A reader asked:
I want to give £4,000 each to my children – it’s money from their nan who would have wanted them to have it. But one daughter started a DRO a few months ago. I think she would have this money taken away so should I buy her a car instead? Things are difficult for her as she gets no child maintenance.
What happens if you give her cash?
If you give her the money now, she wouldn’t have it taken away. A Debt Relief Order (DRO) isn’t like bankruptcy or an IVA where if someone gets a large windfall they lose it.
But her DRO would be cancelled (the legal term for that is “revoked”) if you give her that much. See What happens to a DRO if you get some more money for details.
If her DRO is cancelled, she still has the money but also all her previous debts. She could use the money to settle some of the debts – with full and final settlements she may well be able to clear a lot more than £4,000 of debt, but perhaps not all her debts, it depends on how large they are. But the DRO will stay on her credit record for the next six years anyway.
Your other option is to give her most of the money after her DRO has finished and her debts have been wiped out. You could say give her £500 now for immediate needs and the rest when the DRO ends. A present of £500 wouldn’t affect her DRO, though she should report it to the Official Receiver.
Giving a car – it depends on how you do it
If you give her a car, then much the same would apply as giving her cash. It is one of the conditions of starting a DRO that any car has to be worth under £1,000 so by getting a more expensive car in the middle of her DRO is it very likely to be cancelled.
There is a way around this – you can buy the car and let her drive it. She could be the registered keeper, have the insurance in her name etc, but legally you would still be the “beneficial owner” of the car, so this wouldn’t affect her DRO. If you do this, I suggest you confirm this in writing by sending her a letter or email saying you are happy for her drive your car for as long as she needs it, but could she return it to you if it ever isn’t wanted.
If you are going to do this, make sure she can afford to run the car. You may think that a car would make her life a lot easier, but if she is struggling for money now, the insurance, MOT, parking costs all need to be thought of, it’s not just the petrol.
Talk to your daughter!
You need to make sure this is a nice surprise for her, not one that causes her any problems. I think you have to talk to her about it.
Personally, I don’t think giving her the money now and having her DRO cancelled is a good choice. Waiting until the DRO has completed could make so much more difference to her family over the next few years. But some people hate the idea of not paying their debts, so it’s possible she could prefer to have her DRO cancelled and settle her debts. This isn’t my call and it really shouldn’t be your call either…
And if you are thinking of a car instead, she needs to think about the costs before saying Yes.
An emergency fund in a DRO or IVA
Improve your credit score after a DRO
A Guide to Debt Relief Orders
Jane Clack says
You would be surprised the number of people this can happen to. As a debt relief order intermediary I always make it very clear to applicants what can happen with windfalls or anything that puts them over the asset limits. Your advice is very sound.
Priscilla Baxter says
I am also a DRO intermediary and I have two other things which I would like intermediaries and clients to be aware of :as they have come to my attention recently
1. if the client inherits money after a death they are deemed to have had the money at the date of death and not when they actually receive it months, or years later. This has recently happened to a client of mine.
2. It is worth being aware that the version of the Experian report which we and the client see is not the same version which the DRO Unit sees. I have recently had a client’s DRO declined as DRO Unit version of the Experian report showed a mortgage in his name which did not appear on our version and of which the client was only vaguely aware!.
A says
My husband owns his car and pays finance on it. He is going to remain the legal owner I am literally going to insure it and take over the say to day running such as tax, fuel, not etc. Is this going to affect me as even though it’s his car and he going to pay the finance I am paying for the actual use?
Sara (Debt Camel) says
Does your husband also use the car?
A says
No as he is receiving a company car which will be his car
Do u think this is gonna be an issue?
As my spending costs will be same for running the car it not a tad bit higher
Sara (Debt Camel) says
Are you currently in a DRO or are you looking at one?
A says
I am currently in a DRO got about 5 months left.
Sara (Debt Camel) says
ok, well you insuring and using this car won’t be a problem for your DRO as (a) it doesn’t belong to you and (b) the costs are much the same as for your current car.
BUT what will happen to your current car? Are you planning on selling it, because the cash from that could affect your DRO.
A says
I’ve already spoke with the dro unit who said because it would be no more than 1000 it won’t affect me at all I just stupidly forgot to ask about driving the other car and they were shut.
Emily says
I am considering a DRO. However, a while ago my mum bought a car for me on a ‘whenever I can afford to pay her back’ arrangement. I pay her back £100 pcm currently. The car value is £5000. I have only paid £800 to her so far.
Is the car technically hers or mine for DRO purposes?
Sara (Debt Camel) says
Who actually paid for the car – your mum or did she give you the money?
You know you wouldn’t be allowed to carry on paying her £100 a month in a DRO?
Emily says
She gave me the money and I used it to buy the car from the garage. So in that sense the car is mine, but I still owe her the vast majority of the car.
Just wondering what paperwork they will want to see regarding the car.
No I didn’t know that. Argh! Thank you. Still debating IVA or DRO options at the moment, so thus is really helpful.
Ffion Pearl says
It sounds like you own the car and owe the money to your mum (she didn’t give it to you if you are paying it back) . Did you factor in this extra £4200 odd when calculating your debts in terms of the DRO limit?
A DRO intermediary will want to see a valuation for the car. We use Parkers https://www.parkers.co.uk/car-valuation/ but if you can get an independent garage valuation for less than £1,000 then most intermediaries will take this as we understand that wear and damage on a car can decrease value.
If the car is worth over £1,000 then you can’t currently have a DRO but if it is only worth slightly more, then waiting (maybe doing interim token offers) may be better than an IVA.
Don’t forget you can’t sell the car for less than its worth or give it away if you want a DRO in less than 2 years.
Also your payments to mum may be a preference. Are you paying all your other creditors an equivalent (pro rata) repayment? You cannot prefer creditors if you want a DRO (or bankruptcy) and for DROs the same 2 year period applies.
Hopefully if you have got this far, you have taken free debt advice. go back to your caseworker and explain the issues. She or he will be able to discuss options (personally i like waiting 2+ years for preference issue to go and car to fall in value. Meantime do token (pro rata) offers and include mum in that). But i’m not your caseworker!