Debt relief orders – an overview
Debt Relief Orders were introduced into the law in April 2009 and are a similar procedure to bankruptcy. They are designed for individuals who are unable to pay their debt but who have so little available income that they are unable to pay the court fees required to declare bankruptcy.
As with bankruptcy, creditors are not involved in the decision to issue a debt relief order. An approved counsellor will review the individual’s circumstances and complete the necessary application form on their behalf. The application is then sent to the official receiver for processing. The official receiver is able to authorise the order without getting the authority of the court thus saving expensive fees. The official receiver will then inform all creditors that the Debt Relief Order is in place.
Once a debt relief order is in place, the effects are largely the same as if the individual had been declared bankrupt. All debts are taken away and it is highly unlikely that they will be asked to pay anything towards the debt. After one year, anything that remains unpaid is written off by the creditors leaving the individual to get on with their life debt free.
The advantages of a Debt Relief Order
• When you had a debt relief order, all of your unsecured debts are taken away from you. You are no longer responsible for paying them and your creditors can not collect any further money from you.
• A debt relief order will normally remain for 12 months. After that period you will be discharged. Any debt that is unpaid after that time will be written off.
• Generally a person with a debt relief order will have very little disposable income and therefore will not be asked to make any monthly payments towards their debt.
• You will be allowed to keep reasonable household items including your washing machine, fridge freezer, Hi-Fi, television and DVD player. You will also be able to keep tools of your trade and a car worth up to £1,000.
The disadvantages of a Debt Relief Order
• Debt relief orders are designed to help people who have very little money or assets. As such, you are only eligible if your debts are less than £15,000, your assets are less than £300 and your monthly disposable income is less than £50.
• You are unable to act as a company director or be involved with the management of a limited company while you have a debt relief order.
• The record of your debt relief order will remain on your credit file for 6 years meaning it will be difficult to obtain further credit during this time.
Is a Debt Relief Order suitable for me?
Debt relief orders are designed to help the worst off in society. As such, there are tight restrictions for their use as highlighted above. They are generally used by people who have debts that they are unable to repay because they have little or no income or assets.
Because of this, debt relief orders are only suitable for a small cross section of individuals:
• If your debt is less than £15,000
• If your assets are worth less than £300 (a car can be worth £1000)
• If your disposable income is less than £50 per month
How much does a debt relief order cost?
The cost of the debt councillor and official receiver is normally between £90 and £100.
Next Steps
An Debt Relief Order may be ideal to resolve your debt problem. However, before you choose to carry out this type of solution, it is important that you understand all of the possible alternatives available.
Reading the rest of this guide is a good place to start. However, the best way to really understand your financial situation and decide on the correct course of action is to speak to an expert.
Beat My Debt provides a free debt advisory service and will be happy to give you advice and guidance. We can be contacted in the following ways:
Email advice@beatmydebt.com
On-Line Forum www.beatmydebt/forum/
Free Phone 0800 077 6180