A reader, Mrs H, asked:
I am thinking of applying for a Debt Relief Order (DRO) but I have made some payday loan refund claims.
If I win these will I still get the money if I have the DRO?
This article looks at the general problem of getting this sort of refund.
It also applies to PPI refunds and to other refunds such as from overdrafts or catalogues.
If you get a refund and you still owe money for that debt, the refund may be used to reduce what you owe – so you don’t get any cash at all, or a lower amount. This doesn’t help you at all as you don’t have to pay that debt as it’s in your DRO. But it won’t affect your DRO at all.
You have to report getting a refund when you are in a DRO
After starting a DRO, there is a year in which you don’t make any payments to your debts at all and then your debts are wiped out.
The DRO rules say that during this year:
you must tell the official receiver about any money or assets you receive, or any increase in your regular income.
So if Mrs H starts a DRO and then finds out she is getting an affordabilty refund, she has to tell the Official Receiver (OR).
Why getting a refund can be a problem in a DRO
In bankruptcy or an IVA, Mrs H would lose the refund money – it would go to the OR or to her IVA firm.
In a DRO though the Offical Receiver can’t take the money. But instead, the refund may mean a DRO is “revoked” – that is the legal term for being cancelled.
You can’t start a DRO if you have savings of more than £2,000.
When you get a lump sum during the year your DRO lasts, the Insolvency Service has to decide whether it is so large that your DRO should be ended.
I’ve written about this in more detail in What if I get more money in a DRO? which has the details of how the Insolvency Service has said it will make the decision to revoke or not.
Does it matter if her DRO is cancelled?
If you aren’t expecting this, getting some “good news” about winning a complaint and then finding your DRO is cancelled can feel very unfair, a big shock.
But normally this just turns out to be a nuisance, not a big problem, if it happens. Because if your refund isn’t large enough to clear most of your debts, you can go bankrupt instead.
With the refund money it’s going to be easy to afford the bankruptcy fees!
And as Mrs H qualified for a DRO, she must have little or no spare income each month, so she won’t have to make any monthly payments in bankruptcy. The bankruptcy will be all over in another year.
Mrs H had expected to be debt-free at the end of her year’s DRO.
If the worst happens and her DRO is revoked, she will still be debt-free, it’s just going to take a bit longer to get there.
So she gets to the same destination, with a diversion along the way.
She may also be able to use some of the refund money to cover any urgent and important expenses before applying for bankruptcy. Perhaps service the car, get new shoes for the children or replace a washing machine that had stopped working. If she had had any rent arrears, it would great to clear those.
I’m not talking here about going on holiday or having the best Christmas ever, this has to be a necessary expense. If you find yourself in this situation you should keep the receipts for any of the money you spend as the Official Receiver is likely to ask to see them when you go bankrupt.
If Mrs H’s debts are large and she doesn’t expect a big refund, then it’s probably best to go for a DRO now and not delay:
- if she gets no refund, she has sorted her debts out sooner;
- if she gets a small refund, she can keep it;
- if it’s more and her DRO is revoked, she just applies to go bankrupt.
If the refund may be large, she could postpone her DRO
It can be hard to guess what a refund might be. But if Mrs H knew she had paid a lot of interest on her loans for years, then it could be large.
Here it’s best to talk to an adviser that sets up DROs about whether it might be better to wait and see what the refund may be.
If Mrs H decides to wait, she should try to avoid borrowing any more money.
And she should also treat her non-priority creditors the same – probably by paying them all a token £1 a month. Paying £1 a month to a debt isn’t going to clear it, so this isn’t a good long term choice, but it can keep a creditor happy that she isn’t ignoring the debt.
This works for non-priority debts such as loans, credit cards and catalogues. You can’t make token payments to priority debts such as rent or council tax arrears. Her debt adviser will also be able to discuss which debts Mrs H can make token payments to and how she can manage any priority debts before her DRO is set up.
What if you get a refund after the end of your DRO?
This shouldn’t be a problem. It happened to thousands of people with PPI refunds – no-one has had their DRO revoked so far as I know.
This article is kept updated.
BNPL will soon be on credit reports
FAQs about DRO applications
Linda McLaughlin says
I had my debt squashed and had a letter saying they would no longer be chasing me for the debt it was sold on to another collector I have now asked for ppi that I paid to the original company are they able to refuse it I was told I had to have this ppi or I wouldn’t get loan.
