Debt Relief Orders Explained

The weight of debts can often feel heavy to bear, and it may sometimes feel like you do not have many options to help. However, there are plenty of solutions and services that you can consider to lighten the load and make your finances a little easier to manage. One these is a debt relief order, which could help to write off your debts if they are £20,000 or less. This could be an ideal solution for those who are struggling with repaying credit card debt, benefit overpayments, or personal loans.

At Debt Consolidation Loans, we believe in offering as much advice as possible to help you find the best options for your financial circumstances. On this page, we will be detailing what a debt relief order is, when you might consider applying for one, and the benefits and risks of a debt relief order in the UK. Hopefully, this page will provide you with the resources you need to decide whether you should proceed with this option, and the steps to help you apply.

A young couple sign an agreement for a debt relief order

What Is A Debt Relief Order?

As the name may suggest, this type of order provides relief from your debts if they are relatively low and you have few assets. They can write off debts of £20,000 or less, which could be owed to a variety of lenders. With this type of solution, you will have a 12 month period where you will not have to pay certain types of debt, after which point, they will usually be discharged. However, if your circumstances improve during the 12 months, your relief order may be cancelled, so you will need to start repaying. For example, if you get a pay rise or secure a better job, your order may be cancelled.

You can get them for a range of debts, including loans, overdrafts, council tax, rent, utility bills, benefit overpayments, and credit cards. This covers a lot of ground, but there are some types of debt that cannot be written off, such as student loans, Social Fund loans, confiscation orders, magistrates’ court fines, and maintenance arrears.

Why debt consolidation?

  • Improve your monthly budget
    A debt consolidation loan will enable you to group all your existing borrowing and the monthly repayments are easier to manage.
  • Reduced overall repayments
    A debt consolidation loan could even save you money each month if the interest rate is less than the combined total interest of the previous loans.
  • Improved credit rating
    The simplicity of repaying a debt consolidation loan means that you are more likely to repay the debt on time every month. This will prove you to be a responsible borrower, which will have a positive effect on your credit score.

 

Who Can Apply For A Debt Relief Order In The UK?

You can apply for a debt relief order if you:

  • Owe £20,000 or less
  • Do not own your own home
  • Do not have other assets or possessions of value
  • Do not have much spare income
  • Have had six years since your last relief order was issued and you are not going through another formal insolvency procedure
  • Have lived or worked in England, Wales or Northern Ireland in the last three years

Criteria will vary across providers, but you typically need to meet all of the criteria in the following areas:

Income – you need to have £50 or less left over each month after paying your normal household expenses and necessary bills.

Debts – the total of your debts should be £20,000 or less, although some types of debts do not count towards this limit, such as mortgage repayments.

Belongings – any belongings of value that you own or savings you have should be worth less than £1,000, and any car you own should be worth less than £1,000, unless it has been specially adapted for a disability.

These are typically the base criteria that you need to meet, but providers will have various other requirements before you can apply. They may also assess your income, debts, and belongings differently, so it is worth asking any questions about their eligibility criteria before you apply.

Pros And Cons Of Debt Relief Orders

While the main benefit of a debt relief order is the potential of writing off your unmanageable debts, there are a few other positives that you can take advantage of. This includes:

  • A relief order could be a low-cost alternative to bankruptcy
  • You don’t pay anything towards your debts for 12 months – after this time, they will be written off
  • Your creditors cannot pursue you for your debts during the 12 month repayment-free period
  • You will not need to appear in court, despite a relief order being a formal solution
  • You could be given a fresh start

However, alongside the benefits, there are some disadvantages to keep in mind. This means that this is not a solution for every situation, and the negatives should be carefully considered before submitting an application. They include:

  • You cannot apply if you are a homeowner
  • You can only apply if your debts are £20,000 or less, and you live in England, Wales or Northern Ireland
  • It may mark your credit report, which will stay on your record for six years
  • The rules are strict, so if you do not follow them, you may be breaking the law

By weighing up these sides, you can truly see whether this is the option for you. If you need further help, you can seek debt relief order advice from a variety of charities, such as StepChange and the Money Advice Service. You can have all the details explained to you and discussions about whether or not you are in a position to apply.

Why debt consolidation?

  • Improve your monthly budget
    A debt consolidation loan will enable you to group all your existing borrowing and the monthly repayments are easier to manage.
  • Reduced overall repayments
    A debt consolidation loan could even save you money each month if the interest rate is less than the combined total interest of the previous loans.
  • Improved credit rating
    The simplicity of repaying a debt consolidation loan means that you are more likely to repay the debt on time every month. This will prove you to be a responsible borrower, which will have a positive effect on your credit score.

 

Applying For Debt Relief Orders Explained

You should use an authorised advisor from a company or charity to arrange a debt relief order in the UK. They will help you to complete an application where you will need to be as honest as possible. You will have to disclose whether you have prioritised paying some of your creditors back over others, and declare whether you have given away assets you owned or sold them for less than they are worth.

The official receiver of your application will make the decision on whether to approve your relief order. You will need to pay a non-refundable £90 fee when you apply, but if you do not have the funds available, your advisor will be able to tell you if you are eligible for help with this. After applying, you should receive a decision within 10 working days.

If your relief order is approved, the official receiver will contact the creditors included in the order to inform them of the 12 month non-repayment period. During this year, if your circumstances improve so that you could start repaying, you need to inform the official receiver who may end your relief order.

Are There Any Alternatives?

If you have decided that a relief order is not suitable for your situation, there are other types of debt solutions that you could consider. These include a bad credit debt consolidation loan, an individual voluntary arrangement (IVA), an administration order, or bankruptcy. You could also think about a debt management plan, which you can apply for through an agency to manage your debts in an easier way. No matter which you choose though, it is vital to remember that there is always help available if you need it. For more debt relief order advice, you can speak to a range of charities and services online, such as the Money Advice Service.

While we do not offer debt relief orders, we can offer you a consolidation solution. We are a broker service who work with a panel of lenders to provide you with a loan that suits your needs. This loan is to be used to pay off your debts, making it simpler to manage your finances. We offer a range of solutions, such as unsecured debt consolidation loans, to suit a variety of circumstances. If you would like to know more, please read our FAQs or get in touch with us today.