Debt Relief Orders: Guidance for debt advisers
Source: gov.uk (2025-03-04)

Guidance on debt relief orders for debt advisers. To search, press ‘control’ and ‘f’ on your keyboard at the same time. A search box will appear.

This guidance is for approved intermediaries (AI), their advice staff and Debt Relief Order (DRO) staff.

We have other guidance available if you’re looking for information about how to get a debt relief order (https://www.gov.uk/government/publications/getting-a-debt-relief-order/getting-a-debt-relief-order).

The guidance covers many of the situations approved intermediaries come across when working with debtors and is a reference guides for all AIs. You should check this guidance before contacting internal and external support teams for advice.

This guidance is as a reference tool. It cannot replace the AI’s professional assessment of a debtor’s individual circumstances, decision to make a DRO application or the outcome of that application.

Adapted vehicles for disabled people

The £4,000 limit for vehicles does not apply if they have been adapted for disabled people.

Any vehicles that have been adapted for disabled people should be declared as an asset. If this applies, approved intermediaries should tell us at the time they submit the application. They can add this in the ‘any other relevant information’ section or email the DRO team (mailto:xxx@xxx.xx).

Address withheld (Persons at risk of violence)

Identification details have to appear in the description of the Debt Relief Order (DRO) and in the public Individual Insolvency Register (IIR).

This includes current and previous addresses. The official receiver can only withhold these details if a person at risk of violence (PARV) order is granted by the court.

Where an individual needs a PARV order, they must get this before you submit their DRO application.

The approved intermediary must also:
- tick the address withheld box in the DRO application before submission
- email a copy of the PARV order to the DRO team at xxx@xxx.xx (mailto:xxx@xxx.xx) as soon as they submit their application
If we do not receive a copy of the PARV order

If we do not receive a copy of the PARV order, we cannot withhold their address. Please submit the PARV order before or on submission of the DRO application.

In exceptional circumstances where a court hearing cannot be obtained in a suitable timescale you can submit the DRO application with evidence of the PARV application.

Email: xxx@xxx.xx (mailto:xxx@xxx.xx). Use ‘PARV’ in the subject line and include the hearing date.

Where enough evidence of a PARV application is provided, the Insolvency Service will temporarily withhold the applicant’s address pending the outcome of the hearing.

After the hearing date, you must send a copy of the PARV order to xxx@xxx.xx (mailto:xxx@xxx.xx).

We can only permanently withhold the address if we get a copy of the PARV order.

We will publish the individual’s address if they do not provide the PARV or any additional evidence we need within the requested timeframe.

Please make your client aware of this and make sure they respond promptly to requests for updates or further information from the DRO team.

If the debtor lives in a refuge, you should only supply the PO box address for their residence in the DRO application (for their safety).

How to apply for a PARV and assistance with costs

You can apply for a PARV order as soon as the DRO Application ID number has been generated. The official receiver does not need to provide consent for the application.

You should make a PARV application (https://www.gov.uk/government/publications/rule-204-debtor-application-for-an-order-for-non-disclosure-of-current-address) on Rule 20.4 form and submit it to the local court that has bankruptcy jurisdiction (https://www.find-court-tribunal.service.gov.uk/).

The fee for an application is £308. If the applicant is eligible for help paying the fee (https://www.gov.uk/government/publications/apply-for-help-with-court-and-tribunal-fees), they should also complete EX160 form.

Find your local court

Find a court or tribunal - GOV.UK (www.gov.uk) (https://www.gov.uk/find-court-tribunal)

Address – no fixed abode

You need to provide a debtor address for all DRO applications. If the debtor does not have a fixed abode, you should use a ‘care of’ address. You can use the approved intermediary’s office address, as long as the debtor can receive post delivered there.

Administration orders

An Administration order (AO) is an insolvency proceeding where the county court issues an order for the debtor to make regular payments to the court.

An AO does not stop a debtor from applying for a DRO. All debts in the AO must be individually listed in the DRO application. The AO will cease once the DRO is approved.

Administration order – how to find details

The court details and the AO number will normally appear on the debtor’s credit file.

Details can also be found through the Registry Trust Ltd (https://www.trustonline.org.uk/).

Administration order – revoked

A revocation of an AO is not the same as an annulment, so you should list a revoked AO on the DRO application as a previous insolvency proceeding.

Adoption allowance

Adoption allowance is classed as income.

Animals

Large animals or animals used for breeding purposes might have a value over £2,000, provide income, or both. The approved intermediary should ask the applicant to provide a valuation of animals that they own (and any income they bring in) which might breach the DRO asset or income limits.

Also see Horses (#horses).

Annulment

DROs cannot be annulled in the same way as a bankruptcy order. If a debtor gains assets they must inform the official receiver, who will consider whether the DRO should be revoked.

At the end of the DRO, all debts in it are discharged, even if a debtor or a third party have the means to pay the debts in full. A DRO cannot be annulled, rescinded or withdrawn.

Armed Forces Compensation Scheme

The Armed Forces Compensation Scheme (AFCS) is a government scheme for those who have suffered injury or illness on or after 6 April 2005. It can be received as a lump sum or a monthly payment called the Guaranteed Income Payment.

The AFCS would be treated in the same way as Personal Independence Payments and Disability Living Allowance. If the debtor receives a lump sum payment or a monthly income within the DRO period, we require a review of the income and expenditure to assess that they still meet the surplus income parameter as the payment is needed for medical, essential equipment and care costs.

Armed forces personnel

You should not include the addresses of armed forces bases in a DRO application, for security reasons.

Arrears of wages

Before a DRO is approved, arrears of wages are classed as an asset and subject to the £2,000 asset limit.

During a DRO, the debtor has to tell us if their income increases and if they receive any lump sum or other property. This is so we can see if an individual continues to meet the requirements for a DRO.

If arrears of wages are over £2,000, see lump sum protocol (#Lump-Sum-Protocol)

Arrestment order

This is the Scottish equivalent of an attachment of earnings order. If an arrestment order includes multiple creditors, and deductions are made to multiple creditors instead of one, it’s known as a conjoined arrestment order.

See Foreign Debts (#Foreign-Debts)

Asset

An asset is anything that belongs to a debtor that may be used to pay their debts.

A debtor cannot have assets above £2,000 to get a DRO.

Assets – valuation of unusual items

If the debtor owns unusual or specialist items they should have these valued by a specialist agent.

Attachment of benefits and deduction from benefits

If local councils and DWP are creditors, they can deduct money from benefits without going to court. If they make deductions, details of these should be provided in the application.

If benefits are being deducted to recover a Social Fund Loan (an excluded debt in a DRO) these deductions will continue during the DRO.

Attachment of earnings

An attachment of earnings order (AOE) is made by the court or local authority to deduct money from the debtor’s wages by their employer, to pay for some of the debtor’s liabilities.

DWP or HMRC can make a direct earnings attachment (DEO) to recover benefit or social fund debt from wages without a court order.

Local Authorities collecting council tax make an attachment of earnings order or direct earnings attachment following a liability order from a magistrates’ court.

County courts make an attachment of earnings order following default in payment of a county court judgement (CCJ).

Once a DRO has been approved, deductions being made under an AOE for any qualifying debts (but not excluded debts) must cease.

The debtor should give full details of their employer and details of the AOE within the application.

We contact the creditor, court and employer to tell them the AEO must cease. In exceptional circumstances the debtor may request that their employer is not contacted although this may lead to delays in getting the deductions to cease.

Avon representative

An Avon representative is legally responsible for the Avon account. If they are the DRO applicant, the Avon account is considered a qualifying debt. The DRO applicant has 2 possible options:

Collect any outstanding payments from customers and clear the Avon account before submitting the application. We would not view this as a preference, as the funds are coming from a third party.

Discuss the situation with Avon and come to an agreement.

Bacs (Bankers Automated Clearing System)

Bacs (Bankers’ Automated Clearing System) is used for electronic processing of financial transactions.

Bailiffs

Information on bailiffs is on GOV.UK (https://www.gov.uk/your-rights-bailiffs)

If a bailiff has not already taken control of goods prior to the making of a DRO, they will not be able to do so for any debts included in the DRO application once the order has been approved.

If there is already a controlled goods agreement in place, this will have the effect of securing the debt and payments must be maintained to avoid the bailiffs taking the goods to settle the debt.

Any payments must be made from surplus income unless the items are for reasonable domestic needs.

Bank accounts

AIs should tell debtors that their bank accounts might be affected by a DRO. This depends on their bank or building society’s policies and procedures.

If a debtor’s bank account is frozen after a DRO is made, you should tell the debtor to contact their branch and show them the DRO. This might help them withdraw any funds held in an account, but ongoing use of the account is a commercial decision for the bank or building society.

A debtor is allowed to open a new bank or building society account after they’ve been granted a DRO. The bank or building society might need them to disclose that they have a DRO. The decision to open (or place any restriction on) an account is up to the bank or building society.

The official receiver will not contact a bank or building society after they have made a DRO unless they are a creditor.

Bankruptcy

Bankruptcy is a form of insolvency. If someone is made bankrupt:
- they do not have to deal with the people they owe money to. The official receiver takes control of their money and property, and deals with their creditors
- the things they own might be sold and used towards paying their debts, such as their house or car
- most types of debt are written off when they are discharged from bankruptcy, normally after a year
A debtor can apply for bankruptcy (https://www.gov.uk/apply-for-bankruptcy) using an online application submitted to the adjudicator. They have to pay a fee of £680 before the application is submitted.

Beneficial interest

Where a debtor’s circumstances suggest they may have a beneficial interest in any property, the approved intermediary must take reasonable steps to understand the position and determine whether the debtor meets the criteria for a DRO.

Below is a list of questions used by examiners in the Insolvency Service to establish a possible beneficial interest in bankruptcy cases.
- Do you own or have you ever been the owner of a property?
- Have you transferred a property to a third party, for example a spouse, civil partner or other associate?
- Are you married to the registered proprietor?
- If so, how long have you lived at the property?
- Did you pay a deposit when purchasing the property?
- Are you shown on the mortgage or on any subsequent charges?
- What mortgage payments have you made and for how long?
- Have you ever claimed to own a property when applying for credit?
- Do you consider you have a beneficial interest in the property?
- If not, why not?
- Have you funded an extension or remedial works to the property?
Benefits – lump sums and ongoing income

Generally any benefit lump sum received before the DRO application is approved will be an asset.

This does not apply to disability related benefits and disability elements or premiums within certain benefits.

Lump sums of PIP, DLA and Attendance Allowance (AA) are disregarded as an asset both before and after DRO.

On-going payments of PIP, DLA and AA can be offset under adult care costs.

Constant Attendance Allowance under the Industrial Injuries or War Pensions Schemes, War Pensioners Mobility Supplement under the War Pensions Scheme or grants for the use of a vehicle or Armed Forces Independence Payment are treated the same as PIP, DLA and AA.

Legacy benefits and disability premiums

There are 6 legacy benefits.

Lump sums of disability premiums within these benefits are disregarded as assets both before and after DRO.

The on-going payment of premiums can be offset under adult care costs.

Lump sums of ESA that do not include disability premiums are regarded as an asset or income.

If a debtor receives a lump sum of any these benefits and part of this relates to a backdate of disability premium, approved intermediaries should request a breakdown to establish what can be disregarded. A breakdown will also help to identify how much of a debtor’s on-going monthly benefit income be can be offset under adult care costs. Evidence of this should be kept on file.

If a debtor receives DLA for a child, they may also receive the disabled child element or premium within a legacy benefit.

A lump sum of either the disabled child element or premium will be disregarded as an asset before and after DRO.

On-going payment of the element or premium can be offset under childcare costs.

Pension Credit

Debtor’s in receipt of Pension Credit can also receive a severe disability premium. Lump sums are disregarded as an asset before and after DRO.

On-going payments can be offset under adult care costs.

Universal Credit and limited capability for work elements

The limited capability for work (LCW) element is the equivalent of a debtor who is claiming ESA and is in the work-related activity group. The limited capability for worked related activity (LCWRA) element is the equivalent of a debtor who is claiming ESA and is in the support group.

Both the LCW and LCWRA are regarded as income or an asset before or after DRO and the asset limit applies before the DRO. The property protocol will apply during the DRO.

The on-going income should not automatically be offset under care costs unless the debtor can show evidence.

Universal Credit (UC) and disabled child element

Lump sums of the disabled child element are disregarded as an asset before and after DRO.

The on-going income can be offset under childcare costs.

Universal Credit and transitional payments

As a result of not being able to claim the severe disability premium in UC, some debtors may receive transitional payments. Lump sums are disregarded as an asset before and after DRO.

On-going payments can be offset under adult care costs.

Benefits – backdated and right of set off

If the DWP determine the debtor is due a backdated payment of benefits, they may attempt to apply a right of set-off against any debt outstanding to them. Where the DWP has a statutory option to offset against the debt they may be entitled to exercise this despite the DRO.

Where this arises, the debtor may want to seek their own independent advice about the social security legislation.

Benefits – overpayment

Overpayment of benefits, including those incurred as a result of fraud, are a qualifying debt. They will be discharged at the end of the DRO period unless the overpayment is deemed as fraudulent. Recovery of benefits must stop during the DRO period, even where the debt was fraudulent - See Fraudulent benefit overpayments (#Fraudulent-benefit-overpayments).

A person who has been overpaid benefit may be offered an administrative penalty in lieu of prosecution where the benefit provider believes that the overpayment arose as a result of fraud.

An administrative penalty for a benefit overpayment is a qualifying debt for DRO purposes and must be scheduled in any application, however, as this penalty is an alternative to prosecution, it will be treated the same as a fraudulent debt.

Benefits – payment on account recovery

Following the Supreme Court decision in R (on the application of Payne and Cooper) v Secretary of State for Work and Pensions, ‘no remedy’ should be widely interpreted. The Secretary of State does not have the right to recover overpayments of benefits that are a qualifying debt in a DRO, by way of making deductions from an ongoing award of benefit.

This applies to deductions made about recovery of Housing Benefit (HB) and Council Tax Support (CTS). This includes where the local authority (LA) is recovering from ongoing HB and CTS or through the Secretary of State from other benefits. The restriction also applies to the recovery of tax credit overpayments from an ongoing entitlement.

