Sending money abroad

If a debtor lives and works in the United Kingdom, payments sent outside of the UK are not an allowable expense for DRO purposes.

Under the online DRO guidance, approved intermediaries contact the DRO team and obtain confirmation that payments sent abroad are acceptable before a client applies for a DRO.

However, the DRO team has provided revised guidance to Shelter confirming that approved intermediaries no longer need to contact the DRO team prior to submission.

The case can progress through the determination process if an approved intermediary has done the checks and is satisfied those payments are legitimate and necessary payments to a close family member, such as a parent, spouse, or sibling.

Approved intermediaries must note this as part of the application or in an email.

HM Treasury has confirmed the cost of living payments for 2023 to 2024. The payments are the:

• low income cost of living payment to be paid to households on means-test benefits in three instalments between April 2023 and Spring 2024, totalling £900

• pensioner cost of living payment of £150 or £300 to be paid  in November/December 2023 along with the winter fuel payment

• disability cost of living payment of £150 to be paid in June/July 2023

The DRO Team has said that only cost of living payments received in the month before the DRO application need to be taken into account for DRO purposes. Payments should be: 

• treated as income

• apportioned over 12 months when assessing surplus income

For example, if a client applies for a DRO on 10th December 2023, only payments received since 10th November need to be taken into account when assessing their surplus income.

If a payment of £150 has been received during the month before the application, apportioning it by 12 months means that the client will have an additional £12.50 per month which needs to be included as part of their income.  If a payment of £300 has been received, this will result in an additional income of £25 per month. If this additional income means that a client’s surplus is currently more than £75 per month, they can postpone their DRO application until it is more than a month since they received the payment, at which point it won’t count as part of their income.

Cost of living payments due to be received during the DRO moratorium do not need to be apportioned in this way.

In addition, cost of living payments received during the moratorium do not need to be reported as an increase in income or receipt of a lump sum.

HM Treasury has confirmed the cost of living payments for 2022 to 2023 to assist with the current cost of living crisis. The payments are the:

• one-off-cost of living payment to be paid to households on means-tested benefits in July and November 2022 totalling £650

• pensioner cost of living payment of £300 to be paid in November/December 2022 along with the winter fuel payment

• disability cost of living payment of £150 to be paid in September 2022

A grant of £400 through the energy bills support scheme will be taken off energy bills from October 2022.

Cost of living payments received during the DRO moratorium don’t need to be reported as a lump sum or an increase in income.

For anyone considering a DRO, the cash payments should be treated as income. The funds are provided to assist with rising costs which will be reflected in an applicant’s outgoings. In making the surplus income calculation the payments should be reasonably apportioned, over a maximum of 12 months, to offset against increase outgoings when determining that the applicant meets the eligibility criteria for surplus income. Payments should only be apportioned if they have been received in the month before the DRO application.

The universal rebate of £400 through the energy bills support scheme and the council tax rebate of £150 should be reflected in the amounts entered as outgoings in any calculation of surplus income. Where the applicant will receive a cash sum in respect of the grant or rebate this should be apportioned and treated as income.

The Secretary of State has the power to make 'payment of arrears of benefit by instalments' where:

• it is considered necessary to protect the interests of the client

• the client agrees for the backdated payment to be paid in instalments

The DRO Team confirmed that backdated lump sum payments received as monthly payments are viewed as income.

Read more about monthly payments of backdated benefits.

Payments received before or after a DRO application is submitted

Any payment/settlement of an unfair dismissal claim received before or after the date of determination of a DRO application is not taken into account when assessing if the individual meets the asset eligibility criteria.

Is the debtor still unable to pay their debts?

Any payment/settlement of an unfair dismissal claim received before a DRO is made must be taken into account when assessing whether the debtor is ‘unable to pay their debts’.

An example given by the DRO Team is that this might lead to a scenario where the applicant has a cash settlement of £10,000 (which is over the £2,000 asset limit) but a DRO is granted because the debts are over £12,000.

Check the claim

A claim for unfair dismissal may include (or have attached) an associated claim for discrimination or wrongful dismissal. As these claim types often overlap, an Approved Intermediary must check carefully the nature of any employment proceedings.

Any payment/settlement for a wrongful dismissal claim must be taken into account when assessing if the individual meets the asset eligibility criteria (both before and during the moratorium period).

