As from today (6th April) a new system is being introduced to help those individuals who may be facing extreme financial difficulty with their personal loans, credit cards and other debts.

Debt Relief Orders (DRO’s) as they are known, are intended to help those borrowers who are no longer able to manage their unsecured personal loan debts and is seen as a lower cost alternative to bankruptcy or an individual voluntary arrangement (IVA). The end result of entering into a Debt Relief Order is similar to that of becoming bankrupt, but instead of costing £495 to apply, a DRO only costs £90 and must be made online, with the assistance of a debt adviser.

There are, however, restrictions on just who is eligible and may apply for a Debt Relief Order. To qualify for a DRO, the individual must have total debts on their personal loans and other unsecured credit arrangements of less than £15,000, must be domiciled in England or Wales, must have readily realisable, non essential assets worth less than £300, have a monthly disposable income of a maximum of £50 (excluding any loan repayment amounts) and must not be involved in any other insolvency procedures such as bankruptcy or an IVA.

The borrower must meet all of the above criteria to qualify for a Debt Relief Order and if then the DRO is granted to the individual and their financial situation remains the same for another twelve months, their total debts will be written off. However, as with an IVA or bankruptcy, a DRO will remain on an individual’s credit record for a further six years stopping them from getting new personal loans in the future. If their situation improves during the twelve months, then they must start repaying their creditors.

Anyone who may be considering this route should contact their local Citizens Advice Bureau (CAB) for further information and advice.