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How will a DRO affect your life?

Similar to declaring bankruptcy, a Debt Relief Order (DRO) can have serious repercussions for numerous aspects of your life. Whilst they can of course help you become debt free, a DRO can also make other aspects of your daily life difficult. How will a DRO affect your bank account, mortgage, credit rating or even your partner?  The first thing to remember is that a DRO will remain on your financial record for a total of 6-years. Therefore, during this time it will be very difficult, and often more expensive, to borrow money. DRO’s can also affect what jobs you are allowed to have, whether you can operate a business or not and even whether your spouse/partner can borrow money. Because DROs are for debts of less than £20,000 and are not given to people with their own homes or significant assets, DROs often have a less dramatic effect on a person’s lifestyle than a bankruptcy. Furthermore, because they are so short in duration and prevent creditors from contacting you, they can provide real relief from the stresses associated with such debts.

How will a DRO affect your bank account?

Your bank will not be informed of your DRO unless it is listed as a creditor. Therefore, if it is not, you should not experience any change. However, if your bank is included in your DRO, or if it finds out that you have one, it may decide to freeze your account. Furthermore, having a DRO on your financial record will make it more difficult to open a new bank account. Because of the damage a DRO will have on your credit rating, most banks will likely only offer you a basic-style bank account. Such accounts will allow you to make deposits, pay by debit card, set up direct debits and withdraw money from cash machines. However, you will not be provided with an overdraft nor other such financial benefits. All banks are of course different and therefore have their own policies when it comes to what they offer customers with DROs. It is therefore recommended that you check with a bank either via its customer care line or by visiting a local branch to learn more.

Is a DRO the best option for me?

A debt relief order is the best route for many with extreme debt, however it isn’t suitable for everybody as it only covers certain types and amounts of debt. A DRO can also have a signifcant impact on your credit rating and your lifestyle, so shouldn’t be taken without caution.  Depending on your circumstances, there may be other better options. These options include debt consolidation, Individual Voluntary Arrangements (IVAs) and Bankruptcy. Complete our quick online assessment to see which is best for you.

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How will a DRO affect your mortgage?

A Debt Relief Order cannot affect a person’s mortgage as they are only given to people who are not home owners. Because DROs are only given to people with debts totalling less than £20,000, and whom have little or no assets, homeowners are not qualified to enter a DRO. However, because DROs remain on your financial record for six-years and have a significant effect on your credit rating, you may find it difficult to get a mortgage for many years after your DRO has ended.

How will a DRO affect your credit rating?

One of the many areas a DRO will have a negative effect on is your credit rating. This is because it shows lenders that you’ve struggled to keep up repayments in the past. Your credit rating will be seriously damaged if you enter a DRO – resulting in difficulties that can last for 6-years or even more. Having such a poor credit rating will also make it much more difficult and expensive to borrow money. Furthermore, you will be unable to get credit of more than £500 without informing the lender of your DRO – which can result in the lender refusing your loan request.

How will a DRO affect your job?

One question many people have regarding a DRO is how will a Debt Relief Order affect my job? A DRO should not affect your current job as your employee does not need to be informed. Furthermore, a DRO will not damage your job prospects unless you are intending to be the director of a company. Similar to bankruptcy, a DRO prevents you from being a company director as well as managing a business. This can only be overcome if you gain permission from the court and also inform those you intend to do business with of your DRO. These restrictions will only be in place for the duration of the DRO – usually one-year.

How will a DRO affect your partner?

Entering a debt management solution such as a DRO is of course a stressful experience. Making this worse can be the worry that doing so will also negatively affect your spouse of partner. However, the good news is that in most cases you can enter a DRO without it directly involving or affecting your spouse or partner. Whist this is of course a relief to most people, there are a number of considerations that must be taken into account when it comes to your spouse or partner. For example, your credit file will link the names of people financially associated with you. One effect of this is that it may become difficult for them to borrow money if your own financial situation continues to worsen, regardless of their own good financial situation. However, providing that yourself and your spouse/partner do not have any joint financial arrangements, it is fairly simple to disassociate yourselves from each other in regards to your credit standing. To do this, all you need to do is send a letter detailing this disassociation to a credit reference company.

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