Within the UC system eligible benefit claimants can ask for an advance called a payment on account (PoA).

A PoA is not a loan. On or before making a PoA the claimant is given notice of their liability to repay the advance. They can do this by deduction from subsequent payments of benefits or to repay any balance to the extent it is not deducted.

A PoA which has not been fully recovered at the date of the application is a qualifying debt. The DWP cannot recover the balance from any ongoing entitlement to benefit.

Bereavement Support Payments

Bereavement Support Payments (BSP) can be claimed by an individual whose partner passed away after 6 April 2017. Details about how much an individual will get for BSP is available on GOV.UK (https://www.gov.uk/bereavement-support-payment/what-youll-get).

A lump sum payment of BSP would be viewed as an asset. The monthly payment would be viewed as income and would need to be taken into account when calculating income and expenditure.

Bike to work scheme

Money payable under a bike to work scheme is not a qualifying debt for DRO purposes.

When assessing disposable income, the approved intermediary should test level of deductions from salary for reasonableness.

This expense should be considered like any other lease, so questions to ask are:
- Is there a cheaper method?
- When was the agreement taken out (for example, was it just before the DRO)?
- How much is it in comparison to public transport?
- Is everything that is being hired needed?
Bill of sale

Also look at logbook loans (#logbook-loans)

Where a bill of sale has been properly registered with the High Court the lender is a secured creditor. The ability of the creditor to collect and sell the vehicle will be determined by the terms and conditions in the original bill of sale agreement. This should have been filed in the High Court.

This type of financing is typically a short-term loan and approved intermediaries should check to see if title to the property could revert to the debtor during the DRO period and the impact this might have on the debtor’s ongoing eligibility for a DRO.

Depending on the value of the vehicle and the impact on disposable monthly income, the debtor could become ineligible and face revocation of the DRO.

The approved intermediary should follow the guidance for vehicles on hire purchase when listing payments under a logbook loan as an allowable expense.

If the value of a secured item is less than the total amount of the secured debt, the balance of the debt will be treated as unsecured. Both secured and unsecured amounts form part of the DRO and must be scheduled on the application.

Where the debtor does not wish to keep the vehicle, the whole of the debt due may be scheduled as unsecured.

Bonus from employer

Funds received before a DRO are classed as an asset.

After approval, where the approved intermediary has calculated regular bonuses as part of the debtor’s income and expenditure a bonus is classed as wages. Where a bonus is received which has not already been included, the lump sum protocol applies.

Border agency costs – repatriation

These are qualifying debts for the purposes of a DRO application.

However, if a lien has been made over the client’s passport, it will not be returned unless the debt has been settled. If the client has to pay to get the passport back, this is not an allowable expense.

Budgeting Loans

Budgeting loans are a qualifying debt, but social fund loans are not. There is further budgeting loan guidance on GOV.UK (https://www.gov.uk/budgeting-help-benefits).

See Social Fund Loan (#Social-Fund-Loan).

Bursaries

A bursary which is repayable is a qualifying debt and must be included in a DRO.

If a debtor receives a bursary during the DRO period, this is classed as income and should be apportioned over the period to which it relates.

Cancellation charges

Cancellation charges are treated as ‘interest, penalties and other sums’ and are a qualifying debt.

This applies even if the charges are added after the DRO is made.

Carer’s allowance

Carer’s allowance might be paid if the person being cared for is in receipt of certain benefits.

Carer’s allowance is classed as income.

Carer’s allowance and premiums and Universal Credit elements

Carer’s allowance is paid if a person provides care for a qualifying person and, if in employment, earn less than a certain amount each week.

An award of carer’s allowance triggers additional premiums for legacy benefits.

Different rules apply for Universal Credit carer’s element. There is no need to receive Carers Allowance. As long as DWP accepts that the client provides the requisite number of hours of care for the qualifying person, an award of the carer’s element can be made.

Carer’s element in Universal Credit includes clients who work and earn more than the cut off point for Carer’s Allowance.

Carer’s allowance, premiums and element count as income.

Caravans

Caravans or mobile homes owned by the debtor are an asset and subject to the £2,000 threshold.

Catalogue accounts

A catalogue debt is a qualifying debt and you must include it in the DRO application. Payments made within the last 2 years could be seen as a preference and must be listed. The debtor cannot use the account once the DRO is approved.

Anyone can open a new catalogue account after they are in a DRO. But they must tell the creditor they are in a DRO if they want to take out credit of more than £500.

Charging order

A creditor can use a charging order to secure a debt against the debtor’s interest in a property.

For the purposes of DROs, if the debtor owns any property, they may be in breach of the asset parameter and they may be ineligible to apply.

Child bank account

Where money is held in a child’s bank account, the approved intermediary needs to be satisfied that the funds belong to the child. The account would need to be in the name of the child and have the parent as a co-named guardian.

The approved intermediary must also be satisfied funds were not put into a savings account to remove the funds from the benefit of the parent’s creditors.

Child benefit

Child benefit is classed as income and any related expenditure for the child should be scheduled in the DRO application.

Child maintenance (child support)

If the debtor is a parent with care and has received an overpayment of child maintenance (also known as child support) this should be treated like a benefits overpayment and is a qualifying debt.

If the debtor owes arrears of child maintenance, this is treated as an excluded debt.

Any voluntary payments of child maintenance paid to the parent with care or to Child Maintenance Service or the Child Support Agency should be reviewed by the approved intermediary for how reasonable it is before an application being submitted.

Child Maintenance (child support) arrears due to the debtor

A lump sum of child maintenance arrears paid before DRO approval is classed as an asset.

Where child maintenance arrears are paid to a debtor during the DRO period the lump sum protocol should be used.

If the debtor is owed a significant amount of child support arrears, the right to collect the arrears lies with the Child Maintenance Service and not with the parent so the arrears would not be classed as money owed for the purposes of a DRO application.

However, if the debtor receives any payments, this should be reported to the official receiver.

Child Maintenance (child support) - overpayments to the debtor

Debts relating to a maintenance assessment to make child support payments are treated as an excluded debt in a DRO.

Overpayments of child maintenance paid to the parent who has care of the child are qualifying debts and should be scheduled in the DRO application

Child savings and ISA accounts

You must be satisfied the debtor cannot access funds from a child’s savings or ISA account. If the account is in the child’s name, it does not belong to the debtor and you do not need to include it in the DRO application.

As long as the funds cannot be accessed by the debtor, any payments will not be treated as transactions at undervalue. You should request the latest statements to be confident of the amount held and any payments made into the account. You should also be satisfied that funds have not been paid into the ISA or savings account to stop them going to creditors.

Ongoing payments into the child’s account are not an allowable expense but can be made out of surplus income.

See child bank account (#child-bank-account)

Child support arrears from EU countries

Orders made for payment of maintenance or child support from EU countries are excluded debts and fall under family proceedings, similar to the position in bankruptcy.

There is further information on the Reciprocal Enforcement of Child Maintenance Order (REMO) arrangements (https://www.gov.uk/government/publications/countries-where-you-can-enforce-child-maintenance-decisions).

Christmas savings or vouchers

Christmas club savings or vouchers are a contingent asset and their value must be considered when assessing eligibility for a DRO.

Citizenship applications – effect of insolvency

The regulations governing who is eligible for British citizenship are the responsibility of United Kingdom Visa and Immigration (UKVI) (https://www.gov.uk/contact-ukvi-inside-outside-uk), part of the Home Office, and questions concerning this should be addressed to them.

The effect of insolvency upon an application for British citizenship falls under what is termed ‘the good character requirement’. More information about the good character requirement is available on GOV.UK (https://www.gov.uk/government/publications/good-character-nationality-policy-guidance).

Collection fees for excluded debts (including court fines)

Collection fees from agents (for example bailiffs or enforcement agents) trying to collect an excluded debt are a qualifying debt.

Company vehicles

Use of a company vehicle will not count towards the property asset limit. The running costs would be classed as an allowable expense if they reflect reasonable domestic needs.

If the debtor pays for fuel and then claims it back from their employer, the completed income and expenditure form should reflect this. Any payments made in this way would not be preferential.

Compensation orders

Compensation orders are classed as fines and are excluded debts for the purpose of a DRO.

Compensation for criminal injuries

Criminal injury compensation payments are not classed as an asset but should be reported as part of an application.

If the money is used for general living costs by the person in debt and their family, criminal injury compensation payments do not count towards the £2,000 asset limit,

However, if the debtor receives a compensation payment during the DRO period and uses the money to buy items that might be considered non-essential. This will need to be reported as the value can count towards the £2,000 asset limit.

Where a client receives a payment before the DRO is made and has funds leftover, they will be treated as an asset.

Compensation for wrongful arrest

A compensation payment received for wrongful arrest is treated an asset.

Compensation for wrongful arrest received during the DRO period must be reported and the lump sum protocol will be applied.

Competent authorities

A competent authority (https://www.gov.uk/government/publications/getting-a-debt-relief-order/getting-a-debt-relief-order#find-a-debt-adviser) is designated by the Secretary of State to authorise approved intermediaries.

Conditional sale agreement

Conditional sale agreements are agreements to buy goods by instalments, where the buyer can take possession of the goods, but will only own them on the condition that they have paid all the instalments. The agreement may also have other conditions to be met before ownership can take place.

Conditional Sale agreements are treated in the same way as hire purchase agreements (#hire-purchase%20-agreements).

Confiscation order

Any obligation under a confiscation order is treated as an excluded debt (#excluded-debts) in a DRO.

Continuous payment authority

A continuous payment authority is where permission is given to a creditor to regularly take payments from a debtor’s debit or credit card.

The payer can request that their bank stop these payments at any point.

Payments under a continuous payment authority must stop on the making of a DRO.

Contingent asset

A contingent asset is a potential asset that may arise because of a future event that is not under an entity’s control. For example, a debtor might have a contingent asset if they are owed or due any money such as PPI which they are unaware of.

If a debtor’s interest in a contingent asset realises during the DRO period, this must be reported to the official receiver and may lead to revocation.

Council tax

Each local authority levies and collects council tax (https://www.gov.uk/council-tax) for residential property in its area.

Any amount due and unpaid under an instalment agreement up to the date of the DRO being approved is a qualifying debt.

If the debtor’s council tax is up to date under the instalment agreement at the date of the DRO, no amount should be scheduled in the DRO application as any unpaid balance relates to future occupation.

Where instalment payments are in arrears and the debtor has defaulted on a reminder or final notice, the whole of the remaining liability for the year becomes due and payable. In these circumstances the whole of the amount is due and payable and is a qualifying debt whether or not the council has obtained a liability order.

Where the council has obtained a liability order prior to the making of a DRO, the whole debt as notified within the liability order is due and payable and should be treated as a qualifying debt.

County court judgment (CCJ)

A CCJ is a qualifying debt.

Where a creditor has obtained a judgment, it is the judgement creditor (not the court) whose details should be listed in the DRO application.

You can find out who applied for the CCJ using Trustonline (https://www.trustonline.org.uk/).

If the CCJ was issued through the Civil National Business Centre (CNBC), they will provide details, including information about the creditor, free of charge. You can find and contact the court or tribunal (https://www.find-court-tribunal.service.gov.uk/). They will require a signed authority from the debtor.

Further information about CCJs can be found on GOV.UK (https://www.gov.uk/county-court-judgments-ccj-for-debt).

Court costs

Court costs which do not fall within the definition of a fine are a qualifying debt.

Court fines

Court fines are treated as excluded debts in a DRO. They should be listed on the application but marked as excluded. As an excluded debt they are not counted towards the £50,000 debt limit.

This includes compensation orders made under the Powers of Criminal Courts (Sentencing) Act 2000 and speeding fines issued by Police Officers under the Road Traffic Offenders Act 1988.

Monthly payments towards fines are an allowable expense.

Court of Protection (money held by court)

Where a debtor is unable to handle their affairs themselves, the Court of Protection may hold money on the debtor’s behalf. Any money held by the court for the debtor is an asset, and must be taken into account when considering the £2,000 asset parameter.

The approved intermediary must be satisfied that the client understands the implications of a DRO, or if not, has involved the relevant people to consider their best interests.

Credit history

The public details of a DRO will be kept by credit reference agencies. This is usually for 6 years from the date the DRO is approved, but the period might vary depending on different credit agency policies.

Credit obtained before the DRO

If the debtor obtains credit shortly before the DRO application the official receiver might start further investigation which could lead to a Debt Relief Restriction Order.

The investigation process might mean the DRO is revoked, depending on what the debtor did with the money.

Credit union debts

Loans made by credit unions are qualifying debts and should be listed in the DRO application.

Credit union shares

Any shares a debtor holds are an asset and may make a debtor ineligible for a DRO if their value exceeds £2,000.

If the debtor does not owe any money to a credit union, the shares must be recorded as an asset in the application.

If the debtor owes money to a credit union, the outstanding balance of the loan should be considered as secured to the extent of the value of the shares or savings held. Any residual shortfall after the credit union has realised their security is a qualifying debt.

The secured element of the debt should be listed on the application and marked by ticking the relevant box. The remaining balance due should be listed as an unsecured debt.

Where shares are worth less than £2,000 and the applicant meets the other DRO criteria the credit union can use their right of set off against any loans outstanding.

Credit union savings

Any savings a debtor holds with a credit union are an asset and will count towards the £2,000 parameter.

If the debtor does not owe any money to a credit union, the savings must be recorded as an asset in the application.

In most cases, the credit union will have the contractual right to offset a debtor’s savings against any outstanding loans.

If the debtor owes money to a credit union, the outstanding balance of the loan should be considered as secured to the extent of the value of the savings held. Any remaining shortfall will be a qualifying debt.

The secured element of the debt should be listed on the application and marked by ticking the box. The remaining balance due should be listed as an unsecured debt.

Criminal court charges

The criminal court charge applied between 13 April 2015 and 25 December 2015. It applied to all adult offenders prosecuted and convicted for offences committed during that time.

The charge is separate from other financial orders the court may make such as compensation, fine or prosecution costs.

The charge is a qualifying debt in a DRO and is discharged at the conclusion of the DRO period.