In a discrimination claim, any compensation for injured feelings is ‘personal’ to the individual and is not taken into account when assessing if the individual meets the asset eligibility criteria (both before and during the moratorium period), whereas any compensation for losses (such as wages losses) are a ‘property’ claim, and must be taken into account.

What is the difference between wrongful dismissal and unfair dismissal?

Wrongful dismissal is a claim that there has been a dismissal in breach of the contract of employment, for example, the correct disciplinary procedures were not followed. The remedy for a breach of contract is usually financial compensation.

Unfair dismissal is a claim that it was unfair to dismiss the employee. The measure of fairness is decided by the tribunal. The prime remedy for a claim for unfair dismissal is reinstatement, but the employee can refuse this remedy, and instead a financial award is made.

Debtors should not refer complaints about creditors after the DRO approval to the DRO team.

The DRO team can issue a copy of the DRO to the creditor if required.

Creditors should be given at least 14 days to update their system with details of the DRO.

Problems can occur when a debt is sold on to a collection agent, or an enforcement agent is assigned to collect the debt. The debt itself is subject to the conditions of the DRO. No rights of recovery exist for any creditor in relation to the debt.

The correct amount of the debt must be listed on the DRO application. If the amount listed is less than the debt owed at the DRO approval date, the balance listed is not covered by the DRO, and creditors can pursue recovery of the shortfall.

The debtor can request the DRO team amend the debt amount during the moratorium. The request must be accompanied by a bill or statement showing the amount outstanding at the approval date and matches the debt listed.

No debts can be added after approval under DRO legislation.

Minimum contractual payments to a creditor are not considered preference transactions unless there is intent on the part of the applicant to place that creditor in a better position than other creditors.

Minimum contractual payments that your client has made do not need to be listed as preference payments if they have done so without any intention to prefer the creditor.

Payments need to be reported if they are in excess of the minimum contractual payments, or with the intention to put that creditor in a better position over other creditors.

For debtors who receive the £150 council tax rebate living in council tax bands A – D, this amount will effectively be used against increased cost of living increases. Therefore, there is no requirement to report the £150 payment received by debtors during the DRO moratorium period.

Failed pension schemes are taken on and managed by the Pension Protection Fund (PPF). When this happens, the PPF takes on the scheme and provides benefits in the normal way, attempting to keep to the same or similar terms and conditions of the failed pension. The allowances to the beneficiaries replicate what they would have had from the scheme when it matures.

The PPF was established by the Pensions Act 2004 to protect members of eligible “defined benefit” occupational pension schemes and the defined benefit element of hybrid schemes. Therefore, the Schemes that qualify will be “approved” for DRO purposes.

This means that the normal Pension guidance in the Debt Relief Orders: Guidance for debt advisers would apply in these circumstances.

Where a debtor has deductions from benefits in place, ‘attachment of earnings’ should be selected when completing the DRO application. This is to ensure that those creditors with attachments of benefits receive an additional notice when a DRO is made, stating that they must cease deductions immediately.

On the treatment of debts owed under a bill of sale., the DRO guidance states that where a bill of sale has been properly registered with the High Court the lender is a secured creditor.

However, the definition of security is contained within section 383 of the Insolvency Act 1986 under ‘Part XI Interpretation for Second Group of Parts’, which covers DROs, and states:

“(2)Subject to the next two subsections and any provision of the rules requiring a creditor to give up his security for the purposes of proving a debt, a debt is secured for the purposes of this Group of Parts to the extent that the person to whom the debt is owed holds any security for the debt (whether a mortgage, charge, lien or other security) over any property of the person by whom the debt is owed.”

This definition specifically states that security must be held on property that a debtor owns. A bill of sale passes the legal title of the goods and therefore, the debtor does not have anything for the loan to be secured on. The property can be sold without the debtor's consent The goods belong to the creditor and the debt does not meet the definition of a secured debt.

The DRO Team clarified this position, and confirmed that where there is a bill of sale in place and the debtor does not want to keep the goods, they can list the whole balance as unsecured.

Read more about debt relief orders.

