Debt Relief Orders and Rent Arrears

Many people borrow money and manage to do this without too many problems but when something happens such as illness, loss of a job or family breakdown, debt that was manageable can suddenly become unmanageable and a person may feel they are sinking into an impossible situation.

If debt has become unmanageable and you owe less than £20,000 in total, one solution can be a Debt Relief Order, or DRO, this costs £90 to apply for and an application can only be made by a specialist adviser called a DRO Intermediary. By contacting Debt Free London or your local free advice agency you can get free debt advice and be referred to a DRO Intermediary. Other key requirements are that:

• You don’t have any valuable assets - this means it isn’t suitable if you own your home

• You don’t own a car worth more than £1000

• You don’t have savings over a £1000

• You have very little disposable income after your essential expenditure

Some of the people we advise worry that this solution isn’t possible if they have rent arrears. They may think that it is better to try to pay off the rent arrears first before going for the DRO, but this isn’t actually the case.

This confusion comes from legal decisions that appear to tell us opposite things but in fact usually just mean that even if a DRO Intermediary takes you through the DRO process you will probably have to pay off your rent arrears anyway.

The law that governs DRO tells us that we must add rent arrears to the DRO application and that this will mean they are written off and that would normally mean that the arrears don’t have to be paid.

On the other hand, housing law says that if you don’t pay the rent your landlord can eventually take you to court and force you to leave. This is because one of the basic duties of a tenant is to pay the rent in full each month. 

To sort this out it has been agreed by the courts that even though rent arrears put in a DRO are technically written off, if they are not paid back your landlord can evict you anyway - however, in some cases certain landlords, such as Councils and Housing Associations, will agree to allow you not to pay back the arrears that you owe but this is at their discretion and needs to be agreed with them separately in writing.

It should also be noted that in some tenancies there can be an insolvency clause which means that the tenancy is counted as being broken if a DRO or bankruptcy goes through - specialist advice would be needed if that is the case.

In summary, Debt Relief Orders are a very helpful way of dealing with an impossible debt situation if you meet the criteria and you are unable to pay back what you owe. If you have rent arrears, these will have to go into the DRO application but even though this happens they are still likely to need to be paid off. What the DRO does though is mean that other debts are written off so the rent arrears can be focused on which means that there is a lot less risk of you ending up homeless as well.

If you think a DRO might be right for you contact Debt Free London so we can make you an appointment for the free help you need. Call us on 0808 164 248, our lines are open Monday to Friday from 10am until 5pm.

Notes:

• Calculating disposable income is something that the DRO Intermediary will do when they advise you so before deciding if you qualify for DRO. It is always essential to get free debt advice as other options may be more suitable in your particular situation.

• Specialist information on DROs can be found at https://www.gov.uk/government/publications/intermediary-guidance-notes-v15-dro2-guidance-for-approved-intermediaries