People sometimes want to leave a debt out of a Debt Relief Order (DRO). A DRO is a form of insolvency with very strict criteria – it is explained in detail here, including looking at the pros and cons. You can’t normally choose to leave a debt out, but this article looks at when this is possible and what happens if a debt is left out by accident.
Why not include everything?
As the DRO is going to clear your debts, the starting point should be to get rid of them all! Some of the reasons people give for wanting to leave a debt out include:
- it’s an overdraft and you don’t want the bank account closed and have to open a new one
- it’s a credit card with very little debt and you would like to keep it for an emergency
- including the debt would push the total balance over the £20,000 limit
- it’s old and you aren’t sure of the details
- it’s a HP loan and you want to keep the car / furniture etc.
Trying to get under the £20,000 bar?
The main principle – include all debts
The fundamental principle is that all eligible unpaid debts should be listed in the application for a DRO.
There is no discretion to leave debts out just because it would be more convenient.
That rules out (1) – this isn’t something to worry about though, it’s now pretty easy to get one of the new-style basic bank accounts. There are great – you won’t be charged even if a direct debit is rejected. You can also have interent bank, contactless cards etc. See Getting a Basic Bank Account for a list of accounts to choose from.
It also covers (2) – you need to think about putting aside a bit of money for emergencies. Even £20 a month can add up and make all the difference.
(3) won’t work – you can’t omit a debt so that your debts appear to total less than £20,000.
If you try to leave a debt out, it will probably be discovered as part of the DRO application process. If it isn’t, then it may well be discovered by the Official Receiver’s Office who check credit records to make sure debts are not left out. If a debt is found that takes you over the £20,000 limit, your DRO will be cancelled and your application fee will not be refunded.
(4) and (5) however may come into the only two gray areas: statute-barred debts and HP debts.
Statute-barred debts
If a debt is very old and you haven’t had contact with the debt collector for years, it may be statute-barred, in which case it doesn’t have to be included in a DRO. However this is a complicated area because it is frequently not clear if a debt is statute-barred and the advice from the Insolvency Service is that the debt should be listed if there is any doubt.
If including the debt would take you over the limit, discuss this with the Approved Intermediary that is drawing up your DRO application.
Hire Purchase debts
If you have any arrears on a HP agreement, it has to be included in your DRO and after a DRO you are not allowed to make any repayments to those arrears. There is no discretion here. If a friend or relative can take over paying this debt you may still be able to keep the item.
Some HP agreements have a term which says that the agreement is terminated if the borrower becomes insolvent, which includes having a DRO. If this is the case, then the debt has to be included in your DRO. If you are unsure about this, your Approved Intermediary will be able to tell if this applies to you.
If you do not have any arrears, then you can choose to leave the HP debt out of your DRO application. The future payments you need to make to the lender will be allowed if the item is classified as “part of the basic domestic needs of the debtor and his family”. You need to discuss this with the Approved Intermediary putting forward your DRO. It is a complex area, see this guidance note.
What happens if you forget to include a debt?
If you forget a debt by accident and it is not picked up by the Approved Intermediary but emerges after your DRO application has been made, then if the debt would take you over the DRO limit, your DRO will be cancelled.
If your total will still be under the limit then your DRO will not be affected but the debt will not be included in the DRO so at the end of the DRO period, you will still owe the money. This is unlike bankruptcy, where all debts are wiped out even if they were not listed on the bankruptcy petition.
What can you do if you are over the limit?
Trying to repay the debts for a while to get them under the DRO limit often doesn’t work very well because you don’t have much spare money and interest or charges may be added faster than you can clear them.
Two possibilities that may work for you are:
- trying to reclaim PPI – see How PPI can get you out of debt! for details. Have a go even if you don’t remember having any PPI or if you don’t think it was mis-sold, because you may have been signed up without realising it or the policy may have been wrong for you so that you could never have made a successful claim on it. You don’t even need to remember your account details if the loan or card was from one of the big banks
- trying to get interest on payday loans refunded – see How to ask for a payday loan refund for details.
Here you don’t need to get enough money back to clear all your debts, just enough to get your debt total under the DRO limit. Sometimes PPI redress or a payday loan refund won’t be sent to you but it will be used to reduce the debt you still owe – that’s fine.
If you are sent a cheque, then divide it amongst your debts, don’t just pay it off one of them as that would be “giving preference” to one creditor. If you aren’t sure about how to do this talk to an Approved Intermediary about setting up a DRO and they will be able to advise you.
Ultimately though bankruptcy is usually the best option if you would qualify for a DRO apart from the fact your debts are over the limit. The bankruptcy fees are high but you may be able to get help with them. Don’t opt for an IVA because the bankruptcy fees look too high – that is committing yourself to making monthly payments which you really can’t afford for 5 years – a big mistake.
