Your guide to DROs: how they work, what they're meant to do, whether you might qualify for one, what the drawbacks are…

What is a DRO?

It's a kind of insolvency that can help people with serious debt problems. If you entered a DRO, you wouldn't have to repay any of your debt - you'd just have to pay a £90 fee to get started.

The basics:

• You'd pay £90 to apply for a Debt Relief Order
• It would probably last for a year
• At the end, your debts would be written off
• You can only apply through an 'approved intermediary'
• You can only enter a DRO if you:

1. Don't owe much,
2. Don't own much, and
3. Don't have much spare cash every month.

If it is the best way to tackle your debts, we could help you apply for a DRO.

Check out the Insolvency Service website for a list of 'Competent Authorities'(organisations that can approve advisers to act as approved intermediaries).

Could I enter a DRO?

Only if:

• You can't repay your debts
• Those debts don't add up to over £15,000
• Your gross assets* aren't worth over £300 (although you can own a vehicle that's worth up to £1,000)
• You have £50 or less to spare every month
• You live in England, Wales or Northern Ireland
• You aren't going through any kind of formal insolvency procedure
• Your situation isn't likely to improve anytime soon.

* This means the value of everything you own, not counting approved pensions and all the things that you and your family need, like bedding and furniture.

What does a DRO do?

It places a 'moratorium' period on the debts included in it (a moratorium is a period where nothing will happen).

This normally lasts 12 months. In that time, you won't have to make any payments towards those debts - and those lenders won't be able to take any action against you without getting the court's permission.

As long as the DRO doesn't get cancelled, the debts will be written off at the end.

How does the process work?

Debt Relief Orders are run by the Insolvency Service, who work with approved intermediaries. You can't apply for a DRO on your own - you'd need to get an approved intermediary to do it for you.

If your application is approved, your Debt Relief Order will start. If all goes as planned, your debts will be written off at the end.

Would anyone know about my Debt Relief Order?

If you enter a DRO, it won't be advertised in any newspapers. However, your details will appear on the Individual Insolvency Register. They'll stay there until 3 months after your Debt Relief Order has finished.

This Register is available online, but it's not the kind of thing most people even know about (it's mostly used by professionals like lenders and credit reference agencies).

What does it cost?

Applying for a Debt Relief Order costs £90. You might be able to pay this in instalments, but you'd have to pay it in full within 6 months of your first payment. Your application won't be considered until it's been paid in full.

This fee isn't refundable, even if your Debt Relief Order doesn't go ahead.

Can it help me with all my debts?

A DRO can't help you with some debts, such as:

• Student loans
• Secured debts (although you're not likely to qualify anyway if you own any property)
• Any fine that's been imposed for an offence
• Any obligation to pay something under the Child Support Act 1991 (CSA 1991).

What are the main downsides of a DRO?

If you apply for credit worth £500 or more while your DRO is going on, you'll have to tell the lender about it. Even if:

• You're applying jointly with someone else
• You're applying for an overdraft facility
• You're getting credit 'by acting with the intention of getting it' (e.g. ordering something without actually asking for credit, but not paying for the item when it arrives).

Plus, a DRO will have a serious effect on your credit rating for six years, so you'll find it harder borrow any money in this time. For more on credit ratings, take a look at our 'Help with your credit rating' guide.

What if I can't enter a DRO?

The rules about entering a DRO are very strict: if you don't qualify, you won't be allowed to enter one.

However, there are other debt solutions that might be able to help you:

• An IVA (Individual Voluntary Arrangement)
• Bankruptcy
• A debt management plan
• A debt consolidation loan

If you live in Scotland, one of these debt solutions might help you:

• A Protected Trust Deed
• DAS - the Debt Arrangement Scheme
• LILA - the Low Income, Low Asset route into bankruptcy

If you visit our debt advice page, you'll find:

• Some information about all these solutions
• Links to pages that tell you more about each one
• Our debt solution finder, which can tell you about your options and show you which debt solution is most likely to be right for you.