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UK council tax bills and debt relief order paperwork on a kitchen table

Debt Relief Orders: A Lifeline for People on Low Incomes in 2026

Written by admin on . Posted in Council Tax.

Updated for 2026

What Is a Debt Relief Order?

If you are on a low income and struggling with debt, a Debt Relief Order (DRO) could be the fresh start you need. DROs were designed specifically for people who cannot afford to pay back what they owe, and in 2026 the rules have been updated to help even more people qualify.

A Debt Relief Order is a formal debt solution available in England and Wales. It is aimed at people who have relatively low levels of debt, very little disposable income, and few or no assets. Once approved, a DRO freezes your debts for 12 months. During that period, your creditors cannot chase you for payment or take any further action against you. If your circumstances have not improved by the end of those 12 months, your debts are written off entirely.

DROs were introduced in 2009 as a simpler, cheaper alternative to bankruptcy. They are administered by the Insolvency Service, and you apply through an approved intermediary, typically a debt adviser at a charity such as Citizens Advice or StepChange.

Who Qualifies for a DRO in 2026?

The eligibility rules for DROs were updated in June 2024, making them accessible to a wider group of people. To qualify, you need to meet all of the following conditions:

  • Your total qualifying debts must not exceed £50,000 (increased from £30,000)
  • Your disposable income after essential living costs must be £75 or less per month (increased from £50)
  • Your total assets must not be worth more than £2,000 (increased from £1,000)
  • Your vehicle must not be worth more than £4,000 (increased from £2,000)
  • You must not be a homeowner
  • You must not already be subject to another formal insolvency procedure
  • You must not have had a DRO in the previous six years

These updated thresholds mean that thousands more people across England and Wales now qualify for a DRO who previously fell just outside the limits. If you have been turned down before, it is well worth checking again under the new rules.

For full details on the current eligibility criteria, the GOV.UK guide to Debt Relief Orders has the official information.

How Much Does a DRO Cost?

One of the biggest advantages of a DRO over bankruptcy is the cost. Filing for bankruptcy currently costs £680, which is a significant sum for someone already in financial difficulty. A DRO, by contrast, costs just £90. That fee can be paid in instalments if needed, and some charities may be able to help cover the cost in cases of extreme hardship.

The low application fee is one of the reasons DROs have become increasingly popular since their introduction. For many people on low incomes, spending hundreds of pounds on bankruptcy simply is not realistic, and a DRO offers a practical way forward.

What Debts Can a DRO Cover?

DROs can cover most types of unsecured debt, including:

  • Council tax arrears
  • Credit card debts
  • Personal loans and overdrafts
  • Catalogue debts
  • Utility bill arrears (gas, electric, water)
  • Benefit overpayments

Council tax arrears are one of the most common debts included in DROs. If you are struggling with council tax debt, a DRO could write off what you owe entirely, provided you meet the qualifying criteria.

Some debts cannot be included in a DRO. These include student loans, child maintenance arrears, social fund loans, and any debts you have taken on through fraud. Court fines, including magistrates’ court fines for criminal offences, are also excluded.

DRO vs Bankruptcy: Which Is Right for You?

Both DROs and bankruptcy result in your debts being written off, but they work in very different ways and suit different circumstances. Understanding the differences is important before you decide which route to take.

Bankruptcy may be more appropriate if your debts exceed £50,000, if you own property, or if you have a higher income. It is a more complex process that involves a court hearing and potential asset seizure. You can read more about how council tax bankruptcy works in our detailed guide.

A DRO is the better option if you are on a low income with little to no assets and your debts fall within the qualifying limits. It is quicker, cheaper, and does not involve a court appearance. The entire process is handled through an approved intermediary and the Insolvency Service.

Both options will affect your credit rating for six years and will appear on the Individual Insolvency Register. Neither should be entered into lightly, but for people who genuinely cannot repay their debts, they offer a legitimate route to becoming debt-free.

What Happens During the 12-Month Moratorium?

Once your DRO is approved, a 12-month moratorium period begins. During this time, several important protections kick in:

  • Your creditors cannot contact you to demand payment
  • No legal action can be taken against you for the debts included in the DRO
  • Bailiffs cannot visit your property to collect on those debts
  • Interest and charges on your debts are frozen

You do have responsibilities during this period. You must not take on any new credit of £500 or more without telling the lender about your DRO. You must inform the Insolvency Service if your circumstances change, for example if you start earning more money, inherit assets, or move to a new address.

If your financial situation improves significantly during the moratorium, your DRO may be revoked. In that case, you would become liable for your debts again. This is why it is important to be completely honest about your circumstances when you apply.

The Impact on Your Credit Rating

A DRO will stay on your credit file for six years from the date it was approved. During that time, you may find it harder to get credit, open new bank accounts, or pass financial checks for things like mobile phone contracts or renting a property.

That said, many people who apply for a DRO already have a poor credit rating because of missed payments and defaults. In those cases, the DRO itself does not make things significantly worse, and the fresh start it provides can actually help you rebuild your finances more quickly.

After six years, the DRO is removed from your credit file entirely. With careful financial management in the meantime, there is every chance you can rebuild a healthy credit score. Organisations like MoneyHelper offer free guidance on managing your money after a DRO.

Why DROs Matter More Than Ever in 2026

The cost of living crisis has pushed more households into financial difficulty than at any point in recent memory. Energy bills, food costs, and rent have all risen sharply, while wages for many workers have not kept pace. For people on low incomes, especially those relying on benefits or working part-time, even small debts can quickly spiral out of control.

Council tax is a particular pressure point. Unlike most other debts, councils have strong enforcement powers and can fast-track cases through the magistrates’ court. Low-income households across the UK are being hit hardest, and many do not realise that a DRO could wipe out their council tax arrears along with other qualifying debts.

The 2024 changes to DRO thresholds were a direct response to this growing need. By raising the debt, income, and asset limits, the government acknowledged that the old rules were too restrictive and left too many people without a viable route out of debt.

How to Apply for a Debt Relief Order

You cannot apply for a DRO directly. Instead, you need to go through an approved intermediary, which is a trained debt adviser authorised by the Insolvency Service. These advisers work at organisations like Citizens Advice, StepChange, and other free debt advice charities.

The process typically works as follows:

  1. Contact a free debt advice service and explain your situation
  2. Your adviser will assess whether you meet the eligibility criteria
  3. If you qualify, they will help you gather the necessary information about your debts, income, and assets
  4. Your adviser submits the application to the Insolvency Service on your behalf
  5. The Insolvency Service reviews the application and, if everything is in order, grants the DRO

The whole process usually takes a few weeks from your first appointment to the DRO being granted. There is no court hearing and no need to attend any formal proceedings. For a broader look at the options available to you, our guide on taking control of council tax debt covers the full range of solutions.

Need Help With Your Debt?

If you are struggling with council tax arrears or other debts and think a Debt Relief Order might be right for you, get in touch with our team today. We can help you understand your options and point you in the right direction.

Disclaimer: This article is for general information purposes only and does not constitute financial advice. Debt Relief Orders are a formal insolvency procedure with long-term implications for your credit rating. You should always seek independent, professional debt advice before making any decisions about your finances. Free, impartial advice is available from StepChange, Citizens Advice, and MoneyHelper.