What Are the Advantages and Disadvantages of Getting a Debt Relief Order?

A debt relief order (also referred to as Debt Relief Restrictions Order and DRO) was first introduced in Great Britain in 2007. It is a form of bankruptcy/insolvency for those with fairly low liabilities, smaller surplus incomes and few assets, when they are incapable of paying off their debt in a reasonable amount of time. It is estimated that only about 10% of all bankruptcies in Great Britain can qualify for a debt relief order. These orders cannot be used by a person with an un-discharged bankruptcy; current IVA, Bankruptcy Restrictions Order, or DRO; pending debtor's/creditor's bankruptcy petition.

Just like any tool designed to lighten financial burdens, a DRO has its pros and cons. What are the advantages and disadvantages of getting a debt relief order? That is what we will discuss below:

1. Narrow scope of use. This is a disadvantage. The fact is that DRO is almost like bankruptcy, but unlike bankruptcy, it is limited to a very small number of people. Here is who can qualify for this order: non-homeowners who owe under £15,000, have under £300 in assets/savings, and have under £50 of spare income a month (after essential payments). Also, if the person is a vehicle owner, their automobile should be worth under £1,000 (unless it is personalized for a disability). As mentioned above, the person cannot be in the process of solutions like IVA or bankruptcy. So, one of the main disadvantages is that the vast majority of people with debt problems would not be able to utilize this solution.

2. Credit record damage. This is another major disadvantage. The fact is that a debt relief order will stay on your record for up to 6 years. This means that you will have difficulties getting new credit or opening up a new financial account. During the time that you are going through a debt relief order, you will need to notify any potential lenders about it, should you want to apply for credit in the amount of £500 or over.

3. Protection from creditors. This is a huge advantage. If you are in a DRO, your creditors will not be able to enforce any actions on you. However, this excludes the creditors whose debts can't be included in the DRO, as well as those who have obtained leave from your DRO and can keep pursuing their debts (this is arranged through the courts).

4. Debt freedom. The main advantage is that you will be debt-free in about 12 months from your debt relief order. For a person who has been suffering from unmanageable debt for a long time, it is a genuine miracle to become debt-free again. However, remember that there are other ways to become debt-free, and they may be better for you than a debt relief order. Be sure to obtain professional advice on this matter before you undertake any solution.