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Debt Relief Orders: Complete Guide for Low Income Households

Written by Jessica on . Posted in News.

Debt Relief Orders — A Fresh Start for Low Income Households

If you are on a low income, owe debts you cannot realistically repay, and own very little, a Debt Relief Order (DRO) could be exactly the solution you need. Introduced in 2009 specifically for people in this situation, a DRO freezes your qualifying debts for 12 months — and if your circumstances have not improved by the end of that period, all those debts are written off completely. And as of June 2024, applying for a DRO is entirely free.

What Is a Debt Relief Order?

A Debt Relief Order is a formal insolvency solution, sitting alongside IVAs and bankruptcy in the framework of UK insolvency law. Unlike bankruptcy — which can be used by people with any level of debt and can put assets and home equity at risk — a DRO is designed specifically for people with:

  • Relatively low total debt (up to £50,000)
  • Very little spare income (less than £75 per month after essential costs)
  • Minimal assets (less than £2,000 in total, excluding a vehicle worth less than £4,000)
  • No home ownership

If you meet these criteria, a DRO is generally a far simpler, quicker, and less severe route out of debt than either an IVA or bankruptcy.

The Eligibility Criteria in Detail

Every criterion must be met at the time your DRO application is submitted. The rules changed significantly in June 2024, making DROs accessible to a much larger number of people:

Debt Level

Your total qualifying unsecured debts must not exceed £50,000. This limit was raised from £30,000 in June 2024. Qualifying debts include credit cards, personal loans, bank overdrafts, payday loans, council tax arrears, utility bill arrears, rent arrears, and similar unsecured debts.

Spare Income

After paying all your essential monthly costs — rent, food, gas and electricity, transport to work, and other reasonable living expenses — you must have less than £75 per month left over. This is sometimes called your disposable income or surplus income. If you have more than £75, you are expected to use it to repay your debts and will not qualify for a DRO.

Assets

The total value of everything you own must be less than £2,000. This excludes certain items — basic household furniture and appliances, tools and equipment needed for work, and your vehicle (see below). Savings, valuables, investments, and equipment not needed for work all count towards the limit.

Vehicle

You may own one vehicle worth up to £4,000. If your vehicle is worth more than this, you do not meet the DRO criteria unless the vehicle has been specially adapted for a disability. The vehicle limit was doubled from £2,000 in June 2024.

Home Ownership

You must not own your home or have any share in a property. Any stake in a property — freehold, leasehold, or shared ownership — disqualifies you from a DRO. Homeowners with debt problems need to look at IVAs or bankruptcy instead.

Prior DRO

You cannot apply for a DRO if you have had one approved within the previous six years.

Other Insolvency

You must not currently be subject to an IVA, bankruptcy, or any interim order when you apply.

The Application Process — Who Can Apply on Your Behalf?

This is one of the most important things to understand about DROs: you cannot apply for a DRO yourself. The application must be submitted by an approved intermediary — a debt adviser who has been authorised by a competent authority recognised by the Insolvency Service.

This safeguard exists to ensure applicants genuinely meet the criteria, that the information in the application is accurate, and that DROs are used appropriately. Approved intermediaries are found at free debt advice charities and organisations. The application itself is submitted electronically at no charge to you.

What Happens When a DRO Is Approved?

Once your DRO is approved by the Insolvency Service’s Adjudicator, several things happen simultaneously:

  • The DRO is registered on the Individual Insolvency Register (publicly searchable)
  • The 12-month moratorium period begins immediately
  • All creditors named in the DRO are notified and must stop all collection activity
  • Interest and charges on the included debts are frozen from this date

You do not make any payments to your creditors during the moratorium period.

What You Must and Must Not Do During the Moratorium

During the 12-month moratorium, you are subject to certain restrictions:

  • You must not borrow £500 or more without telling the lender that you are subject to a DRO
  • You cannot act as a company director or be involved in forming or managing a company
  • You must report any significant improvement in your circumstances to the Insolvency Service promptly — including receiving an inheritance, winning money, or a substantial increase in income
  • If your circumstances improve enough to take you above the eligibility thresholds, your DRO may be revoked and your debts reinstated

Providing false information, hiding assets, or concealing income when applying for or during a DRO is a criminal offence.

What Happens at the End of 12 Months?

At the end of the moratorium period, if your financial situation has not improved materially — you have not acquired significant assets, your income has not increased substantially — all the debts included in the DRO are written off automatically. No further action is needed. The DRO ends and you are free from those debts.

The DRO is removed from the Individual Insolvency Register three months after it ends — typically 15 months from when it started.

Which Debts Are Not Covered?

While a DRO covers most unsecured debts, the following cannot be included and will remain your responsibility even after the DRO ends:

  • Student loans
  • Child maintenance arrears
  • Court fines and criminal fines
  • Debts incurred through fraud
  • Social Fund loans

Secured debts such as mortgages are also not included, though as a non-homeowner this is unlikely to affect you.

Credit File Impact

A DRO will remain on your credit file for six years from the approval date. During this time, obtaining credit or financial products will be difficult. For most people in the financial position that qualifies for a DRO, the six-year credit impact is a reasonable trade-off for the complete write-off of debts they could not otherwise repay.

DRO vs Bankruptcy — Which Is More Appropriate?

If you meet the DRO criteria, a DRO is almost always preferable to bankruptcy for people in the same situation. It is free (bankruptcy costs £680), results in the same outcome (debts written off after 12 months), and carries fewer severe consequences. Bankruptcy involves closer scrutiny of your finances, potential income payment orders if your income increases, and is a more significant legal event overall.

Bankruptcy becomes appropriate when the DRO criteria cannot be met — for example, if your debts exceed £50,000, if you own a home, or if your assets exceed the DRO thresholds.

Find Out What Options Are Available to You

Everyone’s situation is different. Use our free fact-finder to see which debt solutions you may be eligible for — no obligation, no commitment.

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For free, impartial debt advice you can contact Money Helper at moneyhelper.org.uk

The information on this page is for general guidance only and does not constitute financial advice. Always seek independent professional advice before making a decision about a debt solution.