MILLIONS are being urged to claim debt help ahead of two key changes coming tomorrow.
The National Debtline is reminding those struggling with their finances that a Debt Relief Order (DRO) is available to wipe debts you can't afford to pay back.
Under a DRO, debts are frozen for 12 months and during this time creditors are not allowed to contact you or ask for payments.
A creditor is a person or company you owe money to.
If you don't pay off any debt owed within the 12 month window, it is wiped with any interest and charges also cancelled.
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Bear in mind, a DRO is not for everyone and there are other options available to you to clear problem debt including free debt advice.
It used to cost £90 to take out a DRO, but this was dropped from the start of April.
Two further changes coming into effect from tomorrow.
It means those with debts worth up to £50,000 will be able to take out a DRO, up from £30,000.
Meanwhile, the maximum value of a car or motorbike that someone can own when entering into a DRO will rise from £2,000 to £4,000.
Since the £90 fee for a DRO was removed in the Spring, registrations for the debt option have hit record levels, with 7,161 taken out in April and May.
However, new research from the National Debtline, which is run by the Money Advice Trust, shows an estimated 3.7million UK adults in debt have still never even heard of a DRO.
The charity's findings, based on a UK-wide Opinium poll of 2,000 adults, also reveal public awareness of the debt option is limited.
It found an estimated 25million people in total across the UK don't know what a DRO is.
Steve Vaid, chief executive of the Money Advice Trust, said: "Too many people in financial difficulty, who may benefit from a Debt Relief Order, are unaware of their existence and the difference this option could make to their situation.
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"Facing bills and demands can be a stressful and lonely place and it’s vital people get the support they need to deal with their debts.
"A Debt Relief Order offers a safe route out of debt for people on low incomes who are in unmanageable debt.
"Changes that come into effect on June 28 mean more people will be eligible to access this debt option.
"Not everyone will be eligible, but seeking free, impartial debt advice is a crucial first step."
The Sun spoke to Londoner Paulette Marie Flash who revealed how she had £3,000 worth of debt wiped after taking out a DRO.
Bear in mind there are other options available and you should always seek advice on your options before making a decision.
This includes a debt management plan (DMP), administration order or an individual voluntary arrangement (IVA).
A DMP is an informal agreement made between you and your creditors for paying back your debts.
It involves you paying back the debt in one set monthly payment, but is not legally binding.
An administration order is a formal, legally binding agreement between you and your creditors to pay back any debts over a set period of time.
To be approved for an administration order you can't have debts worth more than £5,000 or two or more debts.
An IVA is another formal and legally binding agreement where you agree with your creditors to pay back debt monthly over a set period of time.
But the fees associated with an IVA can be quite high so may not be the best option if you have debt worth £10,000 or less.
However, these options aren't to be taken lightly - so make sure you know exactly what you're signing up to.
Meanwhile, millions struggling with problem debts can get a 60-day "breathing space" against prosecution and bailiffs.
There are also debt consolidation loans which can merge all the money you owe into one monthly repayment with just one lender.
Regardless of the options, if you're struggling with debt and falling behind on payments speak to your creditors as soon as possible.
There may also be schemes offered to help you manage what you owe, for example from energy or water suppliers.
What is a Debt Relief Order?
A DRO freezes your debts for 12 months and means creditors will not be able to contact you about any money owed during the window.
If there is no improvement in your financial situation after 12 months, the debt is wiped completely.
You only qualify for a DRO if you have debt worth less than £30,000, although from tomorrow this threshold is rising to £50,000.
You won't qualify if you have assets worth over £2,000, or a car or motorbike worth £2,000 or more. This is changing to £4,000 from tomorrow.
You also must have £75 a month or less spare income after paying for bills and other essentials.
You can use a DRO for the following debts:
- credit cards, overdrafts and loans
- arrears with rent*, utility bills, telephone bills, council tax and income tax
- benefits overpayments
- hire purchase or conditional sale agreements
- buy now - pay later agreements
- bills for services like vets or solicitors
- debts you owe to friends and family
- business debts
*Your landlord can still take action to evict you
You won't be able to use a DRO for the following debts:
- magistrates court fines and confiscation orders relating to criminal activity
- child support and maintenance
- student loans
- social fund loans
- compensation for death and injury
You can also only apply for a DRO if you live in England or Wales, have lived in England or Wales in the last three years and have not had a DRO in the last six years.
To get a debt relief order (DRO) you need to be eligible. Money-wise the conditions from June 28 are:
- You owe less than £50,0000
- You don't have savings or own assets worth more than £2,000
- You don't have a vehicle worth more than £2,000 (separate to the assets above)
- You don't have spare income each month after essentials of £75
You'll also be eligible if the following apply:
- You don't own your own home
- You've lived or worked in England and Wales in the last three years
You may still qualify if you submitted a request for a DRO in the last six years but it was cancelled.
You can apply for a DRO through an approved debt adviser which you can find via the Government's website.
If you live in Scotland or Northern Ireland you won't qualify for a DRO, but should speak to a debt adviser about what to do.
You also can't take out a DRO if you have an IVA in place or if you're going through bankruptcy.
How does a DRO affect my finances?
One major drawback to taking out a DRO is that it stays on your credit file for up to six years after taking it out.
This can make it more difficult to get credit in future.
Your tenancy agreement can also be affected and Citizens Advice recommends checking this with a debt adviser first.
Another is that if your circumstances change within the 12-month window, your DRO can be revoked and you have to find another to repay any debt.
Private landlords and lettings agents may check if you have a DRO when doing a credit check, and they could turn you down or charge you more.
A DRO can also affect applications for British citizenship, and you should get advice from an immigration specilaist.
Your bank can freeze your account if you have a DRO, or stop you from opening one.
During the DRO period you'll also have some restrictions.
You won't be able to borrow more than £500 without letting the lender know about the DRO, and you can't set up a limited company or become a company director.
Your name and address will appear on the insolvency service's Individual Insolvency Register, which is free for anyone to look at, for the period of the DRO and for three month after.
There are other things to be aware of before getting a DRO and you should speak to a debt adviser before so you understand your full range of options.
