idea depends on individual circumstances. A DRO is most suitable for individuals with limited assets who would struggle to repay their debts within a reasonable timeframe.

If you find that you can’t manage your debt and you do meet the specific criteria for a DRO, it could be a favorable option for you. However, Remember that there are also other similar debt solutions available.

To determine whether a DRO is suitable for your situation or to seek debt advice and explore alternative options, it is recommended to consult with money advisers. They can offer advice catered to your unique set of circumstances.


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Debt Management 

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