The DRO Team provided guidance on whether having a DRO approved, which had subsequently been discharged, would likely result in the debtor being considered not a ‘fit and proper person’ to be an Authorised Intermediary under Regulation 11(b)(iii) of The Debt Relief Orders (Designation of Competent Authorities) Regulations 2009.

With regard to the wording ‘fit and proper person’, Regulation 9 provides descriptions of individuals deemed not to be fit and proper persons and therefore not to be approved by competent authorities to act as intermediaries (this is as stated in the Explanatory Note). Regulation 9 lists several reasons for ineligibility including:

“(f)undischarged bankrupts;(g)individuals in respect of whom there is or has been in force a bankruptcy restrictions order or undertaking or an interim bankruptcy restrictions order or undertaking or any bankruptcy restrictions order or undertaking made under the Insolvency (Northern Ireland) Order 1989(1) or the Bankruptcy (Scotland) Act 1985(2);(h)individuals to whom a moratorium period applies or in respect of whom a debt relief order or application for a debt relief order, has been made;”

The DRO Team confirmed that any person who does not fall within the definition of being an ineligible person would therefore be eligible. If there is a reason why it is believed a particular individual is still not suitable to be an Approved Intermediary, the DRO Team would need to be advised of the particular circumstance for further consideration.

The legislation does not list an IVA as something that would prevent a person from becoming a debt adviser.

Read more about debt relief orders.

Debtors who are part of a cycle to work scheme have money deducted from their wages every month by their employer. The Cycle Scheme website refers to the scheme as a hire agreement.

In the scenario (before the increase in DRO monetary limit to £2,000 came into effect in June 2021) where the debtor paid, for example, £63 a month, and the bicycle was believed to be worth less than £1,000, how would these payments be treated for the purposes of a DRO?

The DRO Team confirmed that hire agreement expenditure is assessed on a case by case basis, looking at whether it satisfies the basic domestic need of the client and their family. There are a number of factors that should be considered in each case, for example:

• when was the hire agreement taken out?

• was the agreement taken out recently and as a result reduced the debtor’s available disposable income?

• is public transport available?

• do the payments compare favourably to the cost of public transport?

• are the payments high when compared with other hire agreements which might be
  available?

Intermediaries should send a supporting email at the time of submission which answers the above questions, and includes a copy of the agreement terms and conditions is sent. This information allows the DRO Team to give a better consideration of the expense.

The debtor must also be made aware some lenders have a contractual right to take back goods when a borrower has become insolvent, even if there are no arrears. The debtor must check the terms and conditions of their agreement. If the lender has a contractual right, the agreement will contain a:

• specific clause to say the agreement will be terminated if a DRO is made against the client

• more general clause to say that the agreement will be terminated if the client enters into any formal insolvency arrangement

As hire agreement expenditure is assessed on a case by case basis, it is not possible to say whether a debtor making payments to a cycle to work scheme would quailfy for a DRO. The debtor should be made aware that the DRO could be refused if the expense is not allowable and puts the debtor over the £75 available income parameter.

If a DRO is granted and the hire agreement ends during the DRO moratorium, the salary sacrifice would stop and the debtor's income would increase. This would need to be reported to the DRO Team, and the client must be advised that the DRO could be revoked.

Read more about debt relief orders.

In a situation where the debtor had bought a car, insured their partner on it, but then separated from their partner due to domestic violence, the partner could refuse to return the car. If the police have declined to help, and the debtor does not want to take court action against the perpetrator of domestic violence, would the DRO Team consider this on a case by case basis? Or would the DRO automatically be declined due to the vehicle being worth over £2,000 and the debtor being unable to retrieve the vehicle to use or to sell?

The DRO Team confirmed that they would look at this situation case-by-case, based on the circumstances. If the car in question was for example a £10,000 Mercedes, the DRO might ask why the police were not interested in investigating. However, if the vehicle was not far over the exemption limit, the DRO team would probably take the pragmatic view that the costs of any recovery would far exceed the actual value of the asset, and treat it accordingly.

Read more about debt relief orders.

Driving lessons are not an allowable expense. They do not come within the definition of the reasonable basic domestic needs of a debtor and their family.

Read more about debt relief orders.

In a situation where a debtor has a vehicle on hire purchase (HP) valued at over £2,000 with payments of £200 per month, and where the car has not been adapted and is not a motability vehicle, the DRO team clarified whether the client could use their child DLA payments to make the monthly payment if the DLA payments relate to the care of the child, and how this would need to be reflected in the financial statement.

