If you feel like you’re drowning in debt and that bankruptcy is your only way out. Take a moment to breathe, Bankruptcy debt relief might not be the best option for you.
Although filing for bankruptcy can bring relief from overwhelming bills, it’s not without long-term consequences. There could be other options available to you that are better suited for your finances.
In this article, we discuss a Debt Relief Order (DRO) and the process of application. We will help guide you through both choices so that with the right information at hand. Together we can find an appropriate solution fit just for you.
Bankruptcy Debt Relief: What You Need to Know
Bankruptcy Debt Relief Orders (DROs) provide a way out of unmanageable debt repayments and give you a chance of financial freedom. This option is available even if you don’t have many assets or income to put towards your debt repayment. A DRO acts as a great alternative to bankruptcy debt relief for non-homeowners.
You could walk away from your debts in 12 months just by applying for the DRO. Most people won’t need to make payments during that time while creditors are held off. Though interest can still be applied depending on your particular finance situation.
Qualifying for Bankruptcy Debt Relief
To be eligible for bankruptcy debt relief (DRO), you must reflect the following:
- You’re unable to make repayments on your debts.
- You have a disposable income of £75 or less per month after paying bills.
- You do not have valuables worth £2000.
- You do not own any property, shares, or investments.
- You have unsecured debts of less than £20,000.
- You must not have applied for a DRO in the past 6 years.
- You cannot already be subject to an IVA or bankruptcy proceedings.
It’s essential to seek expert guidance before filing for a DRO. As the move can have severe consequences on your credit history and certain kinds of debt won’t be included in the DRO criteria. If you meet some of the above criteria but not all, use our free solution finder to speak to a specialist who may be able to help with alternative solutions.
Applying for Debt Relief: The Process Explained
Becoming debt free is a challenge and for some, getting a Debt Relief Order may feel like the only answer.
Bankruptcy debt relief can take up to 12 months to process. At the end of 12 months, you will be released from your debts and can begin rebuilding financially.
It’s essential to ensure any company aiding in this process is accredited by the Financial Conduct Authority (FCA). Otherwise, there could be more issues down-line such as damage to credit rating or employment prospects if working within financial services.
The first 12 months of a DRO is referred to as the moratorium. Similar to the bankruptcy process, during this time restrictions could be placed on you.
What Debts Can Be Included in Your Bankruptcy Debt Relief Plan?
Debts eligible for debt relief orders include:
- Late rental payments
- Utility bills
- Telephone and broadband expenses
- Council tax fees
- Tax and national insurance underpayments
- Credit cards payments
- Personal loans and benefit overpayments.
Credit Report Impact of Bankruptcy Debt Relief
A bankruptcy debt relief order will impact your credit score and appear on reports for six years. It is possible to recover your credit score over time with balanced borrowing when your finances are back in order.
It’s important to monitor your credit rating closely. So you have an understanding of where you stand and what action needs taken when you’re in a position to do so.
Is Bankruptcy Debt Relief Right for Your Finances?
The reasons a debt relief order could be an option for you:
- Debt Relief Order erases debts in 12 months.
- Protects assets valued at less than £2000.
- Costs only £90 vs bankruptcy which can cost up to £680.
- More cost-effective than bankruptcy.
Rebuilding Your Finances After Debt Relief
To get back on track financially, it’s important to stick to the conditions of your Debt Relief Order.
Prioritise payments for essential bills such as rent and utilities. Formulating an effective budget plan will also help you keep tabs on incoming money versus outgoing expenses each month. It can provide guidance when making financial decisions going forward.
Additionally, seeking out professional advice from knowledgeable experts who understand credit rebuilding after bankruptcy may be very beneficial in helping rebuild your finances over time.
Ultimately forming good savings habits could prove invaluable. Setting aside financial reserves gives peace of mind that there are funds available should any unexpected costs arise or if ever need access to emergency cash flow down the line.
Bankruptcy should be the last thought on your mind while struggling with debt.
Instead, there are other options to help you manage and pay off those debts in an organised way. Solutions that may not leave a lasting impression on your financial health or credit score.
Whether it’s through consolidating multiple loans into one lower payment or getting yourself on track for future success with a DRO, make sure to do some research.
Seek professional advice before making any big decisions. Check out our free solution finder to help find the best solution for your financial situation.