Can't afford to go bankrupt? A debt relief order may be the answer

​Going bankrupt is incredibly expensive. If it's too much for you, you may be able to get a debt relief order. But is that a good idea?

We often see online advertising that claims to get your debts written off. In the main this is done by fee-charging IVA companies. However not many people know that they can have 100% of their debt written off completely legally, for a total cost of £90. This is with a form of insolvency called a debt relief order, or DRO for short.

A DRO can be a genuine lifeline for those who have lost all hope of ever clearing their debt. It was designed specifically for those people who found that they couldn't even afford to go bankrupt.

It might sound odd to say that some people can't afford bankruptcy. However the current fees are £700, far above what some can muster up. A DRO is a form of insolvency similar to personal bankruptcy, but much cheaper to put in place.

Mini bankruptcy
Debt relief orders were introduced in England and Wales in 2009 as a low cost alternative to bankruptcy and they've been very successful. In 2012, around 7% of our clients were recommended one. They're often the quickest and cheapest way to get debt free, especially when it transpires that their situation is unlikely to improve.

The criteria for a DRO are stricter than bankruptcy in that you can't have debt of more than £15,000 or assets of more than £300 (vehicles valued less than £1,000 are excluded).

Like personal bankruptcy a DRO is a legal procedure which can be granted by the Insolvency Service via a competent authority, such as our charity.

The Insolvency Service charges a £90 non-refundable fee to apply for a DRO (we don't charge you a penny at any stage) but if your situation hasn't changed after 12 months your debts are written off in full.

Is it too easy?
Critics of debt relief orders would say that they make it too easy to write off problem debt. From our experience this is far from the truth.

Unmanageable debt can be a great burden especially when you're on a low income or have suffered from an income shock such as redundancy, divorce or illness. It's also true that many people who do take out DROs are in the younger age bracket and suffering from considerable financial hardship.

DROs aren't an easy way out but do offer debt relief to people whose situation isn't likely to change in the future. Part of the qualifying criteria for a DRO is that you can't have surplus income of more than £50 after all essential living costs are covered.

Someone with less than £50 surplus income per month is unlikely to ever be able to pay off significant debts, especially as their situation looks unlikely to change.

Not for profit DROs
StepChange Debt Charity isn't the only place that you can get a DRO. There's a full list of competent authorities on the Insolvency Service website. However it's clear from this list that not many profit-led companies or organisations offer DROs.

Often fee-charging companies don't offer DROs as a solution to debt problems because they don't gain a profit by offering them. This is another of the many reasons why taking free and impartial advice from a charity is good idea when you have debt problems.

Do I qualify for one?
If you have problem debt a DRO might sound like the answer to your prayers. It's quick and easy to find out if you fit the criteria.

The first thing to do is put together an income and expenditure budget and a list of all those you owe money to. We can assist you with this using our online debt solution tool StepChange Debt Remedy.

Debt Remedy takes about 20 minutes to complete and at the end of it you'll know whether you qualify for a DRO or not. If you don't qualify, don't worry. Debt Remedy will offer you a personal action plan and explain the best way forward.

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