How a Debt Relief Order Affects Your Credit
A debt relief order is a legal agreement that is designed to help people get out of debt. It is not a bankruptcy and can be applied for by an approved intermediary such as a debt adviser. Normally it lasts for 12 months, but can be extended for up to 15 years. If you apply for a DRO, you cannot add new debts during that time.
A debt relief order is a more cost-effective way to discharge debts than bankruptcy. But, it can have an impact on your credit record. Before you make an application, you should consider whether you are eligible to get one and what restrictions you will have to adhere to. For instance, you can’t write cheques that are likely to bounce. You must also disclose any changes in your financial situation, such as an increase in income.
A debt relief order is administered by an official receiver, who works in the Insolvency Service. This person will contact all of the creditors you have listed on your application and discuss any objections. Then, you can choose to include or exclude some of your debts in the DRO.
Debt relief orders are designed for people with low-incomes and minimal debt. They are not for everyone. People with assets over PS2,000, like cars, should not apply. Also, student loans, court fines, and child maintenance can’t be included in a DRO.
As with all types of insolvency, a debt relief order will affect your credit rating. Creditors will see the entry on your file, and it will stay on your report for six years. However, if you manage your debts in an organised and responsible manner, you can usually rebuild your credit.
Whether you’re eligible for a debt relief order or not, you can take steps to recover your credit. There are many options available, including sensible borrowing when you’re ready. Contact Money Helper for more information. Or, check out our guide to rebuilding your credit.
You may not be able to obtain credit or a mortgage while you have a debt relief order on your record. In addition, you won’t be allowed to sign up to a new rental or lease agreement. Many banks will refuse you a new account while you have a debt relief order.
You must inform the bank of any overdraft you have, and keep your bank up-to-date on any changes in your financial circumstances. When applying for a loan or line of credit, you’ll have to tell the lender about your DRO. If you borrow more than PS500, you’ll need to tell the lender before obtaining the credit.
Unlike in a bankruptcy, there are no court proceedings involved with a debt relief order. An official receiver will contact the creditors you have listed on your application and explain why they aren’t included. Afterward, you can’t add any new debts.
However, it’s important to remember that a debt relief order can be revoked if you change your financial circumstances or fail to meet the restrictions. A debt relief order can have a severe impact on your credit score.
How a Debt Relief Order Affects Your Credit was first seen on Debt Worries