Debt relief orders were introduced on April 6, 2009 as an alternative to bankruptcy. They have been designed to help people - on low incomes with relatively low levels of debt and few assets - get back on their feet within a year.

What is a Debt Relief Order?

An order that you can apply for if you can't afford to pay off your debts. A debt relief order (DRO) usually lasts for a year and during that time, none of the people you owe money to will be able to take action against you to get their money back. At the end of the year, you will be free of all the debts listed in the order.

What are their advantages?

They are a cheaper option than going bankrupt and can offer a lifeline if you can’t cope with your debts. During the period of your DRO, you won't need to make any payments towards the debts listed in the order. However, you will need to continue to pay your normal household expenses which may include rent, council tax, gas, electricity and water charges.

At the end of the period, if your circumstances have not changed you will be freed from the debts that were included in your order.

What are their disadvantages?

You can only apply if you have debts of less than £15,000 and a low income. Anyone who owns a home or has a pension fund is unlikely to be able to take advantage as you can’t apply if you have assets worth £300 or more.

You also can’t apply for a DRO if you have been made bankrupt or gone through another sort of debt relief programme such as an individual voluntary arrangement or IVA

During the term of the DRO you may struggle to obtain any new credit cards or loans - although that is probably no bad thing if you are deep in debt. If you need to obtain credit of £500 or more, alone or jointly with another person, you must tell the lender that you are subject to a DRO, which may put it off.

And for those who live in Scotland, debt relief orders are only available in England and Wales.

Who qualifies for a DRO?

You must:

• have debts of £15,000 or less. These debts must be of a certain type (see What type of debts qualify for a DRO?)

• have spare available monthly income of £50 or less after paying your normal household bills.

• have assets and savings worth £300 or less. If you have a car or other motor vehicle, this must be worth £1,000 or less unless it has been specially adapted because you have a physical disability

• have lived, had a property or carried on a business in England or Wales in the last three years.

• not have been subject to another DRO within the last 6 years.

What type of debts qualify for a DRO?

Debts that can be included are:

• credit cards, overdrafts, loans

• rent, utilities, telephone, council tax

• benefit overpayments and social fund loans

• hire purchase or conditional sale agreements

• buy now - pay later agreements.

Certain types of debt can't be included in a debt relief order. People you owe these debts to can still take action against you, even if you have a DRO. These debts include court fines, student loans and child support and maintenance.

How do I apply for a DRO?

The orders are issued by the Insolvency Service and cost £90 but you can pay this in instalments over six months. To apply you need to contact a specialist who has been given permission to complete the forms and give advice on DROs.

You can find a list of “approved intermediaries” on the Insolvency Service website.

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Five websites

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Citizens' Advice Bureaux

Consumer Credit Counselling Service

National Debtline

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