Damages

Any debt which consists of a liability to pay damages for any of the list below to any person, is an excluded debt. This includes:
- negligence
- nuisance
- breach of a statutory, contractual or other duty
- damages under Part 1 of the Consumer Protection Act 1987 (which deals with product liability including any disease or other impairment of physical or mental condition)
Debt Relief Restriction Orders or Undertakings (DRRO or DRRU),

There is guidance on GOV.UK about debt relief restriction orders and undertakings (https://www.gov.uk/government/publications/debt-relief-restrictions-orders-and-undertakings/debt-relief-restrictions-orders-and-undertakings).

Debts for drugs

Debts for drugs are not qualifying debts because payment cannot be legally enforced. They do not count towards the £50,000 debt limit and repayments are not an allowable expense.

As for drugs are not qualifying debts. You do not need to report any repayments that have already been made as preferences.

Default

A default is the failure to meet obligations, usually in the terms of the repayment of a loan.

Deputyship awarded by Court of Protection

Where the deputyship relates to the property and financial affairs of an individual rather than their personal welfare, the same provisions as a Power of Attorney apply.

The approved intermediary should advise the debtor to contact the Court of Protection with details of the potential change of circumstance of the deputy.

A prospective deputy must declare any criminal convictions or bankruptcy arrangements to the court when applying to become Deputy and these could lead to the application being refused.

Also see Power of Attorney (#power-of-attorney)

Disregarded property

When calculating the debtor’s total value of assets, the following items can be disregarded:
- Clothing, bedding, furniture, household equipment necessary for satisfying the basic domestic needs of the debtor and their family and a domestic vehicle up to the value of £2,000 (include details on the DRO application)
- Books, tools or equipment necessary to the debtor for use in their employment or vocation.
Directors of companies

Limited companies are separate legal entities and must not be scheduled as part of the debtor’s trading activities.

Debts due by a limited company should not be included in the debtor’s schedule of liabilities, unless the debtor has personally guaranteed a company liability and this guarantee has been called upon.

If a debtor advises you that they have been involved with a limited company, you should establish whether the company is still live and whether the debtor is a director of that company. You can find out this information about companies using the Companies House online service (https://beta.companieshouse.gov.uk/).

Once subject to a DRO, it is a criminal offence for a debtor to be a director of or act in the management of a limited company without leave of the court. If a debtor is a director of a limited company, they will need to resign this position if a DRO is approved (or apply to the court for leave to act as a director). You will need to send us proof the debtor has taken the appropriate action.

The official receiver will normally object to any court application made to remain as a director.

Disability Living Allowance (DLA)

Personal Independence Payments are gradually replacing DLA for people aged 16 to 64, including those with an indefinite or lifetime DLA award.

See Personal Independence Payment (PIP) (#personal-independence-payment)

DRO period

The DRO period in a DRO is the length of time during which the debts owed by a debtor are protected from the claims and actions of their creditors.

Creditors cannot continue or commence legal action against the debtor for repayment of these debts without leave of the court.

This will usually just be called a ‘DRO period’ or a ‘period of the DRO’. It can also be referred to as the ‘moratorium period’.

After the DRO period has come to an end, debts would usually be discharged. If it is terminated by the court or the official receiver before it has expired, the debtor will again be subject to the actions of their creditors.

In a DRO the period is usually 12 months although this can be extended if the official receiver applies for it.

DROs for Scotland, Northern Ireland and the Republic of Ireland

If you’re approached by an individual who has recently moved to England or Wales, but has incurred their debts in Scotland, Northern Ireland or the Republic of Ireland, you should tell them some of their debts might be enforced in other jurisdictions if they return.

Educational liabilities

University accommodation fees are qualifying debts in a DRO application. These must be put on the schedule.

Some educational establishments might not let a student re-enrol or might refrain from issuing the course completion certificate if there’s an outstanding debt.

Educational payments

Payments to a private company for a course or qualification that are not from a student loan, or bursary are not an allowable expense for a DRO application.

Educational penalty notices

A penalty notice imposed by a school or local authority for a child not attending school is a qualifying debt for the purposes of a DRO.

If, before the DRO is made, a court imposes a fine for a child’s non-attendance, then that debt is an excluded debt for the purposes of a DRO.

Eligibility for a DRO

There is guidance about DRO eligibility (https://www.gov.uk/government/publications/getting-a-debt-relief-order/getting-a-debt-relief-order#eligibility) on GOV.UK.

See full list of restrictions imposed on debtors (#restrictions-imposed-on-debtors)

See also preferences (#preferences) and undervalue transactions (#undervalue-transactions)

Eligible Loans Deduction Scheme

Some organisations, including some credit unions, might have an agreement with the DWP for their debt to be recovered from the debtor’s benefits. Once a DRO is approved, these debts will be qualifying debts, and these organisations should stop recovery.

The debtor must tell DWP that the DRO has been granted and they need to stop deductions.

Employee share scheme

An employee share scheme is an asset, even if the applicant is not able to realise the value of the shares immediately.

The company scheme might give their employees something like airmiles which convert to shares after a retention period. These are not an asset until they have been converted into shares

Any shares given up are treated as a transaction at undervalue, which will have a bearing on the determination decision.

Endowment

An endowment policy is a life insurance contract designed to pay a lump sum after a specific term (on its ‘maturity’) or on death. An endowment that will mature in the future will be classed as a contingent asset (#contingent-asset).

Employer loans

Loans from employers are qualifying debts.

Also see pay advance (#pay-advance)

Enterprise allowance loans

An enterprise allowance loan is a qualifying debt for DRO purposes.

Excluded debts

Excluded debts cannot be subject to a Debt Relief Order and do not contribute towards the £50,000 liability parameter. Excluded debts are:
- fines imposed for criminal offences
- student loans
- child support maintenance
- an obligation under a ‘confiscation order’
- damages
- social fund loans
If a debt does not appear in the above list, it is a qualifying debt.

Excluded debts should be listed on the DRO application but should be ‘ticked’ as an excluded debt. Monthly payments towards excluded debts will be an allowable expense.

Excluded debt – incorrectly marked

If a debt has been incorrectly marked as excluded within a DRO application, this can be amended and added to the list of qualifying debts once you have told the DRO team about the error.

Credit reference agency checks

AIs should check that there is no incorrect information appearing on an Experian report before you submit a DRO application. If there are any errors, this should be corrected before you submit a DRO application. Any incorrect information might impact the decision to grant a DRO.

If incorrect information cannot be resolved, you must send full documentary evidence to the DRO team, together with or prior to the submission of the application.

Family debts

Debts due to family members are qualifying debts.

Fertility treatment costs

Payments for egg storage might be an allowable expense if the storage is on health grounds and not simply a lifestyle choice.

The storage costs would need to be reasonable. The Human Fertilisation and Embryology Authority guidance has information on average annual storage costs (https://www.hfea.gov.uk/treatments/fertility-preservation/egg-freezing).

Fine

Where a debt has gone to the magistrates’ court and the court has issued a fine, the debt becomes an excluded debt. The debt will not count towards the £50,000 parameter. It should be scheduled in the DRO application but marked it as excluded.

Any payments towards a fine are an allowable expense.

Fine for speeding - see fixed penalty notice (#fixed-penalty-notice).

Fixed Penalty Notices

A Fixed Penalty Notice (FPN) can be issued as an alternative to prosecution for a criminal offence.

Scheduling a FPN in a DRO will not stop further enforcement action being taken. If the penalty is not paid, the client might be prosecuted, and possibly fined by a magistrates’ court. This action would not be a remedy in respect of the debt because the fine would be punishment for committing the criminal offence and not an action to enforce payment of the penalty.

Payment of a criminal FPN prior to a DRO application does not need to be reported as preference.

During the DRO period, to avoid prosecution, payment can be made from surplus income or by a third party.

Also see speeding fines (#speeding-fines)

Fixed Penalty Notices issued under Health Protection (Coronavirus restrictions) Regulations 2020

Payment of a COVID-19 related FPN prior to a DRO application does not need to be reported to the DRO team as a preference. During the DRO period, payment may be made from surplus income or by a third party to avoid prosecution.

Foreign debts

Foreign debts should be scheduled in the DRO application and will count towards the £50,000 liability limit. A DRO might not protect the debtor from the debt being enforced in the issuing country or lead to the debt being discharged from these debts at the end of the DRO period.

Fostering

Payments received for a debtor acting as a foster carer should be treated as income and must be included in any DRO application. While these payments partly cover child expenses, some is paid as a fee for being a foster carer.

Franchises

If a debtor owns a franchise business, the approved intermediary should try to find out the current value of the business or the residual value of the franchise agreement. Early termination or cancellation fees should be taken into consideration when you assess the level of debt.

Fraud

Debts incurred as a result of fraud or fraudulent breach of trust, are qualifying debts and should be scheduled in any application for a DRO. They count towards the £50,000 liability parameter. Recovery of the debt should cease during the DRO. But any such debts are not discharged at the end of the DRO.

Fraudulent debts should not be treated or marked as excluded debts.

The Insolvency Service is not able to state whether a debt is fraudulent. If the debtor feels they were coerced by the creditor or they wish to dispute whether the debt is fraudulent they must seek independent legal advice. This is a matter between the debtor and the creditor.

Fraudulent benefit overpayments

Are treated in the same was as other fraudulent debts also see fraud (#fraud).

Further details about fraudulent overpayments are on GOV.UK (https://www.gov.uk/government/publications/benefit-overpayment-recovery-staff-guide/benefit-overpayment-recovery-guide).

Fraudulent benefit overpayments are qualifying debts and must be scheduled in the application. The debt will count towards the £50,000 liability parameter but will not be discharged at the end of the DRO.

Deductions from benefit to recover the overpayment should stop during the DRO but may begin again once this has ended.

If the debtor has repaid the overpayment by way of deduction from their benefit, this does not need to be reported as a preference as the debtor has not voluntarily made these payments.

If the debtor has made a voluntary payment or repaid the overpayment in full this should be reported as a preference on the DRO application. The approved intermediary should include the circumstances regarding the repayment.

Funeral costs

If a debtor is responsible for organising a funeral, money can be transferred from a third party into the debtor’s bank account. The funds being used are third party funds to be used to pay for a funeral. We would not object to this as long as there is a clear paper trail of what’s been spent. We would also want to know if the debtor was acting in any formal capacity, for example as an executor.

More information in funeral plot (#funeralplot)

Funeral plans

If payments have been completed and the funds in the funeral plan cannot be accessed, the funds are not treated as an asset and be treated in the same way as a life policy payable only on death.

If the debtor is still making the payments into the funeral plan the approved intermediary should consider whether such payments are reasonable or are to the detriment of their creditors in deciding whether they are an allowable expense.

If funds were transferred into a funeral plan immediately prior to or after seeking debt advice, the approved intermediary should consider whether the funds were intentionally put out of reach of creditors.

Funeral plot

The approved intermediary should check the terms and conditions of the funeral agreement for any clause indicating that the debtor would lose their right to the funeral plot upon entering into insolvency. If the agreement contains such a clause, this would be seen as the funeral director retaining property that has not been paid for, and as such, we would not constitute this to be a ‘remedy in respect of the debt’.

Gambling

Debts incurred as a result of gambling may be investigated by the official receiver and can result in a DRRO or DRRU.

Grants from PRS Momentum Music Fund

The guidance for applicants to the PRS Momentum Music Fund states ‘artists and bands applying for the Momentum Music Fund must be at a crucial tipping point in their careers, showing current progression and growth as an artist with the potential to significantly develop their careers over the next 2 years’.

This suggests any applicant is already earning a regular income from music with the potential for this to increase significantly. AIs will need to be satisfied that the debtor’s income has been fully assessed, taking into account fluctuations in self-employment and that they meet the eligibility criteria for a DRO.

Where a sum of money has been awarded, as it is a grant which can only be used for recording, touring (UK only), marketing and promotions, as long as the client can provide a full breakdown of how these funds are to be used, they will not be classed as an asset.

Guarantor

Guarantor - debtor is the borrower, not the guarantor

If the debtor took out a loan with someone acting as a guarantor for the debt, then the debt will be a qualifying debt and should be scheduled on the application. The debtor should be made aware that if a DRO is made the creditor may pursue the guarantor.

Guarantor – if the debtor was a guarantor for another person’s debt

If the third party has defaulted and the debtor has been contacted or asked for payment, then it is a qualifying debt, the amount of which will depend on the terms and conditions of the guarantee.

The approved intermediary might want to inspect the terms of the guarantee, most are CCA regulated and service of a default notice will indicate what sums are due from the guarantor.

If the third party is making all contractual payments and is not in default at the point of submission, the debt is not for a liquidated sum and should not be scheduled in the DRO application.

Guarantor – subrogated rights

If the debtor was a guarantor and has repaid a loan, they become the original creditor and have the right to recover money from the principle borrower. The guarantor has the right to sue someone for money owed. This is a right of action called ‘subrogated rights’.

A right of action is an asset. Each case is judged individually, and you need to consider whether pursuing such an action is worthwhile. If a guarantee has been called in, the original purchaser might be insolvent.

The DRO applicant needs to demonstrate what action has been taken to seek recovery. If they can clearly demonstrate that the debt is ‘bad and irrecoverable’, you would not need to schedule it 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 or instructing tracing agents.

Guardians Allowance

Payments received should be scheduled as income and the associated outgoings recorded as expenditure.

HMRC

Debts to HMRC for a liquidated sum are qualifying debts and should be included in a DRO application.

Where an assessment for tax has been raised by HMRC the amount of the assessment represents a liquidated sum. If the debtor disputes the assessment, then they should submit tax returns and deal with this before the DRO is submitted.

Also see tax and self-assessment (#tax-and-self-assessment)

HMRC penalty for tobacco duty

HMRC penalty for tobacco duties should be treated as qualifying debts in the DRO. However, the approved intermediary and debtor should be aware that HMRC might decide the debt is be fraudulent. If they do, it will not be discharged at the end of the DRO.

Help to Save Scheme

This scheme is administered by HM Revenue and Customs (https://www.gov.uk/get-help-savings-low-income).

Money saved in the Help to Save scheme should be treated as an asset.

Any payments into the scheme after a DRO must be made from allowable surplus income and the debtor will need to consider whether by continuing to pay they still meet the DRO asset criteria during the DRO period.

