A Debt Relief Order (DRO) is a way to write off debts that you cannot pay. It is commonly regarded as an alternative to Bankruptcy however to be eligible you need to fit within certain criteria. Most importantly your debts must be less than £20,000 and your surplus income less than £50/mth. In addition your belongings must be worth less than £1000 (excluding your car). But what does this belongings rule mean in practice?

**Update** On the 1st October 2015 some of the Debt Relief Order criteria changed. The amount of debt allowable increased from £15,000 to £20,000. In addition the value of personal assets allowable increased to £1000.

What happens to your belongings in a Debt Relief Order?

Whatever your financial status you may well own a number of belongings which when added together could be worth more than £1000. However reasonable household items are excluded.

These include your clothes, kitchen equipment, furniture and other electrical items such as your TV, Laptop and mobile phone. These are regarded as being required for a reasonable standard of living.

Of course, if you have any particularly expensive items such as antique furniture these may be worth more than £1000. In this case you would not be eligible for a DRO unless you sold them first.

What happens to my Car if I start a DRO?

You are allowed to own a car valued up to £1000 and still undertake a DRO. This is over and above the value of your personal belongings. If your car is worth more than £1000, you would be expected to sell it and get a cheaper vehicle before applying.

Bear in mind that the money you make from selling your car could be used to pay the £90 DRO fee. However, you will be expected to pay anything over and above this to your creditors to minimise your debts.

BMD Tip:  If you have a car on an HP or Lease agreement then the net worth of the vehicle (the market value less the outstanding finance to be paid) may actually be lower than £1000. However, even where this is the case, if the car’s market value is more than £1000 you will not be eligible for DRO. This is because it is this gross figure which is taken into account when considering the value of a car for the purposes of a DRO.

Can I do a DRO if I am a Home Owner?

If you are a home owner you cannot start a DRO. The value of your property will simply be more than £1000. You property may be in negative equity. In this situation it has no monetary value to you at all. However the fact you are a home owner negative equity or not still prevents you from being eligible.

This is because as with cars and other vehicles for the purposes of a DRO it is the gross value of the property before any outstanding mortgage is deducted which is the figure used to determine its worth.

Given this a DRO is only available for those people who are living in rented accommodation, lodgings or living with family or friends.