Debt relief order applications

A debt relief order (DRO) is a form of personal insolvency. It is a way for people in debt to have their debts written off and make a fresh start.

Who debt relief orders are for

DROs are suitable for people who have little or no assets and a low income. Their total qualifying debts must be under £50,000 in total.

DROs are not suitable for people who own a property, even if it is in negative equity. Not all debts qualify, so it might not be a suitable option for some debt problems.

Debtors who make a DRO application could have their affairs investigated by the Official Receiver, who can impose sanctions or prosecute them for wrongdoing. It might not be suitable for people who have gambled or given away large sums, or who do not want to expose their financial affairs to the authorities.

A debt adviser can assess whether a DRO is a suitable option for a person in debt.

Who is involved in the application

The person in debt who applies for the debt relief order is called the debtor.

The DRO application is submitted by an authorised debt adviser, called an approved intermediary. The approved intermediary is authorised by a competent authority.

The DRO application is reviewed and approved by staff at the Insolvency Service DRO team on behalf of the Official Receiver.

The Official Receiver is an officer of the court with powers and duties under insolvency legislation.

How the debt relief order works

The debtor does not have to go to court to apply for a DRO.

A DRO is a formal insolvency process, like bankruptcy. It is legally binding on all the qualifying debts. Insolvency legislation prevents a creditor from taking action to recover a qualifying debt after the DRO is approved.

The DRO is in force for a moratorium period, which is usually 12 months long. The debtor has duties to the Official Receiver to report changes during the moratorium. When the moratorium ends, the qualifying debts are written off.

Public records

The DRO is recorded on the debtor's credit reference file. It remains visible for six years following the date of the DRO. No one can access a person's credit reference file without their written consent.

DROs are also recorded on the Individual Insolvency Register, which is publicly available. Details are removed three months after the end of the DRO moratorium.

Debtors who are at risk of violence can apply to court to have their address details hidden from the public.

Read more about applying to hide an address from the insolvency register.

People in debt can apply for a debt relief order if their:

• total qualifying debts are less than £50,000[1]

• monthly income after essential living costs is less than £75[2]

• total assets do not exceed £2,000[3]

• exempt vehicle is worth less than £4,000.[4]

Residence test

A debtor can apply for a DRO if they usually live in England and Wales at the date of the application.[5] If they live somewhere else they can still apply if, at any time during the period of three years ending with the application date, they either:

• were ordinarily resident in England and Wales

• carried out business in England and Wales

Previous insolvency

A debtor can only have a DRO if they have not had another DRO in the past, or their previous DRO was approved more than six years prior to the application date.[6] The Insolvency Service has the discretion to allow a new DRO application within six years of a previous DRO that was approved and later revoked.[7]

The debtor can only have a DRO application approved if they are not:[8]

• an undischarged bankrupt

• in an Individual Voluntary Arrangement (IVA)

• under a bankruptcy restrictions order or debt relief restrictions order

The debtor can access the Individual Insolvency Register to check if they have a previous insolvency that would stop them from having a DRO.

Debts that are included in the DRO are called qualifying debts.

Types of qualifying debts

There is no complete list of qualifying debts. All debts that are not excluded debts are qualifying debts as long as they are for a liquidated sum payable either immediately or at a certain future time. A liquidated sum is a debt where the amount is fixed.

Common examples of qualifying debts include:

• consumer credit agreements like credit cards, loans, and overdrafts

• benefit overpayments where the debtor has received a decision notice

• payments on account of universal credit

• energy and water arrears

• phone, broadband, and TV arrears

• council tax arrears

• court costs where the amount has been fixed by the court

• money borrowed from family and friends

For credit agreements like loans and credit cards, the whole balance of the debt is included whether the account is in arrears or not.

Excluded debts

Some debts are not included in the DRO application. They are called excluded debts.[9] Excluded debts do not count towards the £50,000 debt limit.

The debtor must keep paying excluded debts during the DRO moratorium period, and after the moratorium ends. A creditor of an excluded debt can continue to take enforcement action against the debtor during the moratorium.

Read more about qualifying and excluded debts.

Debts incurred through fraud

Debts incurred through fraud are qualifying debts in the DRO. They count towards the total debt limit. A creditor of a debt incurred through fraud cannot take enforcement action against the debtor during the moratorium.

At the end of the DRO moratorium, the creditor of a fraudulent debt can start recovery action again. The debtor must make an arrangement with the creditor to avoid court action.

Applications for DROs must be made through an approved intermediary. Approved intermediaries are debt advisers who have been accredited by a competent authority.

Competent authorities include:

• Shelter

• Citizens Advice

• Institute of Money Advisers

• Step Change

• National Debtline

Competent authorities are appointed by the Insolvency Service.

The application is made to the Insolvency Service, where it is approved on behalf of the Official Receiver, or refused.

There is no fee to apply for a debt relief order.

The debt relief order moratorium period begins immediately when the Insolvency Service approves the DRO application.

Once the moratorium starts, the debtor stops making any payments to qualifying debts. The creditors cannot take legal action against the debtor for missed payments during the moratorium. Deductions from benefits or wages to recover qualifying debts must be stopped.

Duration of the moratorium

The DRO moratorium normally lasts for 12 months.[10] It can be extended for up to three months by the Official Receiver on behalf of the Insolvency Service. This usually only happens if the Official Receiver needs more time to carry out an investigation, or if they are considering revoking the DRO.[11]

The Official Receiver can extend the moratorium period more than once.

End of the moratorium

After the moratorium, the debtor is released from liability for the debts. This means all the debtor's qualifying debts are written off, apart from any debts incurred through fraud.

What happens if a creditor objects to the debt relief order

Under the Insolvency Act 1986, a creditor whose debt has been included in a DRO can object to the:

• making of the DRO 

• inclusion of their debt as a qualifying debt 

• details of the debt specified in the DRO 

Read more about when a creditor can object to a DRO.