High Court Enforcement

High Court Enforcement Officers act on behalf of the High Court to chase unpaid debts.

See Bailiffs (#bailiffs)

High Court Judgment

A High Court Judgment is treated like a county court judgment and is a qualifying debt for a DRO.

Enforcement action fees must be scheduled separately to the original debt, the debtor should contact the High Court prior to submission to obtain the correct balance due to interest being added.

Highland Titles

Highland Titles have no monetary value under Scottish Law, but the debtor can sell the plots to someone else. A new plot starts at £30. Where someone buys a plot of land, they can change their name to ‘Lord’ or ‘Ladyship’.

Highland Titles are seen as an asset and you should record it on the DRO application. We value the title as the amount paid for it.

If the debtor used or be known as ‘Lord’ or ‘Ladyship’, you should record this on the DRO as either their current name or as an alias. To record the title, choose ‘other’ in the DRO application and enter the details.

Hire Purchase Agreements and Conditional Sale Agreements

Goods subject to an ongoing hire purchase (HP) agreement should not be treated as an asset, as they do not belong to the debtor until all the payments under the HP agreement have been paid.

In situations where the client has no arrears, the debtor can choose whether or not they include the entire balance of the HP debt in a DRO application.

Where the client chooses to leave the up to date HP debt out of an application, the HP liability will not count towards the £50,000 liability parameter when the following are satisfied:
- not in arrears and
- paid by a third party (if payments are more than £75 per month) or
- repayments are deemed as an allowable expense
Any unpaid instalments where the due date has passed must be included as a debt in the DRO application.

If the HP agreement has been terminated, the full outstanding balance must be scheduled in the application.

The official receiver cannot and will not object to a third-party making payments under a debtor’s HP agreement. However, it might be preferable for all parties concerned if the agreement is transferred into the third party’s name. This will require the agreement of the finance company. Payments by third parties should be made directly to the HP firm not via the debtor.

It is likely that any HP agreement would come to light following the Experian credit check carried out upon submission. Where payments are being made by a third party this should be confirmed by email when you submit the DRO application.

If the agreement ends during the DRO and ownership passes to the debtor, this must be reported. This may result in the DRO being revoked if the goods are not disregarded property and the value of the goods exceeds the property limit. If the goods are a vehicle worth less than £4,000 and disregarded as the debtor’s only domestic vehicle, this will not affect the DRO.

HP agreements should be checked for an ‘insolvency’ clause that could put the goods at risk should the debtor proceed with a DRO application.

Hire purchase agreements and conditional sale agreements – allowable expense

If a debtor wishes to omit the HP debt and include repayments in the expenditure, the approved intermediary will need to determine whether the payments are an allowable expense.

A payment will only be an allowable expense if the items for which payments are being made are necessary to satisfy the ‘basic domestic needs of the debtor and his family’.

Where an item on HP (other than a vehicle) is ‘disregarded property’ under Rule 9.9 Insolvency (England & Wales) Rules 2016 (https://www.legislation.gov.uk/uksi/2016/1024/article/9.9/made) then payments in respect of the debt excluded from the DRO might be allowed. The approved intermediary will need to consider whether the repayments are reasonable and not being made to the detriment of other creditors.

Where the payments are in respect of a vehicle, if the debtor can demonstrate that the vehicle would be exempt for DRO purposes (for example, the value of the vehicle at the date of the application was less than £4,000 or the vehicle has been adapted for the use of the debtor as a disabled person), the repayment would be allowable.

If a debtor has a vehicle that is subject to HP with a value exceeding £4,000, payments will not be an allowable expense unless there are exceptional circumstances which would mean the repayment meets basic domestic need. If the debtor wants to argue that the expense is allowable, they would need to prepare a statement to explain in detail why they believe they should be allowed to continue making repayments. This should then be submitted via email at the point the approved intermediary submits the DRO application.

Where the value of the vehicle exceeds £4,000, there will be a number of factors to be considered in each case, for example:
- when the agreement taken out. Whether this was taken out recently and if it as a result reduced the debtor’s available disposable income.
- whether public transport is available
- whether the HP payments compare favourably to the cost of public transport
We will only make the decision on the submission of the DRO application. Debtors should be advised that if the expense is not deemed allowable, this may lead to the application being declined.

Allowable expenses

Hire Purchase - items stolen or sold

Stolen

If the item has been stolen the approved intermediary should confirm with their client that they have reported the theft to the police and have been given a crime incident number, as well as contacting the finance company to inform them of the loss.

Since there is no longer an item against which the loan can be secured, the full amount of the debt should be scheduled. The creditor may still claim the secured amount from the debtor once they become aware of the loss of the vehicle.

Sold

The approved intermediary should establish the circumstances in which the item sold, to whom and what happened to the proceeds as this may identify a transaction at an under value, preference or an asset.

The debtor should be made aware that HP company may contact the police and that the creditor may continue to pursue the debtor if they believe that there has been any element of fraud or fraudulent breach of trust.

Home Loss Payment

The Home Loss Payment is designed to compensate for the distress and inconvenience of having to move at a time not of their choosing.

The direct costs of a move (such as replacement carpets) would not be classed as an asset, but any element of compensation would be and may affect eligibility.

To determine if an individual was eligible for a DRO, the debt advisor would need to see a copy of the award notification.

If the funds were received before the DRO, the applicant would need to fully account for the disposal of the funds. Any funds still held by the applicant would count towards the asset parameter.

If the funds were received post DRO, it would depend on the amounts given as to whether revocation action is appropriate.

Horses

A debtor’s horse is an asset.

The approved intermediary should take reasonable steps to value the animal for the purpose of establishing whether the debtor meets the DRO eligibility criteria.

If an approved intermediary is satisfied that the horse is a pet with no or little value, they will need to establish with the debtor the costs of keeping the animal. Stabling, plus any other associated costs of keeping a horse are not allowable expenses for DRO purposes.

Illegal money lending

Refer to Shelter Specialist Debt Advice Service (SDAS) (#shelter) for advice on including or excluding a debt that is owed due to illegal activities.

Illegal money lending (sometimes known as loan sharking) is a criminal offence and often sees unlicensed lenders target vulnerable people.

Illegal money lending is not enforceable through the courts as the debts are not provable. Therefore, these debts are not qualifying debts and do not count towards the £50,000 debt level.

If there is a threat to the debtor or their immediate family, they may opt to leave the debt out of the DRO application. Police involvement might be appropriate if there is a physical threat.

You can report loans sharks (https://www.gov.uk/report-loan-shark). They will be investigated by teams made up of specialist investigators and victim support officers from various background. These include trading standards, policing and debt advice.

These specialist teams can be contacted at:
- In England, contact: xxx@xxx.xx (mailto:xxx@xxx.xx)
- In Wales, contact: xxx@xxx.xx (mailto:xxx@xxx.xx)
Illegal money lending repayments are not an allowable expense. As they are not qualifying debts, any repayments do not need to be reported as preferences.

If the debt was loaned by a family member or friend, it is not likely to be classes as illegal money lending and you must schedule the debt in the application. An individual does not need authorisation from the Financial Conduct authority (FCA) unless they are lending in the course of a business.

Incentive to move payments

Local authorities grant incentive to move payments when they want help tenants move, or re-allocate their houses.

The official receiver cannot object to an incentive to move payment being granted to a debtor in a DRO, as long as the payment is used entirely to cover the cost of moving. You must report the payment as property received during the DRO period but the DRO will not be affected as long as the payment is used in this way.

Income

Also see reasonable domestic needs (#reasonable-domestic-needs)

‘Surplus’ income is the amount by which monthly income exceeds the amount necessary for the reasonable domestic needs of the debtor and their family. All of the debtor’s income, (including things like disability living allowance, child benefit, child tax credit) will be taken into account when calculating this figure.

If a debtor is self-employed or gets a seasonal income, the approved intermediary should establish the average monthly income that the debtor receives and calculate their income and expenditure using this figure. You can use 3 months of income earned to determine an average.

For self-employed debtors, the income and expenditure calculation should include provision to pay income tax and national insurance contributions if these are not deducted at source.

Income Tax Refund

Income Tax refunds received before submission of a DRO application are an asset.

The lump sum protocol (#Lump-Sum-Protocol) should be implemented for income tax refunds received during the DRO period over the £2,000 threshold.

Independent living payments – direct payments

The claimant might receive direct payments for their care directly into their bank account from the local authority. These payments are then used to pay for their care needs.

These payments are also known as ‘direct payments’ and the money can only be used for care. Otherwise, the payment is stopped. These funds do not need to be included in a DRO application. If there’s money remaining after care costs have been paid, the claimant should contact the local authority to discuss returning the spare funds.

Individual Voluntary Arrangement

An Individual Voluntary Arrangement (IVA) is a formal agreement made between a debtor and his creditors to repay their debts (either in full or in part).

If a debtor tells you they have had an IVA which has been ended, you must check the Individual Insolvency Register (IIR) to verify this. If there is any doubt that an IVA has formally ended then the approved intermediary should contact the IVA supervisor for confirmation the IVA has ended. This will include a:
- covering letter – which should make reference to Rule 5.34 or 8.31
- certificate of termination Rule 5.34 or 8.31 completion or failure
- copy of the final report to creditors
- final receipts and payments – if there were no receipts and payments, this should be referred to in the covering letter
Photos of these documents are not accepted. Only send scanned or original documents.

If an IVA is shown on the IIR as current and no documentary evidence has been provided to the contrary, the official receiver will decline the DRO application.

Information Commissioners Office – Credit Reference Agencies

The Information Commissioner has information about how credit histories work (https://ico.org.uk/your-data-matters/credit/).

Credit reference histories are provided by commercial credit reference agencies. The official receiver does not have to contact such agencies to report that a DRO has been made and has no control over these organisations or the credit reference histories they provide. The official receiver cannot ask credit reference agencies to update or change their files.

If an individual has concerns about their credit reference history, they should contact the credit reference agency and the creditors responsible for noting their credit reference history. They might want to send them a copy of the DRO.

Inheritance

Money or property left to an individual as a beneficiary of a deceased estate becomes their property from the date of death and is an asset from the date of death.

It is possible for a recipient to say they do not want the inheritance if they do this in writing before they receive the property. This is called a disclaimer. A copy of this disclaimer made by a debtor applying for a DRO must be sent to the DRO Team.

Interim order

An interim order is an order of the court that is for a certain period and is waiting for a final outcome. An example of an interim order might be given to a debtor who is intending to make a proposal for an IVA.

Interest free finance agreement

These are also known as ‘buy now, pay later’ agreements.

If the debtor has an interest free finance agreement, which is in default, the whole debt including potential interest should normally be scheduled in the DRO application. Although AIs should check the exact terms and conditions of the agreement.

If the debtor cannot keep up the ongoing payments, or they are not reasonable, the remaining balance due under the agreement should be scheduled. You should tell the debtor that the item might remain the property of the retailer until the agreement has been paid in full, so they might take action to recover it.

Joint bank account

Where a debtor has a joint bank account, you need to assess the debtor’s full circumstances.

If the debtor says funds are the joint bank account holder’s, check the terms and conditions of the account to see if the debtor has beneficial interest in the funds.

If the debtor has beneficial interest, all of the funds count towards the asset limit. The source of the money, how it is spent, and the intentions of the joint account holders are not relevant.

If the debtor has no beneficial interest, you need to be satisfied the joint account holder is the source of the funds and be satisfied how the money is spent. You can view account statements to make sure this is accurate.

You may send a supporting email with any documentary evidence attached, as all cases are reviewed on an individual basis, and each debtor’s circumstances are taken into consideration.

Ultimately, you must be satisfied the money is not the debtor’s funds.

Joint or household budgets

A DRO application only takes the applicant’s circumstances into account. Where possible the application should only include their income and their share of the household bills. If they receive joint benefits, the applicant’s share should be calculated, if possible.

Joint and several liability

A DRO will only protect the individual who is subject to it. A DRO will not protect or write off the liability of anyone who is jointly liable for a debt with the debtor, or anyone who has provided a guarantee for the debt.

Each individual who is jointly and severally liable for a debt is liable for the whole amount of the debt until it is paid in full.

In some instances, joint debts can be split (removing joint and several liability) following the breakup of a relationship (like joint tax credits or overpayments). The approved intermediary should check the status of a debt when completing the application. The approved intermediary must be satisfied they have seen enough evidence to confirm the debt has been split.

Judgments

Court fines are excluded debts in a DRO.

Other court judgments obtained by a creditor against the debtor are qualifying debts. This includes county court judgments or costs awarded against the debtor in civil proceedings.

These remain on their credit file for 6 years.

Leases

Debts arising under the terms of a lease are qualifying debts.

Consideration also needs to be given to whether the asset subject to the lease has any value.

Leases – business premises

If a debtor is in business premises, the debtor should take reasonable steps to value their interest in the lease. This will depend upon the location and prescribed use of the premises and the terms of the lease.

Legal Aid

Unpaid legal aid is a qualifying debt if the debtor has already received the bill.

Legal fees

Legal fees are a qualifying debt.

Liability order

If a debtor defaults on their Council Tax payments, the local authority can get a liability order in the magistrates’ court. A liability order gives the local authority the power to take certain actions to recover their debt, including an attachment of earnings order and the power to use bailiffs to take control of the debtor’s goods.

A liability order does not make a debt secured. The debt will only become secured once the debtor has entered into a controlled goods or walking possession agreement.

If there is a liability order in place, the repayments should cease on the making of a DRO. If the goods are subject to a controlled goods agreement, the debtor will need to consider maintaining payments in order to keep the goods, but they cannot be included as an allowable expense, unless it relates to items for reasonable domestic needs.

Lien over immigration documents

Having a lien over immigration documents is different to a lien over a passport. Someone cannot travel if they do not have a passport, but if they do not have immigration documents, this could lead to deportation of children.

Given the nature of the documents held, a reasonable allowance could be made to pay the solicitor’s costs. However, payments towards debts where the creditor has a ’lien’ will be assessed on a case by case basis.

You need to assess income and expenditure and decide if the proposed solicitors payments are a ‘reasonable domestic need’.

Life insurance

If a policy is payable only on death, it is not regarded as an asset for DRO purposes.

If the policy has a cash value it is an asset for DRO purposes.

