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Alternative to IVAs and bankruptcy launched

Debt relief orders to help low-income debtors

The debt relief order (DRO), a new alternative to bankruptcy and individual voluntary arrangements (IVAs), will be available to consumers from 6 April 2009.

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Decide which debt is the most expensive, and pay this off first

Aimed at low-income consumers who are struggling with unmanageable debt, the debt relief order is a new debt remedy, enshrined in law and with lower fees than traditional debt management plans and IVAs.

Who can qualify for a debt relief order?

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

  • They must be unable to pay their debts.
  • The debtor’s total unsecured liabilities must not exceed £15,000.
  • The debtor’s total assets must not exceed £300.
  • The debtor’s disposable income, following deduction of normal household expenses, must not exceed £50 per month.
  • The debtor must live in England or Wales (or have been resident or carrying on business in England or Wales in the last 3 years).
  • The debtor must not be involved in another formal insolvency procedure at the time of application for a DRO, such as bankruptcy or an IVA.

According to Citizens Advice (CAB), nearly a third of CAB debt clients could be eligible for the debt relief order (DRO). Consumers in debt will have to apply for a debt relief order via an authorised intermediary. Authorised intermediaries will include CAB debt advisers.

As with bankruptcy, the individual will be discharged from the DRO within a year and any remaining debts will usually be written off. There will be a one-off flat fee of £90, with no further charges.

Which? debt advice

Citizens Advice logo

Citizens Advice offer free and independent debt advice

Consumers struggling with debts should seek independent, free debt advice from organisations such as the Consumer Credit Counselling Service (0800 138 1111), National Debtline (0808 808 4000) or their local Citizens Advice Bureau (number in the phone book).

While bankruptcy, Individual Voluntary Arrangements (IVAs) and the new debt relief orders (DROs) could be a good solution for your needs, it is vital to get independent advice to find the solution that best fits your own circumstances.

Consumers should avoid commercial debt management companies – why pay for a service that is available better and free elsewhere?

For more detail, see the Which? guide to dealing with debt.

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