The DRO Team confirmed that whether the Official Receiver considers it appropriate to use DLA to maintain the HP payments depends on what the car is used for. Why is the car needed? Are there alternative forms of transport? The other factor an adviser should consider is if the HP ends during the DRO moratorium, as this would render the debtor liable for revocation due to the vehicle’s value.

This guidance could potentially be open to challenge, where a debtor has a good case to argue that their car is needed for a reasonable domestic need, particularly where there is a disability and where alternative forms of transport are not available.

The Citizens Advice Expert Advice Debt team have also sought guidance from the DRO Team previously on a similar case asking if this would be an allowable expense. The DRO team confirmed that:

"With regards to the mobility scooter scenario, as you are aware where a debtor is in receipt of PIP or similar allowances for a protected characteristic, it has always been agreed that the income from the benefit is declared and a contra entry is also recorded in expenditure. The Official Receiver does not seek a detailed explanation as to the disposal of PIP etc. and in the scenario that you have outlined the OR would not object to the PIP income being utilised in the manner suggested.”

If a vehicle is not needed to ease problems associated with a debtor's disability, the only other alternative is for the debtor to use their surplus income of £75 per month and ask a third party such as a partner, friend or relative to cover the remaining £100 per month during the moratorium.

Read more about debt relief orders.

In a situation where a debtor has a car on HP worth over £2,000, the monthly payment is £150 and the debtor maintains payments using their Personal Independence Payments (PIP) allowance, the debtor wants to keep the car as they believe they need it to visit their child who lives some distance away, and the family court has ordered that they visit their child at least every 4 to 6 weeks. The debtor also suffers from anxiety which prevents them from using public transport.

The DRO Team was asked to confirm whether such HP payments would be a reasonable expense when the cost of hiring a vehicle would be more than the £150 instalments.

The DRO Team confirmed that in this situation a DRO application would normally have been declined due to the value of the vehicle. However, if the payments were not in arrears and the HP does not end during the moratorium, this may be something that could be exceptionally considered. This would depend on the individual circumstances. Advisers would need to consider:

• if the debtor is not able to use public transport for a particular reason

• if the cost of the HP agreement is less than hiring a vehicle

• the current value of the debtor's vehicle

In this particular case, if the payments are not in arrears and the HP does not end during the moratorium and payments are being made from PIP, then the HP payment could be exceptionally allowed. This would need to be noted as such on the application and a suitable explanation sent to the DRO Team.

The order may be revoked if the PIP is removed during the period of the order.

Read more about debt relief orders.

A debt owed to the Foreign, Commonwealth & Development Office (FCDO) for the debtor's repatriation to the UK is a qualifying debt in a DRO and must be scheduled in a DRO application.

A complication could arise if the foreign office held a ‘lien’ over the debtor’s passport until the debt was paid. The Intermediary could question whether this debt would be seen as a secured debt because a lien is a security as per s248 of the Insolvency Act 1986, which states:

"In this Group of Parts, except in so far as the context otherwise requires— (a)“secured creditor”, in relation to a company, means a creditor of the company who holds in respect of his debt a security over property of the company, and “unsecured creditor” is to be read accordingly; and (b)“security” means — (i)in relation to England and Wales, any mortgage, charge, lien or other security”.

The DRO Team have confirmed that the Official Receiver cannot decide if having a lien over a passport is seen as coercion. An Intermediary could argue that having a lien over the passport is a coercion to pay a qualifying debt, especially as the passport has no value to anyone other than the person it belongs to. An Intermediary could ask the FCDO to release the passport.

A debtor in this situation would have to consider whether a DRO is a suitable option.

The DRO Team have confirmed that if this debtor enters into a DRO, they could utilise their surplus income in any way they saw fit.

Read more about debt relief orders.

In a situation where a debtor had plans to set up a not-for-profit social enterprise and had a grant of £4,000 in the bank, they could not access the money without providing proof of what the money is spent on. £3,500 of the grant was set aside for start-up costs (rent, insurance and other costs), and £500 was set aside for materials.