Life insurance monthly payments are an allowable expense.

An endowment policy that will mature in the future is classed as a contingent asset unless it has a current cash value when it is an asset.

Littering penalty

A littering penalty is a qualifying debt and should be scheduled in a DRO application.

Where the matter has been referred to the magistrates’ court and resulted in a conviction and a fine, the fine is an excluded debt.

Logbook Loans – Bill of Sale

To be valid, a bill of sale must be registered with the High Court. When it has, the debtor is no longer the legal owner of the vehicle. If the bill of sale is not registered, the debtor is the legal owner of the vehicle.

Where the logbook loan ends during the DRO period and ownership reverts to the debtor the DRO may be revoked if the value of the vehicle is greater than £4,000.

If the debtor does not want to keep the vehicle and the value of the vehicle is less than the secured debt, the balance of the debt should be treated as unsecured scheduled separately as an unsecured debt on the application.

If the debtor wishes to keep the vehicle and the vehicle is worth less then £4,000 the debt should be scheduled in 2 parts, secured and unsecured, and payments treated as an allowable expense.

If the debtor wishes to keep the vehicle and it has a value over £4,000 the debt should be scheduled in 2 parts, secured and unsecured, and payments not treated as allowable expense (and can only be paid out of disposable income).

Lump sum protocol

This applies where a debtor receives a lump sum during the period after a DRO has been made.

If a debtor receives a lump sum of £2,000 or more during the DRO period, they must report it to the official receiver and we will consider the case based on its own merits and make a decision whether revocation is appropriate or not.

Where a DRO is revoked and the debtor remains insolvent the debtor can use the lump sum to enter a different insolvency remedy for example bankruptcy or IVA.

Magistrates’ court costs

Where a fine is imposed by the magistrates’ court, the court must make a collection order unless it would be inappropriate to do this. The collection order will provide a breakdown of the balances owed for:
- the fine
- compensation
- victim surcharge
- the court costs
Where the magistrates’ court makes an order for the payment of costs, for the purpose of collection and enforcement, these are to be treated as payable under a conviction.

Where costs are to be treated as payable under a conviction, these would also fall under the Magistrates’ Court Act 1980 section 150 definition of ‘any pecuniary penalty or pecuniary forfeiture or pecuniary compensation payable under a conviction’.

Magistrates’ court costs are an excluded debt.

Magistrates’ court fines

Where a fine has been imposed by the magistrates court the fine will be an excluded debt. The debt will not count towards the £50,000 limit. The debt should be scheduled in the DRO application but marked as excluded.

Any payments towards a fine are an allowable expense.

Maternity Grant - Sure Start

For the purposes of a DRO application, a maternity grant is not classed as an asset.

The grant is given to help with the costs of a new baby. Any funds received should be spent on related expenditure for example a new cot or pram.

Maternity Pay - received as a lump sum before applying for a DRO

Where a debtor’s contract has been terminated they may receive a lump sum of maternity pay rather than monthly payments. In these circumstances the maternity lump sum should be apportioned over the period to which it relates to assess the debtor’s surplus income position.

In addition, the approved intermediary should take reasonable steps to identify any assets which may have been purchased or debts which have been repaid with the money which might impact on the debtor’s eligibility for a DRO.

Mobile phone contracts

Handsets / airtime

Mobile phones are an allowable expense that come under ‘Communications and Leisure’. This includes both airtime (minutes/sms/bundles) and handsets.

Only list payments that are in default as a debt in an application.

You do not need to include any remaining balance for handsets or airtime as a debt in the list of creditors.

This will help avoid the risk of termination of the contract by the provider, which can cause undue distress to the applicant if they wish the service to continue.

Hire purchase agreements

In some cases, the handset may be part of a hire purchase agreement. In this situation, follow the rules of a general hire purchase.

Read the hire purchase agreements and conditional sale agreements (#hire-purchase-agreements).

If the handset is not a hire purchase, the phone belongs to the debtor. The value of the handset or device should be checked to make sure it is not over the asset limit.

Preferences

Contractual payments made towards mobile phone contracts do not need to be reported as preferences.

However, if the client has made payments to clear any arrears, these should be reported on the application. The approved intermediary should include circumstances regarding the repayment.

Mobility scooters

There are 3 classes of wheelchair and mobility scooters:
- Class 1: manual wheelchairs
- Class 2: powered wheelchairs and scooters. For footway use only.
- Class 3: powered wheelchairs and scooters. For use on roads and highways.
A mobility scooter will normally not be counted as an asset for DRO purposes as long as the authorised intermediary is satisfied that it is necessary for the basic domestic needs of the debtor and its realisable value does not exceed the cost of a reasonable replacement.

Motor Insurers Bureau

The Motor Insurers Bureau provides compensation to victims of negligent uninsured and untraced motorists.

If the debtor is the uninsured party, a debt to the Motor Insurers Bureau which is a liability to pay damages in respect of death or personal injury is an excluded debt.

If the debtor is liable in a claim, this should only be scheduled as a qualifying debt to the extent of loss or damage to property.

Motability vehicles

Motability customers are moving to Personal Independence Payment (PIP) and might receive a lump sum payment if they become ineligible for the enhanced rate of the potability component of PIP. This lump sum will not be treated as an asset.

Vehicles that are subject to the Motability scheme are usually lease hire agreements and are not assets for the purpose of a DRO.

Payments under a Motability agreement are an allowable expense and should be scheduled in the list of outgoings.

Any allowance received for payment towards a Motability agreement (usually funded by Disability Living Allowance), should be shown in the income element of the income/ expenditure section of the application.

If the debtor has 2 vehicles and they need 2 vehicles and one vehicle is a Motability vehicle paid for out of the debtor’s benefits, the second vehicle should be treated as an asset in the usual way.

Motability vehicles - lump sum payment towards vehicle

Debtors can make a one-off lump sum payment to obtain a higher specification vehicle and continue with their normal payments from their mobility allowance.

In these circumstances the approved intermediary should consider the following:
- whether a lump sum was paid
- how much the payment was
- when the payment was made
- where the funds came from
If a debtor used savings to purchase a higher specification vehicle, rather than paying their creditors a proportion of what they owed, this could be a transaction to the detriment of creditors in the run up to their insolvency.

A lump sum top up to the detriment of creditors would not necessarily preclude a debtor from applying for a DRO, but it would be something the official receiver would think about investigating.

Motor traders

It is unlikely that anyone currently trading as a motor trader would be eligible to apply for a DRO as they buy and sell large numbers of motor vehicles, with varying values and, it is unlikely that they will meet the asset limit.

Motorbike valuations

The official receiver will accept valuations from reputable organisations like The Bike Market (http://www.thebikemarket.co.uk).

Multiple vehicles

A debtor can own more than one vehicle, one under the £4,000 vehicle exemption and the remaining vehicle under the £2,000 asset parameter. However, the approved intermediary must consider whether the expenditure associated with the second vehicle is an allowable expense.

National Insurance contributions

National Insurance (NI) contributions are a qualifying debt.

Debtors should be told that any shortfall in their NI contribution might affect their state pension. The debtor can check their national insurance record on GOV.UK (https://www.gov.uk/check-national-insurance-record).

NHS charges

Charges for NHS dental care are a qualifying debt.

Objections to a DRO

An objection to a DRO can only be made on a prescribed ground by a scheduled creditor owed a qualifying debt. Objections must be made within 28 days of that creditor being notified of the making of the DRO.

There is guidance available on GOV.UK about objections to DROs (https://www.gov.uk/government/publications/debt-relief-orders-guidance-for-creditors/debt-relief-orders-guidance-for-creditors#send-an-objection).

Obligations and duties of debtors

When applying for a DRO the debtor must:
- provide the OR with a full list of all assets and liabilities including a list of creditors
- comply with the OR’s request to provide information and cooperate fully if requested
When a DRO has been approved the debtor must:
- comply and fully cooperate with any OR request for additional information
- inform the OR of any assets or increases in income obtained whilst subject to a DRO, including lump sum cash payments, windfalls, property and money left in wills
- inform the OR of any errors or omissions in the information provided as soon as they become aware of them
- must not obtain credit of £500 or more without disclosing the fact that a DRO has been made
- must not make payments direct to creditors included in the DRO
Obtaining credit before the DRO

If the debtor obtains credit shortly before submitting a DRO application and a DRO is made details may be passed to the DRO Under Enquiry team to consider whether further investigation is appropriate.

Such an investigation may lead to a debt relief restrictions order (DRRO), a debt relief restrictions undertaking (DRRU) or the DRO being revoked.

Ongoing commitments

Debtors should continue to pay for continuing commitments such as rent and utility bills during the DRO period and after the order is made.

Overdraft

If a debtor’s bank account is overdrawn at the date of the DRO application, the overdraft is a qualifying debt for the purposes of a DRO.

Parkers Guide

Parkers (https://www.parkers.co.uk/car-valuation/) provide acceptable free valuations for most registered cars.

If a valuation is not available on Parkers, an approved intermediary can accept two valuations from independent and reputable sources.

We do not accept sites such as webuyanycar.com for realistic valuations for vehicles.

Parking charges

Parking charges are qualifying debts for the purposes of a DRO.

Pawnbroking agreements

A pawnbroking agreement involves the debtor taking out a loan which is secured against an item they own. The item can then be redeemed once the loan is repaid. In most cases, the debtor retains ownership of the item, but the pawnbroker can sell the item if the debtor defaults on repayment.

The approved intermediary will need to check the value of the pawned item to ensure this does not breach the asset parameter. If the item is one that falls under disregarded property, this will not count towards the asset limit.

The full balance outstanding counts towards the £50,000 liability parameter. However, the agreement will be a secured loan to the extent of the value of the goods and will not be a qualifying debt. The debt should be marked as secured on the application.

If the value of the goods is not enough to cover the debt, the unsecured part will be a qualifying debt. To establish this, the approved intermediary will need to find out the item’s realisable value. This is the amount that the pawnbroker would receive if they sold the goods. The debtor can ask the pawnbroker for confirmation of this figure.

In cases where the loan was for £75 or less and the loan is not repaid within the ‘redemption period’, then ownership of the goods passes to the pawnbroker and they can sell the item. If ownership has passed to the pawnbroker, the debt is no longer secured and will be a qualifying debt.

Payments to buy back items are not an allowable expense and are only permitted from the debtor’s disposable income. It is recommended that the debtor deals with pawned assets before applying for a DRO. However, a third party could make the payment from their income.

Preferences to pawnbroking agreements

Repayments to a secured debt do not need to be recorded as a preference. Secured debts are not qualifying debts.

Repayment made to reclaim the goods where ownership has passed to the pawnbroker and the debt has become a qualifying debt, will need to be reported as a preference on the application. The approved intermediary should include details regarding the circumstances of the repayment.

Pawned items

The approved intermediary should:
- Identify what is pawned.
- The value of the item.
- The date the item was pawned.
- How the funds received were used.
- Where the legal title to the pawned goods lies - with the debtor or the broker - this will depend upon the terms of the agreement.
If, as is usual, the debtor is still the legal owner of the goods, then they will count towards the £2,000 asset limit.

Payments to buy back items are only permitted from the debtor’s disposable income.

It is recommended that the debtor deals with pawned assets before applying for a DRO. This might be by redeeming the items and selling them at market value and making pro rata payments to all their creditors.

Pay advance

An advance of salary to assist with the purchase of a rail season ticket is not a qualifying debt for the purpose of a DRO application.

Where the debtor had an advance of salary for other purposes and they stay with that employer so that they have provided the contracted services for which they have been paid, there is no debt to the employer.

If the debtor’s employment ends before providing the contracted services, and they have been paid for any advance which cannot be recovered from salary, this is a qualifying debt.

If a debtor obtained an advance of salary for a purpose other than travel, then the approved intermediary should determine what the advance was used for.

See Employer loans (#employer-loans)

Payday loans

A payment for a payday loan would not normally be considered a preferential payment for DRO purposes where a continuous payment authority (#continuous-payment-authority) was given at the time the loan is taken out, as the debtor has no control over the payment being deducted.

But it is expected that the debtor takes all reasonable steps to ensure that further payments are not deducted. A continuous payment authority can be withdrawn by contacting the bank.

Payment Protection Insurance

A qualifying debt covered by Payment Protection Insurance (PPI) remains a qualifying debt for DRO purposes.

A debt that has been offset by a PPI less than 2 years before a DRO is applied for will not be treated as a preference for DRO purposes.

Payment Protection Insurance – already paying to creditor

Where a creditor is still receiving payment from the PPI their debt remains a qualifying debt and payments are not classed as a preference payment.

The debtor should be told to tell the PPI insurers that a DRO has been made.

Payment Protection Insurance – offset

The official receiver takes the view that a creditor may exercise a right of set off by deducting from a PPI settlement a debt scheduled in a DRO once the DRO period has ended. A right of set off is not a remedy and may be applied after the DRO whether or not the debt has been discharged.

Penalty Charge – fixed

Fixed penalty charges issued on behalf of a local authority, including those in relation to the London congestion charge, are not fines.

They should be treated as qualifying debts and will be released at the end of the DRO period. This is applicable to most parking charges.

Penalty Notice - DVLA

A penalty notice issued by DVLA, (this might be for something like not paying car tax) is a civil penalty notice and not a fine. This is a qualifying debt.

If the debtor did not pay the penalty and a court fine has been issued by a magistrates’ court, the fine is an excluded debt.

Pensions

DRO Pension criteria

For anyone 55 and older, their pension may impact on their eligibility for a DRO. As part of your assessment, you need to determine if the pension:
- should be treated as income – applies where the pension is in payment
- can be accessed as a lump sum and used to pay off the whole debt
- should be treated as an asset – applies where the pension is not approved by HMRC as being tax compliant
You do not have to consider pensions for those younger than 55.

Read more information about workplace and personal pensions (https://www.gov.uk/browse/working/workplace-personal-pensions).

Pension as income

A pension is only considered income (#income) when it is being paid out.

You must include any regular income from the pension when assessing an applicant’s surplus income.

Pension accessible as a lump sum

If an applicant has a pension, you need to assess if they can use their pension to pay off their debts. You must do this even if they are currently receiving regular pension payments.

