Can You Get a DRO If You Rent? Housing and Debt Relief Orders

For many renters, managing debt can be a daunting task, especially when exploring the possibility of a Debt Relief Order (DRO). A DRO is a potential lifeline for those overwhelmed by debt, but understanding how it works when you rent your home is crucial. This guide will help you navigate the nuances of obtaining a DRO while renting.

Understanding Debt Relief Orders (DROs)

A Debt Relief Order is a specific insolvency solution designed for individuals with relatively low levels of debt, little surplus income, and minimal assets. It offers a way to have debts written off after a 12-month moratorium period. This can be particularly beneficial for those who find themselves unable to manage their financial obligations despite their best efforts.

DROs are designed to provide a fresh start for individuals who might not be able to afford other forms of debt relief, such as bankruptcy, due to the associated costs. The process is relatively straightforward and less intrusive compared to other insolvency solutions, making it an attractive option for those who qualify.

Eligibility Criteria for a DRO

To qualify for a DRO, you must meet certain criteria:

• Maximum debt: Your total debts must not exceed £50,000. This includes various types of unsecured debts such as credit cards, personal loans, and overdrafts.
• Spare income: You must have less than £75 of monthly spare income. This means that after paying for essential living expenses, the remaining amount should not exceed this threshold.
• Assets: Your assets must be valued at less than £2,000. This includes savings, investments, and any valuable possessions you own.
• Vehicle: Any vehicle you own must be worth less than £4,000. This ensures that the DRO is targeted at those without significant assets.
• Homeownership: You cannot own a home. This is because homeownership typically involves significant assets that could be used to repay debts.

Furthermore, you must not have had a DRO in the past six years, and you must apply through an approved debt adviser. This ensures that only those who genuinely need this solution and meet the criteria are granted a DRO. The involvement of an adviser also helps in assessing whether a DRO is the most suitable option for your circumstances.

Application Process for a DRO

Applying for a DRO involves consulting with an approved debt adviser, who will assess your financial situation and submit the application on your behalf. The process ensures that your circumstances align with the eligibility criteria, providing a safeguard against inappropriate applications.

Once you contact a debt adviser, they will conduct a thorough review of your financial situation. This includes evaluating your income, expenses, debts, and assets. The adviser will then determine your eligibility for a DRO and discuss any alternative solutions that might be more appropriate for your situation.

If a DRO is deemed suitable, the adviser will complete the application process, ensuring that all necessary information is accurately provided. This step is crucial as any discrepancies or omissions can lead to delays or rejection of the application. Once submitted, the Official Receiver will review the application and, if approved, you will enter the 12-month moratorium period.

Renting and Debt Relief Orders

Renters often wonder if they can apply for a DRO. Fortunately, renting does not disqualify you from applying for a DRO. In fact, being a tenant can sometimes make you a more suitable candidate for a DRO, given that you do not own a home, which is a critical eligibility criterion.

For renters, maintaining a stable living situation is often a priority. The good news is that a DRO typically does not interfere with your ability to continue renting your home. However, it is important to be aware of any potential implications on your rental agreement and to take proactive steps to address them.

Impact of a DRO on Your Rental Agreement

While a DRO can provide much-needed relief from debt, it is essential to consider how it might affect your rental situation:

• Rental Agreements: A DRO should not directly affect your rental agreement. However, it is advisable to review your tenancy agreement to ensure there are no clauses that might be triggered by entering into a DRO. Some agreements may have specific terms related to insolvency that could impact your tenancy.
• Landlord’s Awareness: Your landlord may not need to be informed about your DRO unless you have rent arrears that are included in the DRO. It’s generally a good practice to maintain open communication with your landlord if your rental payments are likely to be affected.

For instance, if your tenancy agreement includes a clause that allows the landlord to terminate the lease in the event of a DRO, it’s crucial to address this proactively. Discussing your situation with your landlord and explaining how the DRO will help you manage your finances better could alleviate their concerns.

Additionally, if rent arrears are part of the debts included in your DRO, it’s important to inform your landlord and work out a plan to address any outstanding rent. Clear communication can help prevent misunderstandings and maintain a positive landlord-tenant relationship.

Comparing Options: DRO vs. Other Debt Solutions

Before committing to a DRO, it’s wise to compare it with other debt solutions like Individual Voluntary Arrangements (IVAs) or Bankruptcy to ensure it is the right fit for your situation.

Individual Voluntary Arrangements (IVA)

• Duration: Typically lasts five years, or six if equity release is required. This longer duration means that you will need to maintain regular payments over a more extended period compared to a DRO.
• Creditor Approval: Requires 75% creditor approval by value. This can be a challenge if you have multiple creditors with differing opinions on your proposed repayment plan.
• Homeownership: Homeowners can apply but may need to release equity. This could impact your homeownership status and requires careful consideration before proceeding.

An IVA can be a suitable option if you have a steady income and can afford to make regular payments over several years. However, it involves ongoing commitments and the need for creditor approval, which can sometimes be difficult to obtain.

Bankruptcy

• Cost: £680 application fee. This upfront cost can be a barrier for some individuals seeking relief from debt.
• Homeownership: Home is at risk if equity exists. This makes bankruptcy less suitable for homeowners who wish to retain their property.

Bankruptcy is a more severe form of insolvency that involves the liquidation of assets to repay debts. It can provide a fresh start, but the implications on your credit score and the potential loss of assets make it a significant step that requires careful consideration.

Each solution has its own pros and cons, so it is crucial to evaluate them in the context of your specific financial circumstances. Consulting with a debt adviser can help you understand the implications of each option and make an informed decision.

Steps to Apply for a DRO If You Rent

Applying for a DRO while renting involves several steps to ensure you meet all requirements:

1. Consult a Debt Adviser: Reach out to an approved debt adviser to discuss your financial situation. They will provide you with guidance on whether a DRO is the most appropriate solution and help you understand the process.
2. Assessment: The adviser will assess your income, expenses, and debts to determine if a DRO is suitable. This step involves a detailed review of your financial situation to ensure you meet the eligibility criteria.
3. Application Submission: The adviser submits the DRO application on your behalf if you qualify. They will ensure that all necessary information is accurately provided to prevent delays or rejection of the application.
4. Await Approval: Once submitted, the Official Receiver reviews your application. If approved, you enter a 12-month moratorium period. During this time, your debts are frozen, and you are protected from further creditor action.

During the moratorium period, your debts are frozen, and you are protected from further creditor action. After 12 months, the debts covered by the DRO are written off, allowing you to start afresh without the burden of past debts.

It’s important to adhere to the terms of the DRO during the moratorium period. This means not taking on new debts or making payments towards the debts included in the DRO unless instructed otherwise by the Official Receiver.

Common Mistakes to Avoid

When applying for a DRO, it is important to avoid common pitfalls:

• Not Seeking Professional Advice: Always consult with a qualified debt adviser before applying for a DRO. They can provide guidance on whether a DRO is suitable for your situation and help you navigate the application process.
• Misreporting Income or Assets: Ensure all information provided is accurate and complete. Any discrepancies can lead to delays or rejection of your application.
• Overlooking Rental Agreement Clauses: Review your tenancy agreement for any clauses related to insolvency. Understanding these terms can help you address potential issues proactively.

By avoiding these common mistakes, you can improve the likelihood of a successful DRO application and ensure that you are well-prepared to manage your financial situation during and after the DRO process.

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