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Car Finance With a Debt Relief Order (DRO)

14 May 2019 - Posted by TalkAboutDebt

Wondering if you can own a car while on a Debt Relief Order (DRO)? This article explains everything you need to know about getting car finance with a Debt Relief Order (DRO).

 

Can I own a vehicle while on a DRO?

 

This really depends on what stage you are at with your application and who actually owns the vehicle. If someone else has bought a car and you simply have the use of a vehicle that someone else owns then this may not make any difference at all to your DRO.

 

Your costs for running the vehicle will be listed as expenditure items and the ownership of the vehicle can simply be explained and proven as belonging to someone else. If you now own an asset worth x amount then you must notify the approved intermediary (before the order) or the DRO team (after the order) and it may make a difference to your application or order.

 

If you acquire an asset whilst in the DRO then you have a duty to report this, failure to do so is an offence. The DRO unit will then look at each case individually to see if the order should carry on or be revoked. They should use their discretion and take into account an individual’s circumstances but will revoke the DRO if it is in creditors’ best interests to do so.

 

Please note, you will not be eligible for a DRO if you own a car worth more than £1000. If the car is worth less than this it is not taken into account.

 

Can I get car finance with a DRO?

 

There are several things that may need to be considered about your DRO it could depend on the value of the vehicle, the type of finance, your disposable income.

 

An Approved Intermediary would refer to the Insolvency Service Guidance when helping you put together an application for a DRO. If the vehicle is worth more than £1,000, and you do not indicate any arrears, they would only have a couple of ways this could be dealt with.

 

One way is to add the liability for the rest of the Hire Purchase (HP) to your other debts. This would mean that you were unable to maintain payments to the HP during the DRO and at the end of the DRO, you will no longer have liability for the debt so cannot be asked to pay. This would mean that the creditor would have to seek recovery of their vehicle as they would never be able to get paid for it.

 

Another method is to exclude HP liability from the DRO application. It would not be a debt included in the DRO but the vehicle payments would not be allowed in your expenses because the vehicle is worth over £1000. Also leading to difficulties with keeping the vehicle. If you contact your local Citizen’s Advice and go through with an Approved Intermediary they may be able to see when a DRO becomes a possibility, which may only be when the car is worth less than £1000.

 

If you contact the DRO Unit at the Insolvency Service or the Approved Intermediary who put together your DRO and discuss in greater detail, before proceeding with any application, then you are not in danger of breaching the order.

 

Can I keep my car on HP while on a DRO?

 

If you wish to keep the car that you purchased on HP, and you are in a position to make the on-going contractual payments then best practice would be not to list the car on your DRO application. It may be beneficial for you to get up-to-date balances on all your debt to ensure that the total sum outstanding is still less than £15,000. If the balance has increased (due to interest and charges being added) to over £15,000 then you will be ineligible for a DRO and may need to seek another form of Insolvency such as bankruptcy.

 

Can I sell my car to apply for a DRO?

 

Although there is a £300 limit on assets you are allowed a car of up to £1000, so for example if your car is worth £1,100, then this should not be a problem when applying for a DRO.

 

If someone has a vehicle which is worth far more than that they can sell it, they would have to make sure the money is used to pay off the debts on a pro rata basis. The creditor they owe the most to gets most of the money, the one they owe the least to gets the least proportionately etc.

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