You must:
- check a recent pension policy statement to assess the value of the pension
- confirm if the individual can take money from the pension to pay off their debts in a reasonable timescale
When assessing the value of a pension, you need to allow for tax deductions and any fees that apply. Only the first 25% of a pension drawdown is accessible tax-free.

Speak with your technical team or specialist debt advice service (SDAS) about where to find more information on assessing pension pots.

After assessing the pension, you must determine if the total value of the individual’s pension and assets is:
- less than the total debt
- marginally more than the total debt
- enough that debts can be fully repaid
- more than the total debt but not accessible
What to do next for each of these circumstances is explained below.

Less than total debt

An applicant is unable to pay their debts if the value of the pension (together with other assets) is less than their total debt.

These individuals are eligible for a DRO.

Marginally more than total debt

If the value of the pension (together with other assets) is more than the applicant’s total debt you must make a realistic assessment of whether the debt can be repaid in full.

When making your assessment, think about how long it will take the individual to get money out of their pension and how much the debt will increase during that period.

Urgent household costs, such as maintenance or repairs, may be taken into account when assessing an individual’s ability to repay their debts.

Debts can be repaid in full

Individuals do not meet the DRO eligibility criteria if:
- the value of their pension and other assets is enough to repay all debts in full
- they have access to their pension and can get the funds they need to pay off their debts
More than the total debt but not accessible

Individuals whose pension and assets are more than their debts can sometimes still get a DRO. They’re eligible for a DRO if a contractual or legal issue prevents them from accessing their pension at the date the DRO application is made.

When this is the case, you should submit the application with a supporting email and commentary to xxx@xxx.xx (mailto:xxx@xxx.xx). Use the subject “Pension” and the application number.

We may come back to you if we need more information or have any further questions.

Speak with your technical team or specialist debt advice service (SDAS) about where to find more information on assessing pension pots.

Pension as an asset

Pensions are excluded from the calculation of assets in a DRO application, with the exception of unapproved pensions.

The value of an unapproved pension must be listed as an asset in a DRO application. It should be listed as an asset (not as income) regardless of whether the individual is currently receiving regular pension payments.

Unapproved pensions are not UK tax compliant and are:
- not through a UK occupational scheme with a national or international based organisation (such as the Armed forces, Civil Service, Bank)
- not operated by a major UK pension provider or insurer (as defined by HMRC)
The most common type are foreign pensions. Apart from these, unapproved pensions are very rare.

Personal Contract Purchase

A personal contract purchase (PCP) is a form of vehicle finance.

A PCP contract requires the customer to make monthly payments for a set contract period with the right to drive the vehicle. At the end of the period the customer can make a final payment to take ownership of the vehicle or return the vehicle without penalty.

Ownership of the vehicle while payments are being made is retained by the finance company. A PCP is a conditional sale agreement (#conditional-sale-agreement).

PCP contracts should be treated in the same manner as conditional sale (#conditional-sale-agreement) or hire purchase agreements (#hire-purchase-agreements).

Personal health budgets

The NHS has information on personal health budgets (https://www.nhs.uk/nhs-services/help-with-health-costs/what-is-a-personal-health-budget/)

A PHB is not an asset or income and should be treated as allowable expenditure as it can only be spent on the debtor’s care needs.

Any overpayment of a personal health budget would be a qualifying debt for DRO purposes.

See also independent living payments (#independent-living-payments)

Personal injury compensation

Where a debtor is awarded personal injury compensation the approved intermediary should find out if the right of action (https://www.gov.uk/guidance/technical-guidance-for-official-receivers/37-rights-of-action) relates to general damages or special damages.
- Special damages, like loss of earnings, care and assistance, travel and expenses are an asset for DRO purposes.
- General damages, like compensation for the injuries received, are not an asset for DRO purposes.
If an amount received from general damages is converted into assets during the DRO period then the debtor’s eligibility for the DRO will need to be reviewed.

If an accident leading to a right of action happened before you put in the application for a DRO, then put details of this contingent asset in the application and tell the OR about any payment made or likely to be made within the DRO period (which can be extended for a short period).

If an accident leading to a right of action happens within the moratorium period then the OR should be notified and the lump sum protocol (#Lump-Sum-Protocol) will apply.

Information on the Windrush Compensation Scheme is on GOV.UK (https://www.gov.uk/apply-windrush-compensation-scheme).

Personal Independence Payment

Personal Independence Payment (PIP) helps with some of the extra costs caused by long-term ill health or a disability if you’re aged 16 to 64.

Backdated PIP not taken into account for the ‘insolvency test’

Backdated PIP is not taken into consideration when assessing if the debtor is able to pay their debts under the ‘insolvency test’ (found in section 251A of the Insolvency Act 1986 (https://www.legislation.gov.uk/ukpga/1986/45/section/251A)). Debtors are not expected to use their backdated PIP to pay their debts.

Power of Attorney

There are 3 types of Power of Attorney:
- Lasting Power of Attorney (https://www.gov.uk/power-of-attorney) (LPA) – applies after 1 October 2007
- Enduring Power of Attorney (https://www.gov.uk/enduring-power-attorney-duties) (EPA) – applies before 1 October 2007
- Ordinary Power of Attorney (https://www.gov.uk/make-decisions-for-someone) (OPA)
Lasting Power of Attorney - debtor

A lasting power of attorney (LPA) lets a person (donor) appoint one or more people (attorneys) to help them make decisions on their behalf.

If your client has a DRO approved by the Insolvency Service, they cannot hold an LPA for the financial affairs of another person.

The DRO needs to be reported to the Office of the Public Guardian (https://www.gov.uk/government/organisations/office-of-the-public-guardian). The LPA is automatically cancelled (even if it’s not in use), unless there are other people named without a DRO.

A new LPA in relation to the financial affairs of another person would need to be made after the DRO has ended.

However, your client can still hold an LPA for personal welfare.

Lasting Power of Attorney – third party over debtor’s affairs (https://www.gov.uk/lasting-power-attorney-duties)

Your client can make decisions on someone’s behalf if they are appointed using an LPA (as an ‘attorney’).

When a DRO is made, an LPA for the financial affairs of the debtor will be automatically cancelled.

This means a third party will not be able to continue to act on their behalf in relation to their financial affairs.

Applying for a DRO might not be in the client’s best interest as there would be no authority for another person to act.

The debtor can apply for a further LPA at the end of the DRO.

Power of Attorney - DRRO/DRRU (https://www.gov.uk/government/publications/debt-relief-restrictions-orders-and-undertakings/debt-relief-restrictions-orders-and-undertakings)

If your client has a DRO and the official receiver thinks they have been dishonest or are to blame for their debts, the court can make a debt relief restrictions order (DRRO).

If they accept the allegations, they can enter into a debt relief restriction undertaking (DRRU).

Both the DRRO and DRRU extend restrictions. Power of attorney is suspended for as long as the restrictions order or undertaking is in place.

Ordinary Power of Attorney – debtor

An ordinary/general power of attorney (GPA) can only be used while the debtor has mental capacity.

If a DRO is made, the GPA will not automatically be cancelled.

It will get cancelled if the DRO makes the person appointed less able to perform their duties.

It will be assessed on a case-by-case basis. This assessment is not carried out by the DRO team.

Preference

A DRO application could be affected if, within 2 years of the DRO application, the debtor has made payments to one or more creditors in preference to other creditors.

In reaching a decision on whether to approve or decline a DRO application, the official receiver will have to consider the amount of the payment, whether it would have altered the financial position had it not happened, consider the timing and the reason behind the payment.

Where funds are deducted from benefit or wages as an attachment of earnings order to one creditor payments will not be classed as a preference.

For further information, see Annex A (#AnnexA)

Previously owned properties

Where a client informs their approved intermediary that they have previously owned a property that has been sold within the last 2 years, ask the client to provide a copy of the completion statement and details of how any funds received have been spent.

Prisoners

Where an individual is in prison, they are not prevented from obtaining a DRO.

Unless the prisoner is at risk of violence, reference to any prison address will remain in the debtor’s description and included in any documentation sent to creditors. It will also appear on the Individual Insolvency Register (IIR).

If the debtor wishes to withhold the prison address from the case description, they will need to make an application for a person at risk of violence (PARV) order (#parv).

Private number plates

Private number plates are treated as individual assets as they can be bought and sold without a vehicle. You will need to make sure the private number plate does not exceed the £2,000 asset limit.

Protected persons

If the client is part of a protected persons programme there is a special scheme in place. The protected persons team will liaise with the approved intermediary completing the DRO application and the manager of the DRO Team. You will not need to follow the PARV process.

Reasonable domestic needs

Surplus income for DRO purposes is the amount by which monthly income exceeds the amount necessary for the ‘reasonable domestic needs’ of the debtor and their family. All income is taken into account when calculating this figure, including Disability Living Allowance (DLA), Child Benefit and Child Tax Credit. Any amount paid by a family member towards reasonable domestic needs is also taken into account.

The standard financial statement is used to assess a debtor’s income and expenditure which normally includes a small allowance for savings. When calculating surplus income for a DRO no allowance should be made for savings.

DLA and equivalent benefits paid to the debtor can be offset against adult or childcare costs as appropriate.

Redundancy payments

Where a debtor receives a repayment relating to redundancy during the DRO period whether the funds are classed as income or as an asset depends upon the reason for the payment.

Redundancy Payments and payment in lieu of notice are treated as assets for the purposes of a DRO.

Unpaid wages, including holiday pay, together with payments in respect of wages during a worked notice period are treated as income.

Refugee integration loan

A refugee integration loan is a qualifying debt.

If the debtor has this type of loan, they might also be making an immigration application. Therefore, the debtor should seek specialist immigration advice on the implications of a DRO.

Removal costs

You do not need to include any funds the debtor has put aside for moving costs even if this amount exceeds the £2,000 asset limit.

The money can be used for moving costs, but you need to see evidence of the costs and will need to send a supporting email at the time of submitting the DRO application.

Rent arrears

When calculating the debtor’s income and expenditure, you should not allow rent arrears as an allowable expense, even if there is a suspended possession order (SPO) in place.

If the debtor wants to make payments towards the outstanding rent arrears from their disposable income, the official receiver would not take any action.

Rent arrears are a qualifying debt in a DRO.

Rent arrears accrued at the date of the DRO are qualifying debts. The landlord, as a creditor, will lose their rights to recover the rent arrears through any means. However, where a landlord has a defaulting tenant (by reference to accumulated rent arrears) they can seek possession of the property both before and after the making of a DRO or bankruptcy order, whether or not the arrears are a qualifying debt. No leave of the court is required to either continue or commence the possession proceedings.

A possession order suspended prior to the making of the DRO or bankruptcy order might be varied after the making of the order to exclude the rent arrears.

When completing an assessment of essential expenditure for the purposes of a DRO no allowance should be made for the payment of rent arrears. This includes whether or not at the time of completion the debtor is under a SPO. For DRO purposes this would give the true reflection of whether their surplus income exceeded the £75 qualifying limit.

After a DRO is made, the debtor can apply to the court to vary the terms of the suspension, for example to exclude rent arrears. The debtor should be advised to seek specialist housing advice before taking this step.

You should tell the debtor that they need to keep making payments under the terms of the SPO before the SPO has been varied by the court.

Rent deposits

A landlord cannot withhold a debtor’s deposit in order to offset rent arrears scheduled in a DRO.

A landlord can keep part of the deposit to pay for damage to the property if such a provision is included in the tenancy agreement.

Rent deposit – not protected

In some cases, a debtor might have a potential claim against their landlord where the landlord did not protect the tenancy deposit in a tenancy deposit scheme. A debtor could potentially make a claim against the landlord to pay the tenancy deposit back and compensation up to 3 times the value of the tenancy deposit.

Since the test for debts is whether it’s a liquidated sum payable on demand, it would be deemed a ‘right of action’, rather than ‘money owed’. Therefore, the right of action would be counted as the debtor’s property. If they failed to declare this right of action on the DRO application, they will have made a mistake on the application.

However, where proceedings are in their infancy, and the claim is somewhat speculative, and the value of the same has not been determined then the debtor would not be precluded from applying for a DRO.’ In this case, the right of action should be noted on the DRO application but as no value has been established it would not be scheduled as an asset.

The debtor has a duty to report any errors in or omission from the application, and this duty is ongoing after the end of the moratorium.

If the claim is successful pre-DRO, the client might receive the monies directly. If this happens, it is viewed as cash at bank.

Rent Deposit Scheme

If the debtor has paid a rent deposit that is protected by a tenancy deposit scheme, this would not be classed as an asset.

If the debtor moves and the deposit is returned to the debtor this will need to be reported. If the debtor can evidence that the returned tenancy deposit is to pay for a subsequent tenancy deposit, the deposit will be disregarded and the DRO will not be revoked. Where a subsequent tenancy deposit is not required or where the deposit is of a lower value, these funds are an asset and the lump sum protocol will apply.

If the debtor moves and has the deposit transferred from one registered social landlord or tenancy agreement (if privately renting) to another then this will not affect eligibility.

If the debtor receives the tenancy deposit before applying for a DRO, the funds will be viewed as an asset.

Residency in the UK

If the debtor is not a UK citizen and could be asked to leave the country by the Border Agency in the future they can still apply for a DRO.

If the debtor is concerned that a DRO might affect their immigration status they should check with the Home Office (https://www.gov.uk/government/organisations/uk-visas-and-immigration).

See also citizenship applications – effect of insolvency (#citizenship-applications)

Restrictions imposed on an applicant subject to a DRO

Debtors who have had their DRO application approved will be subject to some restrictions during the DRO (https://www.gov.uk/government/publications/getting-a-debt-relief-order/getting-a-debt-relief-order#restrictions).

Retention of title

A retention of title clause allows a supplier to retain ownership over goods supplied until certain conditions are met (usually payment) and provides the supplier with a form of security against the buyer’s default or insolvency.

The creditor can remove their goods, if the terms of their agreement allows, meaning they are no longer the debtor’s assets.

Revocations

Where a debtor is found to have been in breach of the DRO conditions, the official receiver might revoke the order and the debtor will again be liable for the scheduled debts.

Once a DRO has been revoked, only a court order can reverse that decision.

