If you can’t afford to pay off your debts you can apply for a debt relief order. They’re granted by the Insolvency Service and can work out cheaper than going bankrupt. But before you do anything you should get some trusted money advice.
A debt relief order usually lasts for a year. During that time none of the people you owe money to (your creditors) will be able to take action against you to get their money back. At the end of the year you’ll be free of all the debts listed in the order.
Qualifying for a debt relief order
To qualify, your debts must be £15,000 or less and of the following kind:
- 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.
Income and assets
Your income must be no more than £50 a month after paying your normal household expenses.
The things you own (your assets) and any savings must be worth no more than £300. However, if you have a motor vehicle this must be worth £1000 or less, unless it has been specially adapted because you have a physical disability.
In the last three years you must have lived, had a property or run a business in England or Wales.
You won’t be able to get a debt relief order if:
- You’re currently bankrupt
- You have an Individual Voluntary Arrangement (IVA) or are applying for an IVA
- Your creditors have applied to make you bankrupt but the hearing hasn’t yet taken place (though you might still be able to apply for a debt relief order if your creditors agree)
- You have been given a Bankruptcy Restrictions Order or Undertaking
- You have petitioned for bankruptcy but your petition has not yet been dealt with. However, this doesn’t apply if you’ve petitioned for bankruptcy and the judge has referred you for a debt relief order instead
- You have had a debt relief order in the last six years
- You have been given a Debt Relief Restriction Order or Undertaking
Applying for a debt relief order
To apply, you’ll need to contact an authorised adviser at your local Citizens Advice Bureau(CAB) who will check whether you meet the conditions and apply on your behalf. The order will cost you £90, but you can pay this in instalments over six months.
You can also find advisors, also known as intermediaries, by contacting any of the competent authorities listed by the Insolvency Service.
It is an offence to give false or misleading information in your application.
Once your debt relief order has been approved you should not pay any of the creditors listed on the order. Your creditors will be told about the debt relief order and you will be protected from them taking any action.
Your debt relief order will be published on the Individual Insolvency Register.
You can only apply for a debt relief order once every six years.
During the debt relief order period
During the period of your debt relief order you won’t need to make any payments towards the debts listed in the order.
You will need to continue to pay your normal household expenses, which may include rent, council tax, gas, electricity and water charges. You will also need to pay off any debts that are not included in the debt relief order.
You can’t add other debts to the debt relief order. You will have to tell the Official Receiver (the person now in charge of your debts) about any new debts that you get during the period of the order.
You must tell the Official Receiver if your circumstances change once you have a debt relief order, or if you forgot to include information in the order.
Your debt relief order will appear on your credit file. It will remain on your file for six years. This may affect your ability to get credit in the future.
You may find it difficult to open a bank account once you have a debt relief order.
Things you can’t do when you’ve got a debt relief order
While a debt relief order is in place, there are certain things you won’t be able to do. These include:
- Getting credit over £500 without telling the lender you have a debt relief order.
- Carrying on a business in a different name from the one under which you were given a debt relief order, without telling all those you do business with the name under which you were granted a debt relief order.
- Being involved with promoting, managing, or setting up a limited company, without permission from court. Also, you can’t act as a company director without getting permission from court.
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- The Money Advice Service offers free, unbiased and independent advice about all financial matters. 0300 500 5000
- The Citizens Advice Bureau has a great Advice4Me page, which explains legal rights specifically for under-25s.
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By Tom Green
Updated on 29-Sep-2015