Acts 435 Giving to anyone who has need

Debt Relief Order

A debt relief order is an order you can apply for if you can't afford to pay off your debts. It's granted by the Insolvency Service and can only be applied for online through an approved third party, or intermediary. An intermediary is usually a skilled debt adviser who has been given permission to complete the forms and give advice on debt relief orders. The order costs £90 and can provide a fresh start for someone, especially as they will have also been helped to understand how to manage their money going forwards when talking with the intermediary.

A debt relief order usually lasts for a year and during that time, none of the applicant’s creditors will be able to take action against them to get their money back. At the end of the year, the debts listed in the order will be written off.

You can only apply for a debt relief order if you meet certain conditions. These are when:

  • you have qualifying debts of £15,000 or less. These debts must be of a certain type and include credit cards, overdrafts, rent, utilities, telephone, council tax, hire purchase and buy now, pay later agreements
  • you have spare available income of £50 or less a month after paying your normal household expenses
  • the things you own (your assets) and any savings are worth £300 or less. However, if you have a motor vehicle, this must be worth £1,000 or less unless it has been specially adapted because you have a physical disability
  • in the last 3 years you must have lived, had a property or carried on a business in England or Wales.

All debt relief orders are published on the Individual Insolvency Register. The register is available to the public. Names and addresses remain on the register for 15 months. They will also appear on the individual’s credit file for six years.

Bankruptcy

Bankruptcy is a court order that you can apply for if you are in debt. Someone you owe money to can also apply to make you bankrupt even if you don't want this. It costs £525 to apply for bankruptcy.

Once made bankrupt, an official called the Official Receiver takes control of the individual’s money and property, and deals with their creditors. When the bankruptcy order is over, the individual can make a fresh start and the money owed is usually written off, in many cases, after just one year.

Some advantages of going bankrupt are:

  • pressure is taken off you because you don't have to deal with your creditors
  • you are allowed to keep certain things, like household goods and a reasonable amount to live on
  • creditors have to stop most types of court action to get their money back following a bankruptcy order (but in some cases the bailiffs may still be able to take your belongings away)
  • the money you owe can usually be written off.

Some of the disadvantages of going bankrupt are:

  • it will cost you up to £700 to go bankrupt. It can be more if, for example you use a solicitor
  • whilst you are bankrupt, you can't apply for more credit
  • if you own your own home, it might have to be sold. However, you may be able to apply to your local authority for re-housing
  • some of your possessions might have to be sold. For example, you will usually lose your car and any luxury items you own
  • some professions don't let people who have been made bankrupt carry on working
  • if you own a business, it is more than likely that the Official Receiver will close down your business, dismiss your employees and sell off the assets
  • going bankrupt can affect your immigration status
  • you can't keep your bankruptcy private. Your details will be listed in the Insolvency Register, which people can access on the internet. Your case could also be published in your local newspaper if there are exceptional circumstances.

The bankruptcy record will stay on an individual’s credit reference file for six years.