Sara (Debt Camel) says
Was your debt in a DRO?
Linda McLaughlin says
The bank of Scotland are now saying I didn’t have paid I know I did.
Linda McLaughlin says
The bank of Scotland are now saying I didn’t have paid I know I did.my debt was not dro cab contacted companies and they squashed them
Sam says
Hi, took out a DRO in May this yeah, my debt is about £15, 000. Within a month of the DRO, I had a salary increase of about £2000 per anum. I told my debt advisor about this and he informed the DRO office, but he told me that any increase in my salary again will result in my DRO being cancelled. I have avoided asking for a pay rise ever since. Last week my manager told me that I am going to be promoted and my annual pay increased with £8000 (before tax). Also, my manager hinted that I might be getting a bonus this December and it will be on the supervisor scale, which means I might get a bonus of almost £2000 before/after tax.
My problem is this:
1- Can I tell my company that I don’t want the pay rise
2- I believe the probability of the DRO being cancelled is high, if I get the bonus?
3- If I get the pay rise and the bonus, is there any available scheme that I can use to pay a final reduce amount to the people I am owing. I am thinking of sacrificing my whole December pay + bonus to pay off all the people I owe in a lump sum, but I don’t think it will be upto £3500.
Sara (Debt Camel) says
Well it’s great news you are doing so well at work! But it is correct that any further pay rise could result in your DRO being revoked.
If you get this bonus, a good use for it would be to make full & final settlement offers to some of your debts. A 2k bonus could be used to get rid of say 8k of debt probably – write to your creditors saying your DRO is being revoked as you have been given a bonus and you are offering them 25p in the pound as a full and final settlement, add that if this isn’t accepted you will probably have to go bankrupt (the article above explains how this is the fall back process for anyone getting a windfall that isn’t enough to clear all their debts.) That would leave you with debt of about 7k which you may be able to manage with a debt management plan? If you could use some wages as well for F&F offers your debt could be down to very little.
See https://debtcamel.co.uk/debt-options/less-common/full-final/ for details about F&F offers.
Sam says
Thanks Sara, you are a STAR.
mchael smith says
i had dro in 2010 i put a claim on ppi in 2016 banks got back to me saying they owed me £3748.27p is this my money as i used a compony to chase this up they got back to me saying good news sign them send them back in 28 days they want a payment of over a thousend pound but what happens if i dont get the ppi money
Sara (Debt Camel) says
Your DRO has finished so the money will come to you.
Stacey says
Help, I went bankrupt in Dec 2004 and discharged in feb2005.
I recently put a ppi claim in with claim guys they’ve come back to say I have a claim but as I’m currently in Iva or have declared bankruptcy the cheque will
Be sent to my practitioner with 20 days , will I still be liable to the company for there fee ?
Sara (Debt Camel) says
In this situation the Official Receiver normally seems to offer the claims firm about half their fee and they settle for that.
Keith says
I had a DRO in June 2010 and it expired in 2011.A couple of months ago a company contacted me and said I was entitled to a PPI refund and they offered to claim it back for me.I then got a letter telling me they had recovered a sum of money,less their fee and that the money would be sent direct to me from the credit card company.I would not have to pay them until I had received it.After a few weeks it had not arrived and on contacting the CC company trhey said the money had been used to clear the outstanding balance which was owed under the DRO,to which I replied,rubbish,as the debt was no longer recoverable.Who is right,as I have been told that what they have done is wrong and that they have to refund the money to me.Any advice greatly appreciated.
Sara (Debt Camel) says
It is not so much that the debt is “no longer recoverable” as it has been discharged. It no longer exists and the credit card company should not be exericsing a right of set off.
Ellie says
Hi, I can completely relate to this article. I put in place last year my dro and it was due to finish on the 10th of June. I received a letter from the dro office to inform me that I was going to be receiving £3000 in ppi from Barclays Bank and that they would be revoking my dro. I didn’t know where this had come from as I hadn’t claim ppi from anyone and after a very long morning on the phone to lots of different people I found out that barclays wrongly refunded me in 2011and this was what was still due to me. I have had hell, different phone calls, CAB, people saying go bankrupt. If I go bankrupt I lose my home and not intitled to rehoming as I making myself homeless by doing the order. (Part of my tenancy)
There isn’t anyone to talk to about what to do, I didn’t ask for the money, I told them clearly I didn’t want it but it no help, for £3000 I’m now £9,500 in debt and there’s nothing I can do. Any advice
Sara (Debt Camel) says
I am sorry you are caught in this absurd situation.
