Gambling Debt Relief Order
Debt relief orders (DROs) are a simplified, quicker and cheaper alternative to bankruptcy as an insolvency measure in the United Kingdom, which came into effect in England and Wales on 6 April 2009, and are also offered in Northern Ireland. All of your debts need to be declared when you apply for a debt relief order (DRO). If you forget a debt, you can’t add it after the DRO has started. You’ll have to pay it yourself, and in some cases your DRO might be revoked if the debt you forgot took your total debt.
A debt relief order (DRO) is one way to deal with your debts if you:
- owe £20,000 or less
- don’t own your own home
- don’t have other assets or things of value
- don’t have much spare income
You don't have to make payments towards most types of debt included in your DRO and your creditors can’t force you to pay off the debts. A DRO usually lasts a year unless your situation improves. When the DRO ends, most of your debts will be written off.
You’ll need to speak to a special DRO adviser who will help you fill in an application to the official receiver. The adviser can’t charge you for their time but there's a £90 fee to make a DRO application.
Check if you can get a DRO
You should be able to get a DRO if all of the following apply:
- you're unable to pay your debts
- your qualifying debts are not more than £20,000
- you’ve got no more than £50 left over each month after you’ve paid your usual household expenses
- you don’t own your home
- other savings or things of value you own, called assets, are worth no more than £1,000 (some assets are ignored when working out the value, for example, basic household items and tools you need to do your job)
- you don’t own a car worth £1,000 or more, unless it’s one that’s been specially adapted because you have a disability
- it's been at least 6 years since your last DRO was made and you aren’t going through another formal insolvency procedure, such as bankruptcy or an individual voluntary arrangement (IVA)
- you've lived, had a property, or worked in England or Wales in the last three years.
Find out more information about how income, debts and belongings are assessed for a debt relief order.
Recent activity
You must tell your DRO adviser if in the last 2 years you’ve:
- given away assets
- sold assets for less than their value, for example if you sold a car worth £2,000 to a friend for £200
- prioritised paying back one creditor over others, for example if you paid off a debt you owed to a relative and didn't pay your other creditors
Your DRO application might be refused if any of these apply to you. They'll look at the facts of your case before making a final decision.
Debts covered by a DRO
Debts that can go into a DRO are called ’qualifying debts'. During the DRO period creditors can’t ask you for payments - if they do, you don't have to pay them. They include:
- credit cards, overdrafts and loans
- arrears with rent, utility bills, telephone bills, council tax and income tax
- benefits overpayments
- hire purchase or conditional sale agreements
- buy now - pay later agreements
- bills for services like vets or solicitors
- debts you owe to friends and family
- business debts
If you obtained any of these by fraud, you will still have to pay them when the DRO has ended.
If you're behind on your rent, your landlord can still take action to evict you, even if the rent arrears are included in your DRO. This means you may have to continue paying these after a DRO is made.
Debts not covered by a DRO
Not all debts are covered by a DRO. You'll still need to pay:
- magistrates court fines and confiscation orders relating to criminal activity
- child support and maintenance
- student loans
- social fund loans
- compensation for death and injury
If you have any of these debts they don't count towards the £20,000 limit.
If you’re unsure whether a debt would be covered by a DRO, check with your DRO adviser. If they aren’t you’ll still need to pay them if you get a DRO.
If you forget to include any debts in your DRO you can’t add them after. If any missed debts would have taken you over the £20,000 limit then your DRO might be cancelled. It’s important that you tell the DRO adviser about all of your debts.
Check if a DRO is right for you
A DRO can provide a way out of debt. However, it's important to know the impact a DRO will have on all areas of your life before you apply. For example:
- if any of your debts are for goods bought on hire purchase, you might need to give the goods back
- your DRO will stay on your credit record for six years - this might make it difficult for you to get credit or find a new home in the future
- if you have a tenancy agreement it could be affected, your DRO adviser can check this
your bank might close your account and you’ll need to open a new one
if you hold a power of attorney over someone else's financial affairs or someone else has one for you, this will end
it might affect applications you make for British citizenship - if you are unsure then you should get advice from an immigration specialist
You’ll also have to follow certain rules, called 'restrictions', during the DRO period. This means:
- you can't borrow £500 or more without telling the creditor about the DRO
- you can’t get involved in promoting, managing or setting up a limited company, or be a company director, without getting permission from the court
- if you have a business under a different name from the one under which you got the DRO, you’ll have to tell everyone you do business with the name you used when you got the DRO
- while the DRO is in force, and for three months afterwards, your details will appear on the Insolvency Service’s Individual Insolvency Register, which can be viewed by anyone
If having your address on the register could lead to violence against you or a member of your family, you can ask the court to order that your address doesn't appear on the register. You’ll need to apply for a court order before you make your DRO application - your DRO adviser can help you with this.
If you’re not sure a DRO is the best option, you can find out what other help you can get with debts.
How to get a DRO
If you think a DRO is right for you, find more information about how to get a debt relief order - including how to find a DRO adviser and pay the fee.
