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What Is Debt Relief Order: A Comprehensive Guide
Introduction
Debt is a common struggle faced by many individuals, and it can often feel overwhelming and suffocating. Fortunately, there are various debt solutions available to help individuals regain control of their finances. One such solution is a Debt Relief Order (DRO). In this article, we will explore what a Debt Relief Order entails, who is eligible for it, and how it can provide the much-needed relief to those burdened by debt.
What Is a Debt Relief Order?
A Debt Relief Order is a legally binding agreement designed to help individuals with low income and minimal assets who are unable to repay their debts. It is a form of insolvency that provides a fresh start by freezing debt repayments for a specific period, typically 12 months. During this time, creditors are unable to take any further legal action against the individual.
The main objective of a Debt Relief Order is to provide individuals with a realistic opportunity to become debt-free within a reasonable timeframe. It allows them to focus on their financial stability and improve their overall situation without the constant pressure of mounting debts.
Who Is Eligible for a Debt Relief Order?
To qualify for a Debt Relief Order, certain criteria must be met:
1. The individual must reside in England, Wales, or Northern Ireland.
2. They should have total debts, including loans, credit cards, and other financial obligations, not exceeding £30,000.
3. The individual’s disposable income should be less than £75 per month after essential living expenses.
4. They should not own any assets valued at more than £2,000, such as property or a vehicle.
5. The individual must not have previously been granted bankruptcy or a Debt Relief Order within the last six years.
It is important to note that not all types of debt are covered by a Debt Relief Order. Debts excluded from this solution include student loans, court fines, child maintenance, and certain types of secured debts, such as mortgages or hire purchase agreements.
How Does the Debt Relief Order Process Work?
The application process for a Debt Relief Order involves several steps:
1. Seek advice: It is crucial to seek advice from a debt advisor or a professional debt charity to assess whether a Debt Relief Order is the most suitable option for your situation. They will guide you through the process and help you understand the implications and requirements involved.
2. Gather necessary documentation: Collect all the required documents, including details of your income, expenses, debts, and assets.
3. Apply through an approved intermediary: You must apply for a Debt Relief Order through an approved intermediary, such as a debt advisor or an authorized debt charity. They will assess your eligibility, complete the application on your behalf, and submit it to the Insolvency Service.
4. Pay the fee: A fee of £90 is payable at the time of application. In certain circumstances, this fee can be waived or paid in installments.
5. Approval and implementation: If your application is approved, the Debt Relief Order will be implemented, freezing all debt repayments for a period of one year. During this time, your creditors cannot take any further legal action against you.
6. Completion and discharge: At the end of the 12-month period, assuming your financial situation has not improved significantly, you will be discharged from the remaining debts included in the Debt Relief Order.
Frequently Asked Questions about Debt Relief Order
Q1. Will a Debt Relief Order affect my credit rating?
A1. Yes, a Debt Relief Order will have a significant impact on your credit rating. It will be recorded on your credit file for six years, making it challenging to obtain credit during this period.
Q2. Will I be able to open a bank account during a Debt Relief Order?
A2. Yes, you will still be able to open a basic bank account during a Debt Relief Order. However, you may face restrictions on accessing overdrafts or obtaining credit from the bank.
Q3. Can I include all my debts in a Debt Relief Order?
A3. No, not all debts can be included in a Debt Relief Order. Debts excluded from this solution include secured debts, such as mortgages or hire purchase agreements, student loans, court fines, child maintenance, and certain types of taxes.
Q4. Can I apply for a Debt Relief Order if I am self-employed?
A4. Yes, self-employed individuals can apply for a Debt Relief Order if they meet the eligibility criteria. However, the assessment of income and expenses may differ slightly for self-employed individuals.
Conclusion
A Debt Relief Order is a valuable debt solution for individuals with low income and minimal assets who are unable to repay their debts. It provides a breathing space by freezing debt repayments for 12 months, allowing individuals to focus on improving their financial situation. If you find yourself drowning in debt and meet the eligibility criteria, seeking advice from a debt advisor or a professional debt charity about a Debt Relief Order could be the first step towards a debt-free future.
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