How income, debts and belongings are assessed for a debt relief order
One of the things your adviser will do as part of the debt relief order (DRO) application process is to assess your income, debts and belongings. This is to check whether you meet the criteria in each of these areas before you apply.
This page explains how your income, debts and belongings are assessed by a DRO adviser.
What are the DRO criteria?
To be eligible for a DRO, you need to meet all of the following criteria in these areas:
Income: you need to have £50 or less left over each month after paying your normal household expenses.Debts: the total of your debts should be £20,000 or less, although some types of debt don't count towards this limit. Belongings: any belongings of value you own or savings you have should be worth less than £1,000, and any car you own should be worth less than £1,000 unless it's been specially adapted because you have a disability.
Remember, there are other criteria about your personal circumstances which you must also meet to be eligible.
How your income is assessed
Your DRO adviser will work out how much spare available income you've got, looking at all the money you've got coming into your household. This could include:
- your salary or wages
- welfare benefits, such as jobseeker's allowance and employment and support allowance, although if you get disability living allowance the amount you get can automatically be counted as necessary spending
- any income you get from a pension
- any contributions other people, such as family members, make to your household expenses
- any rental income.
You will be able to deduct a reasonable amount for your household expenses. If the figure left over each month is £50 or less, you will be able to apply for a DRO, if you meet the other conditions.
How your debts are assessed
Your DRO adviser will work with you to put together a list of all your debts, including:
- amounts owed on credit agreements such as credit cards or loans
- rent arrears
- council tax, income tax and utilities arrears
- benefit overpayments
- arrears of hire purchase payments.
If the total of all these debts comes to £20,000 or lower, you will be able to apply for a DRO, if you meet the other conditions.
The full amount of any debts you share jointly with another person must be included in your application. They will count towards the limit. However, only the person with the DRO will be released from responsibility for the debt at the end of the DRO period. This means the other person can still be chased for the debt.
Never lie or hide the truth about any aspect of your income, debts or assets when applying for a DRO. It is a criminal offence to knowingly put incorrect information or deliberately leave out information on a DRO application.
If the official receiver finds you've acted dishonestly or got a DRO fraudulently, it could be stopped and you could have restrictions made against you by the court. You may be prosecuted, which could lead to a fine, or even prison.
How your belongings are assessed
Any belongings of value that you own are called assets. You won't be able to apply for a DRO if your assets are worth more than £1,000, or if you have a motor vehicle worth £1,000 or more, unless it's one that has been adapted because you have a disability.
Assets include things like:
- cash you have in hand, in a bank or building society account or in savings, which isn't needed to pay for your household expenses
- money you're owed, unless you are unable to get it back from the person who owes it
- jewellery, not including wedding rings
- buildings or land
- other items of value you own, including mobile phones.
Assets don't include:
- household equipment such as bedding, clothing and furniture
- tools, books and other items of equipment you use in your job or business
- a vehicle which has been specially adapted because you have a disability and which you need to carry out your everyday activities
- most kinds of pension funds - check with your DRO adviser whether your pension funds are counted as an asset or not. If you can access your pension fund now it might be counted as an asset and could stop you from getting a DRO if the value of the fund is more than the value of your debts
- one motor vehicle worth less than £1,000 which isn't used only for work. A vehicle that you only use for work will count as an asset. If the vehicle is used for both work and domestic purposes, for example for shopping at the weekends as well as commuting to work, it won't count as an asset.
Vehicles on hire purchase
If you've got a vehicle you're paying for on a hire purchase (HP) or conditional sale agreement, it won't be counted as an asset. This is because it doesn't belong to you until you've made all the payments on the agreement. However, you may not be allowed to keep making the payments while the DRO is in force.
Even if you're not behind on HP payments, your lender may be allowed to re-possess your vehicle anyway. This is because some HP agreements include a clause which automatically lets the lender end the agreement and re-possess your vehicle if you enter any kind of formal insolvency arrangement, including a DRO.
If your car is subject to a Motability HP agreement, you may be able to transfer to Motability's lease hire scheme instead.
Check with your DRO adviser, who can help you work out whether getting a DRO would mean you would lose your vehicle.
If you don't qualify
If any aspect of your income, debts or assets means that you don't qualify for a DRO, you'll need to think about choosing a different debt solution.