Is this a private tenancy? Your debts, were they consumer debts – loans, catalogues, that sort of thing?
Ellie says
I’m in a council property but there are terms in my tenancy agreement.
There debts are tax credit overpayments, housing overpayment, studio catelogue and Barclay card. I occurred the debts with living in a very abusive relationship which I managed to escape 6 years ago. I put my head u
In the sand for a while until things got too much and I tried payment plans to pay off the debts but struggled with his as i had more money going out than I had coming in. I have three children and in receipt of pip as I have mental disabilities (OCD and emotional personally disorder) so am not able to work
Sara (Debt Camel) says
I think you should go to your local CAB and ask them to talk to the council – in those circumstances, I would hope it can be agreed that you can go bankrupt and retain your tenancy.
Andrew says
Morning Sara
Sadly my wife’s uncle has passed away and has left the car and money [unknown amount at pr sent) to her. Car is only worth about a thousand but money will probably be 5- 10k.
Can we try and delay the payment going through and if not, can she offer the creditors that money as final settlement to clear the debts? DRO is completed in 11 weeks.
Also, if it is revoked, how will the credit file look?
Thanks
Sara (Debt Camel) says
Sorry to hear this – it is so difficult when someone dying actually creates more problems for your own finances, not what you want to have to deal with at a time of bereavement.
Unfortunately delaying the payment won’t make any difference. I’ve written an article on inheriting money when you are in a DRO as her options are not simple… https://debtcamel.co.uk/inherit-dmp-dro-iva-bankruptcy/. Best to ask any more questions over there as it’s more relevant.
David says
Hi there, I went bankrupt in scotland on October 2017. I have just received a ppi of over £200 for a credit card I had on 2008 & was not included in the bankruptcy. I am on ESA this money would be very handy with Xmas round the corner but not to sure if a can spend it or not? Thanks for any help in advance.
Sara (Debt Camel) says
Sorry David but I am not familiar with the rules in sequestration in Scotland. I suspect you can’t keep the money, but you need to talk to someone in the Accountant in Bankruptcy’s office: https://www.aib.gov.uk/about-aib/contact-us.
David smith says
2 years ago I had a dro granted for a £10,000 debt but then within a week or so had it revoked because they found a bigger debt of £15,000 on my credit file which exceeded the maximum required amount of debt a dro can handle. Since then the £15,000 extra debt has expired and now dropped off my credit file. Right now I am still being perused for the £10,000 other remaining debt. Can I request a new dro for the £10,000 debt. Or will I have to find the fee to go bankrupt in a court.
Sara (Debt Camel) says
No, you can’t apply again for a DRO until 6 years after your DRO was approved – the fact it was revoked doesn’t change this.
Also a debt could be off your credit record but still be legally enforceable, it depends when you last made a payment to this debt.
So bankruptcy may be your best option. See https://debtcamel.co.uk/help-with-bankruptcy-fees/ for ideas about how to get help with bankruptcy fees. If you are a pensioner or disabled so it’s unlikely you will ever earn more, you could also think about asking for debt write offs, see https://debtcamel.co.uk/debt-options/less-common/write-off/.
Caroline says
I was granted a DRO in 2010, this reached the end of the moratorium period on 01/04/2011. In 2014 my old bank contacted me and asked if I would like to claim back on PPI charged on a loan with them. This debt was part of my DRO. I didn’t act on this until 2016 and my bank agreed I was owed PPI compensation. The bank used my award to pay off most of the debt I had with them (but included in the DRO). Is the bank within their rights to use this, as information given on sites such as yours seem to contradict this?
Sara (Debt Camel) says
Legally when your DRO has ended there is no debt left, so the bank shouldn’t set off your PPI payment against it – well that’s my view. It probably won’t be that easy to get the bank to change its mind though – you could put in a complaint and see what they say.
Kath says
Good afternoon,
i have been reading a lot of the posts on here. My query is i went bankrupt in April 2007 and was discharged in November 2007.
I have a PPI claim upheld that i didnt realise from a loan i think. The company says as it shows i have a IPA/bankruptcy they will be sending the money to the official receiver. Can they do this?
Sara (Debt Camel) says
if the loan was before your bankruptcy, yes they can.