Details of the revocation will appear on the IIR a day after the order has been revoked and remain on the IIR for 3 months. Details may be held by various credit reference agencies usually for 6 years.

Revocations – applying for bankruptcy

If a debtor ceases to be eligible for a DRO and has been notified of an intention to revoke the order they should not apply for bankruptcy until the revocation has taken place.

A bankruptcy order cannot be made on the same debts that are listed in a current DRO. We normally allow 28 days from notification to revocation of a DRO so a debtor can get their affairs in order but if it is urgent that the bankruptcy be made sooner for any reason, the debtor or approved intermediary should contact the DRO team (mailto:xxx@xxx.xx).

Right of action

A right of action (https://www.gov.uk/guidance/technical-guidance-for-official-receivers/37-rights-of-action) should be disclosed in a DRO application and reported during the DRO period as it might impact the debtor’s eligibility for a DRO.

Right of set off

Some banks and financial institutions may have the right to transfer cash from bank or savings accounts to pay off other debts held with them, such as credit cards or loans. The right to do this will be stated in the terms and conditions and will relate to funds deposited in an account before a DRO application is approved.

Risk of violence from creditor

A debtor might be worried that if their qualifying debt is listed, the relevant creditor will find out and subject the debtor to violence. This situation might happen in a case where the debtor owes money to a family member or friend.

A qualifying debt cannot be excluded from the DRO application, but you can leave the address section blank when listing the debt. This will stop the creditor from being sent any notification of the DRO. If you leave the address blank for this reason, you should send a supporting email when submitting the DRO application.

You will need to consider whether withholding the address is appropriate action.

Salary Sacrifice – childcare

Credit funds held in a childcare salary sacrifice scheme are not able to be withdrawn and are not classed as an asset for DRO purposes.

Salary Sacrifice – leased vehicle

A debtor with a salary sacrifice scheme to finance a lease car may not be eligible for a DRO.

The approved intermediary should ask whether the debtor needs a car for their employment and satisfy themselves that the monthly payments are a reasonable expense given that they will not be funds available to his creditors.

You should look at:
- when the agreement was taken out
- whether public transport is available
- whether the lease payments compare favourably to the cost of public transport
The approved intermediary must be satisfied that there are no reasonable alternatives and that the sum scheduled for vehicle payments genuinely meets the reasonable domestic needs of the debtor and their family.

Save as you earn schemes

A ‘save as you earn’ (SAYE) scheme is a savings related share scheme where shares can be bought with savings for a fixed price after a period of 3 to 5 years.

Contributions towards the scheme are not an allowable expense.

You will need to establish whether the debtor has purchased shares or can access the lump sum. If the client has purchased shares or is able to access the lump sum, you will need to make sure the asset limit of £2,000 is not exceeded. If the debtor has not purchased shares and cannot access the lump sum, you do not need to report the scheme as an asset.

More information in employee share scheme (#sharescheme)

School fees

The exact nature of the school fees must be established as some might be an allowable expense. This would be things like school lunches, school trips, extra tuition and special needs costs.

Fees for attending a private school are not normally regarded as an allowable expense. If the debtor deems it to be a necessary expense, they will need to provide significant evidence to justify this. You should ask why the child attends a private school.

School penalty for children not attending school

This is a penalty notice and a qualifying debt for the purposes of a DRO. If the penalty is not paid, inclusion in the DRO will not prevent the local authority from issuing a summons and a fine could result.

A fine issued by a magistrates’ court for a child’s non-attendance is an excluded debt for DRO purpose. Any associated court costs are qualifying debts.

Secured creditors

A DRO does not affect the rights of a secured creditor. Where a creditor has secured their debt, they will have the right to recover their property if repayments have not been made. There is further information on secured creditors enforcing their rights in taking control of goods (#taking-control-of-goods) or Bailiffs (#bailiffs)

Secured creditors (or the secured element of the debt) must be listed on the DRO application and identified as a secured debt by marking the relevant tick box. If the value of a secured item is less than the total amount of the secured debt, the balance of the debt is treated as unsecured. This would form part of the DRO and must be scheduled separately as an unsecured debt on the application.

Payments to secured creditors should be scheduled in the DRO and an explanation provided, payments must be made from the debtor’s surplus income.

Self-employed taxi drivers

Where a debtor is a self-employed taxi driver, the approved intermediary should provide the following information when they submit the DRO application:
- Rent for any vehicle used to provide taxi services.
- Associated costs, especially where no vehicle has been recorded in the DRO application.
- Details of how the income and expenditure has been calculated.
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.

If you have a client that is sending money abroad, we would advise you to contact the DRO ‘Preorder’ team (mailto:xxx@xxx.xx) with:
- The full circumstances that explain why the payment is being made abroad.
- How long they have been making these payments.
- Why the family are living apart.
- Any other relevant information your client has provided about the situation.
Once we have full details of the client’s situation, we can consider whether payments sent abroad are allowable expenses or not.

Social fund and budgeting loans

Social fund and budgeting loans (https://www.gov.uk/budgeting-help-benefits) are an interest-free budgeting or crisis loan from the social fund, aimed at individuals who are on a low income and need help with certain important costs.

Any amount from a Social fund loan does not count towards the £50,000 threshold. It’s excluded from the total of debts owed.

Monthly payments to social fund loans are an allowable expense.

A budgeting advance under Universal Credit is not part of the social fund and is a qualifying debt.

Spare room subsidy

If a debtor has their housing benefit capped under the spare room subsidy legislation due to under occupancy, then increased contributions towards rent may be an allowable expense. However, it is not an allowable expense if the debtor is receiving discretionary housing payments, as this would be paid to cover the shortfall and should be shown as income on the DRO application.

If during the DRO period the debtor moves and they are no longer required to pay the shortfall, their income and expenditure may need to be reassessed.

Spare room subsidy or local housing allowance and benefit capping

A client might have their benefits capped (a reduction in the amount of benefit awarded) through:
- spare room subsidy (social housing tenants)
- local housing allowance restrictions (private rented tenants)
- benefit cap (social and private tenants)
The client is expected to meet any shortfall from existing resources. Actual income and contractual rent due needs to be listed separately.

If Discretionary Housing Payment has been awarded, it counts as income and needs to be listed as such.

Spare room subsidy award payments and discretionary housing payment

Spare room subsidy award payments or discretionary housing payments are given by local authorities to people who move as a result of the spare room subsidy.

As long as the debtor can demonstrate that the payment is directly required to cover necessary expenses of moving and decorating or refurbishment, they will not impact the DRO.

Special Guardianship Allowance

Payments received for a debtor who caring for a child under a special guardianship order should be treated as income and must be included in any DRO application.

This allowance is means-tested but local authorities have to assess how much fostering allowance would have been paid had the child been fostered rather than cared for under a Special Guardianship Order. The rate for special guardianship allowances should be calculated in line with fostering allowances. Deductions might be made to take into account Child Benefit and Tax Credit.

Payments may also be made to contribute towards the expenditure necessary for the purposes of accommodating and maintaining the child.

Specialist Debt Advice Service - Shelter

The Specialist Debt Advice Service (SDAS) provide an advice service to debt advisers from free to client advice agencies, including:
- Local Citizens Advice
- Housing Associations
- Local Authorities
- Institute of Money Advisers (IMA) and Advice UK members
- Other non-profit and free to client advice agencies
They are the agreed point of contact for technical advice on DROs and where possible they will provide answers and information to specific queries and possibly make suggestions on how the approved intermediary should proceed.

Please use all other available resources and technical guidance before using this service.

Contact the Specialist Debt Advice Service (https://england.shelter.org.uk/professional_resources/debt_advice)

Speeding fines

Speeding fines are excluded debts for the purposes of a DRO. Speeding fines are issued by the police authority and not the local authority and should be marked as excluded on the DRO application.

See fixed penalty notice (#fixed-penalty-notice)

Start up loans

DWP start up loans (https://www.startuploans.co.uk/) are a qualifying debt for DRO purposes and should be included in the DRO application.

Statute barred debts

Before the DRO application is submitted, if the approved intermediary has established that limitation applies to a debt and the debtor has evidence that the debt is statute barred, then the debtor can choose not to list the debt in their DRO application.

The approved intermediary should be satisfied that the debt is statute barred and keep any evidence on the debtor’s file.

Section 251A (2)(a) of the Insolvency Act 1986 states that a qualifying debt is a debt that is for a liquidated sum payable immediately or at some certain future time. If a debt is statute barred it does not meet this definition and is not a qualifying debt.

Limitation periods for debts differ. If a debt is acknowledged in writing or a part-payment is made while the limitation period is running, then time starts to run again, potentially extending the life of the debt.

If the creditor has previously taken a debtor to court and obtained a judgment, the debtor will be unable to use the Limitations Act 1980 to dispute the debt. If the judgment is over 6 years old, the creditor may need the permission of the court to enforce the debt.

If there is uncertainty as to limitation, we recommend that all unpaid debts, including potentially statute barred ones, are scheduled in the DRO, especially if the inclusion of this type of debt does not bring the total to over £50,000.

If the debtor chooses to leave a statute barred debt out of the DRO application and the Official receiver discovers that it was not statute-barred and, at the date of the DRO application the debts exceed £50,000, the DRO will be revoked.

If a debtor knows that they have a statute barred debt but has no information about it and it does not appear on any credit reference reports, an application can proceed without including the debt.

If statute barred debts are not scheduled in a DRO application, a note should be included in the application, explaining that there are statute barred debts detailing the sum if known or explaining the quantum is unknown, or an email sent to the DRO Team explaining this before the application is submitted.

Debts barred by limitation or are otherwise unenforceable, do not need to be included as qualifying debts for the purposes of a DRO and if they are not listed will not count towards the £50,000 debt limit.

Statute barred debts for benefit overpayments

As the benefit provider has a remedy to enable recovery from future benefits or deduction from earnings, the debt cannot be excluded from the DRO. It is not barred by limitation.

The effect of the DRO subject to the overpayment arising from fraud is to prevent further deductions being made during the DRO period.

Stock

Stock held by a debtor will normally be an asset for DRO purposes.

The official receiver will consider these matters on a case-by-case basis. For example, if the debtor ordered items specifically for a client, (for example, an Avon representative ordering for customers) this might be excluded as an asset. However, if the debtor ordered stock on a speculative basis and that stock was worth more than the asset limit, the debtor may be ineligible for a DRO.

Student grant

Overpayment of a student grant or bursary is a qualifying debt for DRO purposes. This applies even if the course period the grant was for has not finished, if debt is a liquidated sum and repayment has been requested

The income from a grant can be assessed over the 9 months of studying or for the full year.

Student loans

Student loans are excluded debts for DRO purposes. The amount of the loan must be scheduled in a DRO, but it does not count towards the £50,000 limit.

Even if a DRO is made, the loan remains the responsibility of the debtor to repay within the terms of the agreement.

Student debts sold to a commercial third party remain excluded debts.

Money received from a student grant or loan is income and should be apportioned across the months it relates to.

If a debtor requests a student loan they should inform the lender of their intention to apply for a DRO and ask the lender to provide written confirmation that they granted the loan in full knowledge of the insolvency.

Where they already have a student loan the debtor should inform the lender of the DRO when applying.

The 24+ Advanced Learning Loan is a variation of a student loan, but it is still classified as an excluded debt.

Maintenance loans are treated in the same way as student loans.

Suspended custodial sentence - non-payment of council tax

If the applicant is subject to a suspended custodial sentence due to non-payment of council tax, the debtor can apply for a DRO and schedule the unpaid council tax as a debt. If the DRO is approved the debtor can apply to court to request that a stay of criminal proceedings on the grounds the debtor’s liability will be discharged under the terms of the DRO.

Taking control of goods

An enforcement agent who has entered premises (for example to collect council tax under a liability order or with a warrant of control from the court) may immediately take goods to sell in order to settle the debt. However, they will normally enter into a controlled goods agreement. If this happens, the debtor keeps possession of the goods but has to make repayments to prevent them from returning to seize the goods.

No creditor with a qualifying debt can take action against the debtor or their property without leave of the court. This includes the right to begin the process of taking control of goods.

Before a DRO

Once a controlled goods agreement has been entered, the debt will become secured but only for the value of the goods.

Details of the debt should be entered in the DRO as a secured creditor to the value of the goods and unsecured for the balance. Monthly payments may be an allowable expense if the goods are for the basic domestic needs of the debtor and their family.

Where the value of the goods is not known the debt should be listed as unsecured.

During the DRO period

If the debt has been scheduled in the DRO and debtor signed the controlled goods agreement after approval of the DRO, the DRO supersedes the controlled goods agreement

The goods listed in the controlled goods agreement are not always classed as an asset. Items that would normally count as basic domestic need are not considered as an asset. However, items that do not count as basic domestic needs would count as an asset.

Payments can continue if they represent a reasonable domestic expense.

Tax and self-assessment

At the date a DRO is made, any tax liability calculated up to this point via a tax return or assessment is a qualifying debt. Even if the assessment is disputed by the debtor.

Tax and self-assessment - payments on account

Payments on account are advance payments towards a tax bill and cannot be scheduled in a DRO.

As the figures provided by HMRC are estimates of tax liability based on the previous year’s tax return. They are not finalised until the debtor completes their self-assessment tax return.

Timeshares

A timeshare is a way of buying a stake in a property without purchasing the whole property. The main incentive is that an individual would have access to a property they could not afford to buy outright. Finding out the value of a timeshare can be quite difficult. There is more information on timeshares in our technical guidance for official receivers (https://www.gov.uk/guidance/technical-guidance-for-official-receivers/28-freehold-and-leasehold-property).

You should ask:
- when the client bought the time share
- how much they paid (with evidence)
- how did they finance the purchase (cash or credit agreement)
- if they bought it with a finance agreement, what is the outstanding balance
- if it was bought with someone else
- what the outstanding maintenance charges are (if there are any)
- whether they have tried to sell the time share
- if they sold it, who they sold it to and when (with evidence)
- the debtor if they have asked whether the time share trustees are prepared to purchase back the time share (with evidence)
If the client can provide evidence of similar timeshare values, this would be useful to help decide if there is any intrinsic value.

Ebay (https://www.ebay.com/sch/i.html?_nkw=timeshare) or other selling sites could be used to look for prices.