A reader, let’s call him Mr C, asked:
I have been in bad mental health and have in periods of illness suffered big losses due to online gambling. I used to earn £30,000, I now only work part-time, getting c £700 a month, and have moved back to my parents.
I have debts of £27,000 with £1,000 a month repayments. Some debts are very new eg a £8,000 loan three months ago.
I am very unlikely to find a job with a good salary and would like to go to university to improve my chances – I am in my mid-twenties.
My parents have offered £10,000 if it would get me completely debt free. That is only about 40% of the debts. If that isn’t accepted would the next best option be a F&F IVA or bankruptcy?
I have very few assets and probably the only thing that would be taken away from me if I were to go bankrupt is my car (approx £1.5k). I have no real qualms about going bankrupt except that the gambling aspect would probably introduce a BRU.
A clean start sounds like a good idea
From what Mr C has said, he has been through a very difficult time and now has an unmanageable amount of debt. He has done some research and all of the options he is suggesting – a full and final settlement, a F&F IVA and bankruptcy – could give him a clean start, leaving his debts behind.
The stress of problem debt can make mental health issues worse, so it will be good to avoid debt hanging over him for many years while he tries to rebuild his future.
Offering partial settlements
A partial settlement is when your creditor agrees to accept less than the full amount to close the debt – it’s often called a Full & Final Settlement.
Debt Relief Help
£10,000 may sound like a good offer because he has no chance of repaying these debts.
But that isn’t how his creditors may see it at the moment. Because he hasn’t missed any payments in the past, the chance of any creditors accepting a Full & Final settlement offer now isn’t good.
What about mental health problems?
If Mr C tells creditors about his mental health problems he should be treated sympathetically and should not be pushed to repay more than he can manage. That doesn’t mean the creditors will rush to write off his debts, but sometimes they may consider it.
If evidence about his mental health might encourage creditors to accept a F&F offer, he could ask his GP or another health professional to complete a DMHEF form to could send with the offer letters. GPs in England are no longer allowed to charge for doing this.
Mr C may find this daunting. One option would be to get help with it from his local Citizens Advice.
Or delaying offering full and final settlements?
The real problem with these F&Fs is it is simply too early. When the creditors realise he has a serious, long-term problem they will take an offer more seriously.
If he wants to do this, he could set up a debt management plan so he can make affordable payments to the creditors now. Then, in a year, he can write to all the creditors with the 40% offer and point out he is about to start uni, so the payments will be a token £1 a month for three years. At that point, there is a much better chance of many of his creditors – possibly all – accepting this offer. However, it isn’t guaranteed to work.
A F&F IVA
A full & final IVA is a variation on the standard Individual Voluntary Arrangement where he would just make a single payment – the £10,000 from his parents – and the creditors would vote to accept that. If it is approved, all debts will be included in it, even those who voted against or ignored it.
The biggest disadvantage is that it simply isn’t very likely to work at the moment – 75% of the creditors voting have to approve the IVA for it to go ahead. As Mr C borrowed £8000 just a few months ago, if only that creditor votes against, then the IVA would not be approved. The creditors would also get less than 40p in the pound as the IVA firm would deduct its fees first.
I can’t see that a F&F IVA has any advantage for Mr C over bankruptcy and it would cost a lot more.
Bankruptcy
The only immediate action he could take that is guaranteed to work is going bankrupt. That link gives you lots of information on the pros and cons of bankruptcy and what actually happens.
I think Mr C knows most of these, but this is a big decision and if he hasn’t already taken debt advice he should, see Good places for debt advice. Mr C mentions:
- he would be likely to lose his car. He may not care about this, but if he wanted to keep it, then his parents could buy it from him for its current value (use Parkers to get this) and this would give him some money for the bankruptcy fees.
- because of his gambling, he might get a BRU. But he may reasonably decide that a BRU wouldn’t affect him much if at all. It would make it harder to borrow money for some time after he is discharged, but that can even be regarded as a plus point, as without credit it will be harder to gamble.
Apart from those points, bankruptcy would seem to have a lot more advantages for Mr C than full an final settlements, whether made directly with the lenders or through an IVA:
Bankruptcy And Gambling Debt
- he wouldn’t need the £10,000 from his parents! He may need other help over the next few years and there could be better uses for this money;
- it would be quick, certain and under his control.
Other variations for other people
Here are some other options that could work for other people with large gambling debts, many of whom won’t have money available for large settlement offers;
- if you owe less than £20,000, are renting and have very little money each month to pay to your debts, look at a Debt Relief Order;
- with a house with equity, your choice is probably between an IVA and a DMP. I wouldn’t suggest an IVA is a good idea until you have been free of gambling for at least 6 months, preferably a year;
- making token payments won’t solve a debt problem, but it can give you time to sort out other problems in your life;
- with a good income, see if any of your debts can be challenged. That last loan of £8,000 sounds to me as though it could have been unaffordable for Mr C and the lender should have realised this. Read How to get a refund from payday loans – the same approach applies to all borrowing, not just payday loans – and “I borrowed 20k in two weeks” – a bipolar spending spree for an example. (Mr C could try this, but his debts are so large that it’s unlikely to make enough difference so bankruptcy is just the simpler approach.)