Debt Relief Order vs. Bankruptcy: Which Is Right for You?

If you’re struggling with overwhelming debt, you’ve likely heard of a Debt Relief Order (DRO) and bankruptcy as potential solutions. But which option is right for your situation? Both offer a way to manage unmanageable debt, but they come with different conditions, costs, and long-term consequences.

In this guide, we’ll break down the key differences between a Debt Relief Order and bankruptcy to help you make an informed decision.

What Is a Debt Relief Order (DRO)?

A Debt Relief Order is designed for people with relatively low levels of debt, limited assets, and little disposable income. It’s a less severe alternative to bankruptcy and offers a way to write off debts you can’t realistically pay off within a reasonable timeframe.

To qualify for a DRO, you must meet certain criteria:

• Debts of £30,000 or less
• Less than £75 in disposable income each month
• Assets worth no more than £2,000 (including your car, which must be worth less than £2,000)
• Must not own your home
• Must have lived or worked in England or Wales within the last three years

If approved, a DRO typically lasts for 12 months. During this period, your creditors cannot demand payments or take legal action against you. At the end of the DRO, most debts are written off.

What Is Bankruptcy?

Bankruptcy, on the other hand, is a more formal and public process for dealing with serious debt problems. It’s generally used by individuals with larger debts or more complicated financial situations. By declaring bankruptcy, you agree to liquidate your assets to repay creditors, and any remaining debts after the bankruptcy period are usually written off.

Key points about bankruptcy:

• No debt limit – You can declare bankruptcy regardless of how much you owe
• Any assets you own, including your home, may be sold to repay creditors
• Bankruptcy typically lasts 12 months, but restrictions can extend for much longer with a Bankruptcy Restrictions Order (BRO)

While bankruptcy provides a more comprehensive solution, it comes with harsher consequences, such as the public listing of your bankruptcy and possible restrictions on your ability to run a business or take out credit in the future.

Comparing DRO and Bankruptcy

Criteria	Debt Relief Order (DRO)	Bankruptcy
Debt Amount	Up to £30,000	No upper limit
Assets	Less than £2,000	All assets may be used to repay debts
Disposable Income	Less than £75 per month	No specific requirement
Cost	£90 one-time fee	£680 upfront fee
Length of Process	12 months	12 months (restrictions can last longer)
Public Record	Listed on the Individual Insolvency Register	Listed on the Individual Insolvency Register
Impact on Credit	Stays on your credit file for 6 years	Stays on your credit file for 6 years

Pros and Cons of a Debt Relief Order (DRO)

Pros:

• A low-cost option for individuals with limited financial means.
• Once approved, creditors cannot contact you for payments or take legal action.
• No need to sell assets, provided they meet the financial limits.

Cons:

• Available only to those with very limited assets and income.
• The DRO appears on your credit record for six years, affecting your ability to borrow in the future.
• You must meet strict eligibility criteria, and owning a home disqualifies you.

Pros and Cons of Bankruptcy

Pros:

• Suitable for individuals with larger debts or more complex financial situations.
• After your bankruptcy period, most debts are wiped clean, giving you a fresh start.
• Provides a more comprehensive solution to serious debt problems.

Cons:

• High upfront costs and potential loss of valuable assets, including your home.
• Public listing on the Insolvency Register, which could impact future employment and business opportunities.
• Can result in severe restrictions, such as being banned from serving as a company director or taking out certain loans.

Both a Debt Relief Order and bankruptcy offer routes to debt relief, but the best option depends on the size of your debts, your income, and the assets you own. It’s important to fully understand the long-term consequences of each route, especially how they’ll affect your credit, future finances, and personal life.

If you’re unsure which option is best for you, speaking to a debt expert can provide valuable guidance and peace of mind. Talk to a member of our expert, friendly team now at info@insolvencyandlaw.co.uk or call us at 02075041300