DRO applications – FAQs
What if you get a pay rise in a DRO?
Could PPI get you out of debt?
Michelle says
Hi I have been advised by the cab to do a DRO as I have around 5 k debt with 5 creditors including working Tax overpayment, Housing Benefit overpayment, Argos card, catalogue, co- op energy etc. I am happy to go ahead as I only have £122 a week income as I work part time and have a deficit every month of about £140.
I am 18 months into a Fiat PCP car finance on a Fiat 500, I paid an £2800 deposit (old car value) so my monthly payments are a small £59 a month. Ive paid off over £1000 so far and rang the finance company to ask about penalty to return the car before the 3 year ends and they want £1200!!!!!! They said I can sell it but there will be no equity. My dad said he will take over the credit and payments for me to help me out but the finance company said no to changing the credit contract to my dads name. What is my best option please, as buses and trains are going to be more expensive for me getting to work etc and I have 2 grandchildren I look after a couple of times a week so need to keep the car if possible.
Sara (Debt Camel) says
If there is nothing in the agreement which says that it will terminate if you become insolvent AND there are no arrears AND a
member of your family is prepared to pay the leasing company then you may be OK to leave the debt out of your DRO.
You need to discuss this with the person setting up your DRO. If they don’t seem familiar with it, show them the guidance note linked to in this article.
Michelle says
Hi thanks for your reply. I went back to my local CAB yesterday and discussed the possibility of a DRO again, it seems the only way forward for me.
The car is a grey area one advisor said it might be ok to leave out as you said previously, but another advisor said basically no way, told me I need to downsize from my 2 bed to lose the bedroom tax, and said I can’t afford a car anyway, made me feel much worse and I went home in tears. I don’t know what to do now it seems I can’t win whatever I do with the car, even though my father has offered to pay the £59 a month for me… :( :(
Sara (Debt Camel) says
OK there are two problems here. If the bedroom tax means your budget is unsustainable then a way needs to be found round this problem (downsizing, getting a lodger, having another family member live with you, having the deficit covered by someone else in you family…)
The car issue, if the CAB advisers are not clear and agreed, then they could either talk to CAB’s NationaLSpecialist Debt Team or ask the DRO Unit for guidance about this.
Sandy says
Hello,i really need advice..Im in quite a bit of debt now..£8000 in total..I have been advised to go on a Dro..Only thing is i have a car on HP which i pay every month&it is essential for work..Are you allowed to keep a car on HP if you go on a Dro..I really dont want to give it up&so far have paid Two years of payments..Can someone advise me on this please..Northern Ireland
Sara (Debt Camel) says
Hi Sandy, you need to talk to the debt advisor that will set up your DRO about this situation, as this article explains.
John doe says
Hi i just took my debt pack to the cab and now im just waiting for some debt advisor to get back to me but i really need some money till payday will this effect my DRO if i take a small loan? Its like a week till i get paid and when i do i imagine i will be off to pay for my application then… Just worried ill get rejected it does not put me anywhere near the threshhold pf 20k im only in about 10k thanks in advanced
Sara (Debt Camel) says
Seriously bad idea – you know you are insolvent or you wouldn’t be applying for a DRO, you can’t borrow more money now. How are you going to manage after your DRO if you can’t get through the next week? Go into your CAB on Monday and they can help with a food bank voucher. Also read https://debtcamel.co.uk/snapshot/not-enough-to-live-on/emergency-budgeting/.
Anne Cooper says
My CAB advisor obtained an Experian Credit Report on my behalf. He wants to include my Virgin Media monthly bill on my DRO. This account is in my name but is our only ‘luxury’ item and my two kids pay the bill between them each month. If it’s included in the DRO am I right in thinking that this should no longer be paid? I need contact with the outside world…tv phone & internet as I am disabled. I am concerned about losing these services…
Sara (Debt Camel) says
yoy need to talk to your advisor about this, but if your adult children are paying it there shouldn’t be a problem with this continuing after your DRO starts.
Darren says
Hi,
I have historic credit card and overdraft debt of about 19K and I appear to meet the criteria as in renting etc. With the amount of debt built up I was essentially living on credit. 3 months back my employment stopped and I used some of the overdraft credit on gambling transactions showing as paypal. I am hoping to resume employment in the next month. My question is would this affect my application or would I be better holding off the application for say 3 months so that none of these transactions appear?
Sara (Debt Camel) says
I am less worried about the gambling transactions that the fact you are expecting to get a job next month, it would probably be better to wait until after this so you know if you will still meet the DRO criteria. But talk to Citizens Advice now about this and the gambling.