Tithing or tithe payments

Tithe payments are regular monthly payment from income to a charity or a religious organisation or place of worship. This expenditure should not be funded at the expense of creditors so should not be included as an allowable expense.

Debtors may continue to make these payments, but they should be funded from surplus income.

Tobacco

We expect intermediaries to calculate monthly disposable income in the normal way. As long as you are satisfied the debtor is within the relevant spending guidelines then tobacco, related costs can be included.

Tomlin order

A Tomlin order is a court order under which court action is paused, on terms agreed in advance between the parties and are included in a schedule to the order. It’s a form of consent order. The order permits either party to apply to court to enforce the terms of the order, avoiding the need to start fresh proceedings. A debt subject to a Tomlin order is a qualifying debt for a DRO.

Tools of the trade

When trying to find the value of a debtor’s property, the official receiver might ignore tools, books and other items the debtor needs to personally use in their employment, business or vocation.

To qualify the debtor must either be currently employed or actively looking for employment in a role requiring the use of those tools. If the debtor is unemployed, the approved intermediary must be satisfied that the debtor has a reasonable expectation of returning to work.

Should the debtor not have a reasonable expectation of returning to work, the tools may be considered an asset by the official receiver.

Vehicles are not tools of the trade.

Trade debts

If the debtor wishes to list what looks like trade debts, you should check whether they are trading or have ever traded. If they have, details should be entered in the DRO application. If the answer is no, you need to send in a supporting email at the time of submission explaining the inclusion of the trade debt.

Transitional lump sum payments of Universal Credit

Payments in the form of additional income, where the debtor is employed may lead to a review of income and expenditure. If they are solely in receipt of means tested benefits, this will be disregarded.

Where a lump sum payment is received in lieu of any disability premiums lost as a result of moving to Universal Credit, this will be treated the same as backdated PIP, DLA or AA benefits.

Trust funds

Trust funds for the benefit of the debtor are classed as assets.

Approved intermediaries should consider the level of debt, amount of money in the trust fund and when and how these funds can be accessed in deciding whether the debtor meets the DRO criteria.

Trustee of a charity

Debtors subject to a DRO cannot act as a trustee of a charity.

Tuition fees

Tuition fees are qualifying debts for DRO purposes. Ongoing payments towards course fees are not usually an allowable expense but should be judged on a case-by-case basis.

TV licence

Any TV licence arrears owed should not be scheduled in a DRO as legally payments must be made and brought up to date.

Any outstanding debt is not discharged at the end of the DRO period.

Payments towards arrears are an allowable expense.

TV prepayment meters for household items

The approved intermediary should find out if the agreement is hire purchase or a loan. The usual loan or hire purchase guidance (#hire-purchase-agreements) will apply.

Undervalue transactions

A DRO application may be affected if the debtor has given away or sold for less than its true value any property in the 2 years prior to the DRO application. All potential undervalue transactions should be included in the application and we will consider the circumstances to determine whether to approve or decline the application.

For undervalue transactions, you should look at:
- whether the debtor was insolvent at the time of the transfer
- why the debtor transferred the property
- when they transferred the property
- who they transferred the property too
- whether it was valued at the time of transfer and provide evidence
- what the value of the transferred property was, and provide evidence
- how much consideration the debtor received, if any
- what the debtor has done with any funds they received
- whether the debtor got legal advice for the transfer
- whether the debtor kept any interest in the property
Unliquidated debt

An unliquidated debt is a debt where the amount owed cannot be determined from the terms of the contractual agreement or another standard.

For example, if the debtor has a mortgage or charge against the property, the exact amount of the liability is not known, as there could be a shortfall in the property sale.

Unliquidated debts are not qualifying debts.

Unpaid fare notices and penalty fares

The National Rail Penalty Fare Guidelines (https://www.nationalrail.co.uk/Penalty%20Fares%20Guidelines%202018.pdf) has 2 types of penalties, unpaid fare notices and penalty fares.

Unpaid fare notices and penalty fares are qualifying debts for a DRO.

Non-payment of both could result in referral for prosecution. Where it is viewed there was a deliberate attempt to avoid paying the fare, a debtor can be prosecuted. If a debtor is convicted of fare evasion, the penalty fares are quashed and a fine is imposed.

Payment of either prior to a DRO application does not need to be reported as preference.

During the DRO period payment may be made from surplus income or by a third party to avoid prosecution.

Utilities

Debtors must continue to pay for ongoing commitments, such as rent and utility bills during the period of the DRO and will be responsible for any debts that are incurred after the DRO is approved.

These will be allowable expenses for DRO purposes.

Utility companies often use prepayment meters to collect arrears by recalibrating their meters. If a debtor has scheduled a utility bill in their DRO application, the provider can no longer collect the arrears and debtors should ensure that their provider recalibrates their meter to stop the collection of arrears.

V5C document

The V5C document (also known as the V5 form or logbook) records the registered keeper (or keepers) of a vehicle. That is the person registering and taxing the vehicle, not necessarily the owner. Normally the owner and registered keeper will be the same.

VAT debts

A VAT debt for a known amount is a qualifying debt. An invoice or demand for payment must have been received.

VAT numbers need to be listed as the creditor reference.

If the debtor has a VAT-registered business they must report to HMRC the amount of VAT they’ve charged and the amount of VAT they’ve paid.

The debtor has to submit a final VAT return when they cancel their VAT registration. They can usually do this online using their VAT online account.

HMRC will send them a paper version to complete if their registration is cancelled because they are insolvent.

HMRC have guidance about defaults, surcharges and penalties relating to VAT returns (https://www.gov.uk/vat-returns/surcharges-and-penalties) on GOV.UK.

Vehicles

See also adapted vehicles for disabled people (#adapted-vehicles).

Motor vehicles include a car, motorbike, scooter or any other form of motorised vehicle up to a value of £4,000 do not count as an asset for DRO purposes.

Valuations should take account of the condition and mileage of the vehicle and give the true market value of the vehicle. See also Parker’s Guide (#parkers) for information about valuations.

If the debtor owns more than one vehicle see Multiple Vehicles (#multiple-vehicles).

Vehicles are not classed as tools of the trade.

If a debtor’s sole means of transport is something other than a motor car or motorcycle (such as a bicycle or electric bicycle) it will be treated as a vehicle and not an asset. However, if the debtor also owned a motor car or motorcycle, then it may be regarded as an asset.

Victim surcharge

An unpaid victim surcharge is an excluded debt for the purposes of a DRO.

Voluntary maintenance payments

An individual should be allowed to make provision for the upkeep of their children.

The debtor is expected to regularise their affairs prior to applying for a DRO.

If they are making voluntary maintenance payments, they should make sure they contact the Child Maintenance Service (CMS) or Child Maintenance Options service to determine whether the amount they are paying match current assessment levels and, wherever possible, get written confirmation.

For the debtor’s own protection there should be a written agreement between both parties acknowledging and agreeing to the voluntary monthly instalments.

It is for the approved intermediary to satisfy themselves that the voluntary maintenance payments being made are in line with expectations from a CMS assessment, or an order under matrimonial proceedings, and the debtor should be expected to provide some documentary evidence to support the basis of the voluntary arrangement.

The onus is on the debtor to satisfy the approved intermediary that any voluntary payments are not to the detriment of their creditors and do not exceed expected assessments.

Warrant of control

If a creditor has obtained a judgement against a debtor and the debtor defaults on payment, the creditor may be entitled to apply to court to obtain a warrant of control. This gives the creditor the right to seize the property of the debtor.

Until the warrant is executed (the enforcement agent has entered a controlled goods agreement) the debt is not secured.

Water rates

The treatment of unpaid water rates will the provider’s charging regime.

Where water is supplied under a charging scheme that is rate-based rather than metered, the charging scheme may provide that standing charges are due and payable in advance.

In these circumstances the whole of that year’s charge, or unpaid balance at the date of the DRO, may be scheduled in the application, in addition to any arrears.

It is the responsibility of the approved intermediary and debtor to establish the water company’s terms and where the full amount for the year may be scheduled, it should be scheduled.

Many water authorities include an “insolvency clause” which they state allows them, upon the making of a DRO, to divide their water charges before and after order.

You should, where appropriate, continue to schedule the full years’ water charges in a DRO application. The debtor should be informed that an insolvency clause may exist within a water authorities charging regime. If that is the case, then the water authority may divide their charges and issue a revised water bill for services provided subsequent to the making of the DRO.

Charges for metered supplies are treated differently as the meter should be read at or about the date of the DRO and the amount to be scheduled in the DRO based on that reading. New charges will become payable as water is used.

Payments to joint water debts (Wales only)

A debtor might become joint and severally liable with their landlord for a water bill outstanding to Welsh Water. This happens if the landlord has not provided the client’s details to Welsh Water within 21 days of them moving into the property. This must happen by law.

You must list the debt on the DRO application. Listing the debt on the DRO application could mean the landlord can take possession action if the debtor’s tenancy agreement has a clause about not paying utilities.

Therefore, you should request a copy of the tenancy agreement to check if there are any consequences of the client not repaying the debt.

Debtors might worry that their landlord will issue a section 21 notice if the debt remains unpaid. Repayments are not an allowable expense but can be made from surplus income to avoid possession action.

Wedding and engagement rings

Approved intermediaries should look at the value of wedding and engagement rings when considering DRO eligibility.

An engagement or wedding ring does not become the property of the debtor until the marriage or civil partnership has taken place. Until then, it remains the property of the individual that purchased it.

You should consider:
- if the marriage or civil partnership has taken place. If they are not yet married, this might not be an asset
- who provided the funds for the purchase. They should provide evidence
- how much the ring or rings cost
- what the second hand or resale value is. The debtor might need to get a valuation
- If the value of the ring or rings combined with any other assets exceed £2,000
Windrush Compensation Scheme

The Windrush Compensation Scheme is deemed to be a right of action and any payments received before the DRO will be classed as an asset.

Payments received after DRO will be treated in a similar way to a personal injuries claim. Damages for loss of earnings or benefits and other pecuniary awards will count as property but damages for injury to the person, pain and suffering will not count as property.

Write off debt

A letter from the creditor must be received writing off the debt and clearly stating it will not be pursued.

For example, where the creditor has clearly shown they either do not intend to pursue a debt (and that statement is not qualified by the phrase “at this time”) or stated the debtor has no obligation to pay or both, that the debt is not within the definition of a qualifying debt.

If the applicant has correspondence from a creditor including those phrases, they can choose to omit the debt from the DRO application.

Promissory Estoppel means a promise is enforceable by law. It applies where the debtor has assurance from the creditor that the debt has been extinguished and relies on that statement.

The debt is not extinguished just by virtue of their action or operation of law, the creditor is prevented from a legal remedy to recover the debt.

If it is found later that the debt was not written off, they are still liable to repay that debt. If the omitted debt takes the total level of debt over the £50,000 parameter, the DRO might be revoked.

Annex A

Antecedent Transactions

Guidance in relation to preferences and undervalue transactions

The word antecedent means ‘going before’. The legislation about antecedent transactions means the official receiver can refuse a Debt Relief Order (DRO) application if it was inappropriate, unfair or wrong for the transactions to take place.

If something has been done before the insolvency causing one creditor is treated more favourably than the others, or someone else benefits from something the debtor does and the creditors suffer, the official receiver might refuse a DRO application.

For example, this might be where one debt has been paid or significantly reduced over the others.

One main principle of insolvency is that all creditors are treated equally and fairly. The principle of antecedence means that principle extends this back to 2 years before those insolvency proceedings started.

The official receiver might inspect a debtor’s paperwork or banking records to make sure all creditors are treated equally.

The official receiver will look at when the preference was given and that a creditor or guarantor has benefited. They will also look at the context of the transactions and what the debtor intended to do at the time. For example, they might look at whether the debtor intended to put a person in a better position than they would otherwise during the normal course of the insolvency. A debtor might not intentionally have wanted to put one person or group in a better position.

Preferences

A preference is anything someone does that has the effect of putting either one of their creditors or debt guarantors in a better position than they would have been if the DRO approved, will be better than the position he would have been in if that had not happened.

For example, if a debtor pays a creditor in full, where if this had not happened, the individual would have only been able to pay a small percentage of that debt if all creditors were being treated equally. In this case, that creditor is clearly better off, as is any guarantor of that debt.

Pressure by creditors

If a debtor has paid a debt because a creditor threaten to start legal proceedings, it might look like the debtor wanted to deal with that threat, rather than deliberately prefer the creditor.

However, pressure from creditors might not be a good defence if it was not the only motive. Even if the debtor was subject to a court order, the preference might be challenged. For suspicious transactions, it should be looked at whether the debtor intended to keep a good relationship with a creditor. The motives of preferring a creditor and maintaining a good relationship can co-exist.

Types of undervalue transactions
- A gift or transaction for which the individual received no consideration. This appears to be straightforward to understand, where no benefit has been derived from the payment or transaction, but it is necessary to know whether any indirect benefit has been derived or consideration less than market value.
- A transaction which the debtor has entered into in consideration of marriage or the formation of a civil partnership.
- A transaction whereby the individual has received inadequate consideration. It is necessary to establish what consideration was received and what ought to have been received and to decide whether the discrepancy in value is “significant”. There is no guide in deciding if the disparity is significant. As far as DROs are concerned, it is provided that a transaction in consideration of marriage is to be regarded as a transaction at an undervalue.
Debt Relief Orders and Antecedent Transactions

When assessing a debtor’s affairs with a view to determining a DRO application, each case will be judged on a case by case basis. To help approved intermediaries in this area, we have included a list of the types of questions that should be considered and will might be asked by the DRO Team when an application’s been submitted.

Debtors should keep all documentary evidence that might support their responses and know that the official receiver will investigate all such matters, before accepting an application, might need to see this documentation.

Preferences

When looking at whether there was preferential treatment, you should look at:
- whether the debtor was insolvent when they made the payments
- why they made the payments
- who they made the payments to
- what date they made the payments and how much they paid
- whether there was any agreement drawn up for the payments
- why the debtor did not distribute the funds to all of their creditors evenly
- whether there was any creditor pressure
- whether a preference has been made to an associate (like a relative)
- whether there is any evidence that the funds repaid were owed
- how the debtor got the funds they needed to make the payments