Asset limits for a debt relief order

To qualify for a debt relief order, debtors must not own money or property with a value of more than £2,000. Property has a very wide definition. It can include:

• high value items like jewelry and antiques

• money or property in a trust

• a right to sue someone

The debtor can own a single domestic motor vehicle with a value up to £4,000 in addition to their other assets.

Home ownership

All assets must be listed on the application as their gross value. Nothing can be deduced for an amount secured by a mortgage. This means that people who own their home do not normally qualify for a DRO, unless the expected sale price of the property is less than £2,000.

Beneficial ownership of property

It is possible for someone to have a beneficial interest in a property owned by someone else. This is normally only the case if they have an agreement in place with the owner. Paying towards the cost of running the home is not enough to establish a beneficial interest on its own.

Some property is exempt from being classed as an asset. That means the DRO intermediary does not have to count it towards the total.

Exempt property includes:[1]

• household items like bedding, furniture, and white goods

• equipment used by the debtor in their job

• a single domestic motor vehicle with a value up to £4,000

• property held on trust for another person

Money left in a will

Money that is left to the debtor in a will is not the property of the debtor until the person who made the will dies. If this happens before the DRO application but before the debtor gets the money, it is treated as an asset.

Money in the debtor's bank account is classed as an asset unless it is part of their normal monthly income and expenditure. For example, if the debtor is paid £2,500 a month, but they spend all that during the course of the month on allowable expenses, the money does not have to be declared as an asset.

Lump sums of benefits

Lump sums of certain benefits are not classed as assets. They include backdated sums of:

• Personal Independence Payment (PIP)

• Disability Living Allowance (DLA) and Attendance Allowance (AA)

• the disabled child element of a legacy benefit

• disability premium of a legacy benefit

• the disabled child element of Universal Credit for people who receive disability premiums for a child in their care

• Pension Credit severe disability premium

• Universal Credit transitional payments for people who cannot claim the severe disability premium

Other sums of backdated benefits are treated as assets in a debt relief order.

Money the debtor cannot access

In addition to the specified benefits, other payments of money are not classed as an asset if they were paid before the DRO application is approved and the debtor cannot access them. They include money paid into:

• a child’s bank account

• child ISAs

• a Save as You Earn (SAYE) scheme

For money in children's bank accounts to be exempt, the approved intermediary needs to be satisfied the money belongs to the child. The account must be in the name of the child.

The intermediary must also be satisfied the funds were not put into a savings account to make the parent eligible to apply for a DRO.

Criminal injuries compensation

Funds paid to the debtor by the Criminal Injuries Compensation Authority are not classed as an asset whether they are paid before the DRO application or during the DRO moratorium.

A right of action is a right to sue someone else. The DRO intermediary checks if the debtor has a right of action that must be listed as an asset and count towards the total.

A right of action could arise through:

• a breach of contract

• financial loss caused by negligence

• injury to person, feelings, or reputation, caused by negligence

• a breach of statutory protection, for example, a tenancy deposit claim

• restitution, for example, if the debtor paid a debt owed by another person

Personal injury claims

Personal injury claims usually involve an element for financial loss, such as a loss of earnings due to the inability to work following an accident caused by another person. This part of the claim is an asset in a DRO.

A personal injury claim which relates solely to injury to the debtor's person, feelings, or reputation is not an asset.

Any money that was paid out prior to the DRO application is treated as cash in the bank. It is therefore an asset, whether it was paid for financial loss or injury to person.

When the debtor cannot sue the other person

In some cases, the debtor cannot get the money they are owed from the other person. This could happen because the other person is not solvent, or because the debtor does not know where to find them.

Debts that are not recoverable do not have to be listed as an asset. A debt is not recoverable if the debtor has taken all reasonable steps to try to recover the money. Reasonable steps could include attempting to claim through the courts, or instructing a tracing agent to find the person.[2]

The debtor can own one domestic car or van with a value of less than £4,000. Vehicles worth less than this amount are not counted towards the general asset total.

The DRO intermediary guidance states that an online valuation is acceptable to assess the value of a vehicle.[3]

Cars and vans adapted for a disability

The financial limit for vehicles does not apply if it has been adapted for the debtor's use because of a physical disability.[4]

The DRO intermediary must list the vehicle as an asset, and make a note in the 'relevant information' section of the application. Alternatively, the DRO intermediary can send a separate email at the time they submit the application.

If the debtor could sell the adapted vehicle and purchase a reasonable replacement, the disregarded amount is limited to the value of the reasonable replacement.

Hire purchase cars and vans

Debtors who use a hire purchase agreement or personal contract hire to purchase their vehicle do not declare the vehicle as an asset. The vehicle is owned by the hire purchase company until they have made all the payments under the agreement.

The DRO intermediary checks whether the:

• amount due under the hire purchase agreement must be listed as a qualifying debt

• regular payments under a hire purchase agreement are an allowable expense

The payments might not be an allowable expense if the vehicle is worth more than the £4,000 financial limit.

Cars and vans purchased by a third party

The registered owner of a vehicle is usually the legal owner, but not always. A vehicle that has been purchased by a third party and still owned by that person is not the debtor's asset.

Read more about gifts of vehicles and contracts with third parties.

A pension owned by the debtor is exempt from being classed as an asset if:

• it is an approved pension

• the funds are not available to the debtor immediately

Approved pensions

The debtor's pension is an approved pension if it is:[5]

• HMRC approved[6]

• an annuity purchased in relation to a tax-approved pension scheme

• an occupational pension scheme set up by a government outside the UK for the benefit of its employees

Listing the pension in the application

The DRO intermediary must list certain information about the pension on the application. This includes the:

• name and address of the provider

• policy number

• current value of the policy

• payments the debtor receives from the policy, if any

The debtor must not dispose of assets before their DRO application by either:

• giving them away

• selling them for less than their value

• using capital to pay off debts that are included in the DRO, including to friends and family

Disposing of an asset in these ways in the two years prior to a DRO application is likely to result in the DRO application being refused. It could also result in other restrictions.

Undervalue transactions

Giving away property or selling it at less than its value is called an undervalue transaction. It can result in the DRO being refused if the transaction took place in the two years before the date the DRO application is determined by the Official Receiver.[7]

Permitted use of money and assets

The debtor can sell an asset, or use capital, for certain permitted purposes. The debtor could use their available funds to reduce their total assets to below £2,000 as long as they distribute the money to their creditors on a pro-rata basis.

A debt adviser can explain how pro-rata offers work. It means every creditor receives a percentage share of the total, depending on how much they are owed.

The debtor can use capital to pay off:

• excluded debts, such as fines and social fund loans

• rent arrears, if there is a threat to the tenancy

It is also possible for the debtor to use capital to purchase or pay for necessary repairs to:

• disregarded items, such as household equipment

• a single domestic vehicle, if they don't already have one

• a vehicle that has been adapted for their disability