Debt Relief Orders are one type of insolvency solution and often a preferable alternative to filing for bankruptcy. They can be considered by those for whom Individual Voluntary Arrangements may be insufficient, and whose financial situation is unlikely to improve in the near future.
What is a Debt Relief Order?
A Debt Relief Order is a way for a borrower to get their existing debt written off by the courts so they can start afresh. This type of debt management is granted by an ‘official receiver’ through the Insolvency Service and can be used for all unsecured debts such as credit cards, loans and overdrafts. The typical duration of a Debt Relief Order is 12 months during which no lender can take legal action against their customers without court permission. At the end of this term, borrowers will simply be free from every debt listed in the order provided their financial circumstances have not changed.
Anyone whose order is approved will have their name and address published on the official individual insolvency Debt Relief Order register which will remain on there for 15 months.
How to Apply for a Debt Relief Order
Unlike with bankruptcy, debtors do not need to book an appointment with the courts to process a Debt Relief Order application. They will still need to contact an authorised advisor who will check they meet the required Debt Relief Order criteria. At time of writing, a person may only apply if they have qualifying debts of £15,000 or less and spare income of £50 or less a month. Additionally, applicants should only have savings under £300 and a vehicle worth £1000 or less.
Approved third parties or intermediaries are the only advisers qualified to complete Debt Relief Order forms on behalf of a client. As part of the process, documentary evidence may be required to support any information given in the application. Debtors must also pay a one-off cost of £90 for submission of their Debt Relief Order application form.
Disadvantages of Debt Relief Orders
Though completing a Debt Relief Order form can mean a person’s finances will eventually get back on track, their credit rating will nevertheless be affected for a whole six years. Borrowers will therefore more than likely encounter problems securing consumer credit in the future – including loans, mortgages, overdrafts, credit cards and even certain bank accounts – and have no option but to take out more expensive products. They should also be aware that they could be subject to a debt relief restriction order if deemed untruthful about the extent of their financial difficulties in order to clear their debt. Such an order can lead to a period of restriction regarding what they can borrow for up to 15 years, particularly if a person has continued to borrow in the knowledge that they cannot make the repayments.
As Debt Relief Order applications are a big step for most people, professional Debt Relief Order information and free debt advice should be sought from an approved debt adviser before making that decision. These advisers then help fill out Debt Relief Order application forms if their clients agree they have no other way of repaying what they owe.