Once you start a Debt Relief Order (DRO) you will no longer be responsible for paying your debt and the people you owe money to are no longer allowed to try and collect the money you owe them.

You will not be asked to make any further payments towards your debts and after twelve months, your debts will be written off for good.

However if your finances improve while you are in your DRO it could fail and you will be responsible for your debt payments once again. We explain what would happen if your financial situation improves while the Order is still in place.

Your disposable income must be below £50 to stay in a DRO

One of the main barriers to starting a dDRO is that your disposable income must not be more than £50 a month. Disposable income is the money you have left over from your income after all of your reasonable living expenses have been paid for.

This means that more often than not only people who have low incomes or incomes that are made up primarily of benefits will be eligible to use this type of debt solution.

Of course, it is possible to be earning more money and still be eligible but this will only be the case if your reasonable living expenses are high enough that your disposable income remains below £50.

What if your financial situation gets better during your DRO?

While you are in DRO if your finances improve and your disposable income goes over £50 a month the arrangement will fail.

This means that you will go back to the same position you were in before your started and you will still owe all of your debt and your creditors are allowed to start chasing you to repay it once again.

BMD Tip: Your DRO will not fail simply because you income has improved. There is only a risk if your disposable income goes above £50 a month. Any extra income you earn may well be swallowed up by your legitimate living expenses so your disposable income will not be affected.

If your income gets better after your DRO has finished, this will not cause you a problem. Your debts will remain written off for good and the extra money you are earning you can keep for yourself.

What income is included in a DRO?

When working out your disposable income you should only include guaranteed income. If every now and then you receive extra money which is not guaranteed, this should not be included in your calculations.

For example you may sometimes receive small tips or extra payments. If these amounts are not regular or guaranteed, you should not include them as part of your income as you have no way of knowing if you will receive them or not.

In addition, if could receive a bonus payment at work which is dependent on how well you or your employer performs. Again this should not be included. You should not include income that may never receive.

The only thing to be aware of is that if you do receive a significant bonus while your debt relief order is still in place, this could be a reason for the arrangement to fail.

Should you try to improve your income during a DRO?

In my view, the rule that your DRO will fail if your disposable income rises above £50 is a failing of the system.

At the end of the day, this threat acts as a disincentive to try and improve your income while you are in the arrangement. You could very well say why bother if the result is that I will be lumbered with my debt again?

However, worrying about whether your income will improve or not should not prevent you from starting the arrangement. If your income is already low, more often than not you are already living on a very low expenses budget. Any improvement will therefore be simply swallowed up by your living expenses.

Your DRO will continue to run and you can look forward to being debt free after twelve months.