The debtor must supply all the information the application asks for. Providing inaccurate information in the application or following a request from the Official Receiver can lead to the DRO being revoked, and to other legal proceedings including under criminal law.

Duty to give accurate information in the application

The debtor commits a criminal offence if they knowingly or recklessly give false information, or leave something off the application.[12] The debtor could be found guilty of an offence even if the DRO is not approved.

Duty to cooperate with the Official Receiver

After the DRO is approved, the debtor has a duty to provide information to the Official Receiver as required to allow them to carry out their functions.[13] For example, the Official Receiver might need to investigate the circumstances of the DRO so they can decide whether to apply for a debt relief restrictions order.

Duty to report an error in the application

The debtor must notify the Official Receiver as soon as they can if they become aware of an error in the application or a change in circumstances between the application date and the date the DRO is approved.[14]

Duty to report a change in circumstances

The debtor must notify the Official Receiver as soon as they can if their circumstances change during the DRO moratorium. A change in circumstances could relate to a change in the debtor's income or assets.[15]

During the debt relief order moratorium, the debtor must not obtain credit of more than £500 without telling the creditor they have a DRO.[16] The restriction also applies if they obtain credit jointly with another person.

During the DRO moratorium, the debtor must not engage in business in a name other than the one on the insolvency register, without telling everyone they enter into a business transaction with about the DRO.[17]

To comply with rules that require the debtor to tell creditors and business associates about the DRO, the debtor must explain that they are in a DRO moratorium. If they are also under a debt relief restrictions order, they must also explain that.[18]

Debtors who are company directors must terminate their appointment before they apply for a DRO. They can apply to court for permission to be a director once the application is approved.

Read more about permission to be a company director after a DRO.

Debt relief restrictions orders and undertakings

A debt relief restrictions order is a court order that extends the DRO restrictions on obtaining credit and engaging in business for longer than the moratorium period.

The Official Receiver can apply to court for a debt relief restrictions order if they believe the debtor has:[19]

• failed to keep records that account for loss of property

• paid off one creditor ahead of others, to put them in a better position

• given away money or property

• taken out debts they had no reasonable expectation of being able to pay

• gambled away money or engaged in rash or hazardous speculation

• committed fraud

• failed to cooperate with the Official Receiver

This is not an exhaustive list. The court can take into account other types of conduct, including things not specifically mentioned in the legislation.

A debt relief restrictions order lasts for up to 15 years.

The debtor can offer a debt relief restrictions undertaking to avoid being taken to court.[20] They must promise not to do the things specified in the undertaking.

Read more about debt relief restrictions and DRROs.

The Insolvency Service can reject a debt relief order application if the applicant does not meet the parameters for income, assets, or amount of debts.

Previous insolvency history

The DRO application is rejected if the debtor is:[21]

• an undischarged bankrupt

• in an Individual Voluntary Arrangement (IVA)

• subject to a bankruptcy restrictions order or a debt relief restrictions order

Transaction history

The Insolvency Service might reject the application based on the debtor's financial dealings in the two years before the date of the DRO application.

Undervalue transactions

The Insolvency Service might reject the application if the debtor has given away property, or sold it for less than its true value, in the two years prior to the application date.[22] This is called a transaction at undervalue.

A DRO applicant who has given away or sold property should discuss it with the DRO intermediary.

Preference payments to debts

The Insolvency Service might reject the application if the debtor has paid qualifying debts, to put the creditor in a better position, in the two years prior to the application date.[23] This is called a preference payment.

A DRO applicant who has paid a debt in full, or faster than their other debts, should explain their reasons for this to the DRO intermediary.

The debtor cannot apply to cancel their own DRO.

The Official Receiver can revoke the DRO in some circumstances. If the DRO is revoked, it is as though it was never made. All the debts become payable straight away.

The Official Receiver can use their powers to amend the DRO to correct an error or omission in the order.[24] They cannot use the power to amend to add a debt to the DRO that was not included in the application.[25]

Debtor did not meet criteria at the application date

The Official Receiver can revoke the DRO if the debtor did not meet the criteria when the DRO was approved.[26]

Debtor stops meeting criteria during the moratorium

The DRO could be revoked by the Official Reciever because the debtor stops meeting the criteria during the moratorium period.[27] For example, because their income increases and they have more than £75 per month available, or they receive a sum of money that exceeds the asset limit.

Debtor supplied incomplete or incorrect information

The Official Receiver can revoke the DRO if the debtor supplied information that was incomplete, incorrect, or otherwise misleading.[28] This applies to information supplied as part of the application, or after the DRO is approved.

The power to make a debt relief order comes from the Insolvency Act 1986.

Legislation

Sections 251A-251X Insolvency Act 1986 set out the duties of the Official Receiver and the debtor.

Schedule 4ZA Insolvency Act 1986 sets out the conditions for making a DRO.

Schedule 4ZB Insolvency Act 1986 contains the rules for debt relief restrictions orders and undertakings.

Regulations

Part 9 of The Insolvency (England and Wales) Rules 2016 sets out the procedure the Official Receiver must follow for:

• the application

• verifying the debtor's income, assets, and debts

• refusing to make a DRO

• creditor objections

• court applications

• permission to act as a director

The Insolvency Proceedings (Monetary Limits)(Amendment) Order 2021 sets out the limits for debt amount, disposable income level and asset limits in force since 29 June 2021.

Guidance

The Insolvency Service guidance for DRO intermediaries is available on Gov.uk.

They also produce a DRO A-Z for further reference.

Shelter's Specialist Debt Advice Service provides advice and resources to advisers including DRO intermediaries, who deal with debt cases on behalf of clients.