The DRO was asked to confirm if the grant an asset for the purposes of a DRO application. They confirmed that the grant of £4,000 would be classed as an asset for the purposes of a DRO application.

In this situation, the Approved Intermediary may wish to ask further questions as to how the social enterprise would be set up and administered, as the debtor, if they were successful in their DRO application, would not be able to act as a director or be involved in the formation or promotion of a company without leave of the court.

Read more about debt relief orders.

In a situation where a guarantor pays off the principal debt to a creditor, they can then step into the shoes of the creditor and sue the debtor. This is due to the guarantor having 'subrogated rights'.

If a DRO applicant had paid off a loan and so had received these subrogated rights, they would have a right of action that could potentially be seen as an asset.

The DRO Team was asked whether they would expect such subrogated rights to be declared as an asset. They stated that:

“A right of action is an asset. Each case is judged on its merits and you would need to consider whether the pursuit of such an action was worthwhile. If a guarantee has been called in, it would suggest that the original purchaser may be insolvent themselves.
A DRO applicant would need to demonstrate what action, if any, had been taken to seek recovery. If it is clearly demonstrated that the debt is bad and irrecoverable, it would not be scheduled as an asset.

For a debt to be 'bad and irrecoverable', the person owed the money must have taken all reasonable steps to try to get it back. These steps could include taking enforcement action through the courts process or instructing tracing agents.”

Read more about debt relief orders.

A franchise is classed as an asset for the purposes of a DRO. To determine the value, the debtor would need to provide a valuation together with any cancellation or exit fees that would be applicable.

The net value after deduction of these costs is used to confirm the value of the franchise. If the value is in excess of the £2,000 property limit, the debtor would not qualify for a DRO.

The debtor’s financial position needs to be 'regularised': this means that if they were to cease trading, the Intermediary would need to be in a position to properly assess future income and expenditure.

Read more about debt relief orders.

In relation to Persons at Risk of Violence (PARV) orders that have been applied for but yet obtained by the time a DRO application was submitted, the DRO Team confirmed in May 2020 that it could only withhold information from the DRO where there is a PARV order. Where an application indicates a PARV order is required but this has not been obtained by the time DRO application is submitted, the DRO Team will not process the DRO application until a PARV order is obtained. The application is held for a maximum of 28 days and is declined if a PARV order is not received during this timeframe.

However, the DRO Team also confirmed that the 28 day limit was removed due to the COVID pandemic and the uncertainty of when the courts would re-open. During this time, if a PARV were required, the DRO Team confirmed that they would make the DRO and then chase the Approved Intermediary to ask if progress has been made in getting the PARV Order.

Read more about debt relief orders.

On 20 March 2020, the Chancellor released a statement confirming that the Universal Credit standard allowance and the Working Tax Credit basic element would be raised by £1000 for the next 12 months to strengthen the safety net during the Coronavirus pandemic.

The Insolvency Service confirmed that any debtors whose Universal Credit/ Working Tax Credit payments increased for this reason would not need to advise the DRO Team of any change in income.

The Insolvency Service also confirmed that any changes to benefits entitlements due to a change of circumstances not related to the Coronavirus pandemic should still be reported to the DRO Team as usual, so the ongoing eligibility of the debtor could be assessed.

Further guidance was sought on whether the guidance above only relates to an increase in the basic element of Tax Credits/ standard allowance in Universal Credit (UC) as a result of the Coronavirus, or whether any Coronavirus related changes in income do not need to be reported during the moratorium period. The DRO team confirmed that any changes to income directly related to Coronavirus did not need to be reported during the moratorium period, but non-Coronavirus changes should be reported in the usual way.

Further guidance was also sought on whether a debtor who had not yet submitted their application but now has over £75 per month surplus (purely as a result of the temporary increases) be eligible or ineligible for a DRO? The DRO team confirmed that the debtor would not be eligible. Any new applications should be completed using the Standard Financial Statement and reflect their circumstances at that time. This is because, unlike in a decision to revoke a DRO, the Official Receiver does not have any discretion to make an order where the parameters are breached.

Read more about debt relief orders.

If the debtor received a self-employment grant through the Self Employment Income Support Scheme (SEISS) during the moratorium period, they did not need to report this to the DRO Team, as this was a change in circumstances resulting from COVID-19.

Read more about debt relief orders.