It is now over a year since the government increased the minimum amount of debt necessary to petition for bankruptcy. The threshold is now £5,000 (it was previously £750).
This has led to a reduction in the number of people in England & Wales who have gone Bankrupt. The number of Debt Relief Orders has increased since that date. This is because the government also relaxed the eligibility criteria by increasing the total amount of debt which can be owed from £15,000 to £20,000. Many more people have therefore been able to access this form of insolvency procedure.
A debt relief order can be a low-cost alternative to bankruptcy. A DRO is only available if you owe less than £20,000 and live in England, Wales or Northern Ireland. You don't pay anything towards your debts for 12 months - and after that they will be written off.
According to Citizens Advice:
Your DRO will show up on your credit reference file. It can reduce your chances of getting credit from some lenders, as it shows you've struggled to keep up repayments before.
You're not allowed to get credit for £500 or more without telling the lender that you have a DRO. A lender might change their mind about offering you credit, when they see a DRO registered on your credit file.
The note of your DRO stays on your credit file for up to six years after the date the DRO was made. This means it could be some time before you can get credit in the future.
You might also struggle to open a new bank account during the DRO period and for some time after it has ended.
If you need a new home while you've got a DRO, you could find that your options are limited. Many private landlords and letting agencies will insist on credit checks when you apply for a tenancy, and because the DRO will show up on your credit report, you may be turned down or charged higher fees.
If you're not comfortable with how a DRO can affect your credit rating, you might want to think about a different debt solution.
Information with help from Goody Burrett.
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