DRO - Paying off part of my debt to meet criteria

Genie10

Hi all,

I meet the criteria for a DRO except my debts total £70,000.  The maximum limit for a DRO being £50,000.  I could borrow £20,000 from family to bring me under the limit.  Is this frowned upon?  I have read that I could be refused a DRO if I did this. 

Does anyone have any experience of this?

Many thanks.  

Keep_pedalling

You would still have debts of £70,000 as the family loan is still a qualifying loan. 

Brie

Paying any one/two/three creditors off would be considered preferential treatment and would get the application rejected.

Borrowing from a family member is just transferring the debt from one creditor to another so doesn't really get you further ahead.  Of course the family member's loan wouldn't be noted on your credit history but paying off credit cards etc would be and likely will raise questions and again a possible rejection.  Whether it would be obvious in a couple of years time may depend on the scrutiny your history is given.

If it was an all out gift or an inheritance would be a different matter but you might require proof of this.

fatbelly

DROs cover up to £50k. Bankruptcy has no limit.

What is your objection to bankruptcy?

Family could help with the £680 fee. That is allowed

ManyWays

I think @fatbelly has suggested a better option. 
In case you are wondering, a DRO and bankruptcy have exactly the same effect on your credit score. And you can still get a mortgage after either after 6 years when they are off your credit record (provided you have saved up a deposit of course).

sourcrates

Again, why make things more complicated than they have to be, you could theoretically use the 20k to reduce your historic debt enough to qualify for a DRO, by paying each lender an equal amount, but you would still owe the family that money, and it would need to be declared to the DRO advisor, and then become a qualifying debt which would be included in the arrangement.

It just adds complications to an already complex situation, that would have to be explained in detail.

Going bankrupt is far simpler, all done online and by post, OR interview is over the phone, you pay the £680 and press the send button, job done, and it won`t face rejection.

Same 12 month moratorium period, after which your discharged and your debts are wiped out, similar impact on credit files, in your case much less hassle as well.

fatbelly

Op can't be a homeowner, or have more than £75 per month surplus, or have a car worth over 4k, otherwise wouldn't be looking at a DRO.

There might be another reason not to go for bankruptcy, but it would be something a bit unusual.

Genie10

fatbelly said:

DROs cover up to £50k. Bankruptcy has no limit.

What is your objection to bankruptcy?

Family could help with the £680 fee. That is allowed

I am off work with depression & anxiety & receiving statutory sick pay.  I can't imagine I will ever be able to return to my well paid but stressful job so when I eventually feel able to go to work again it is going to be on a much lesser wage.  
I have had to move back in with my parents as can no longer afford the rent on my flat.  
With bankruptcy I worry that if I return to work within a year, which i really do hope i can, that I will be made to use all my spare income on paying back the debts for the next three years whereas with a DRO that wouldn't be the case.
I also hate the thought of being on a public register for ever with bankruptcy in comparison to 15 months with a DRO. 
Of course I might be completely misunderstanding all of this!

fatbelly

In reverse order

The insolvency register treats both forms of insolvency the same, your credit report treats both the same. It is true that the Gazette has records going back to 1700 or something. I've never met anyone who has any interest in it

If your surplus income rises during the year then you may get an Income Payment Order in Bankruptcy but the Bankruptcy continues. With a DRO, it gets revoked so that you can apply for Bankruptcy.

The threshold for DROs has risen twice since 2009 so they will probably go up again at some point. But as far as I know, it is more likely that the insolvency options will be merged into a new product.

There are ways to legally reduce your qualifying debts. Affordability complaints, debts going statute barred. But this all makes things very difficult when you have a simple solution available to you.

ManyWays

If you go back to work at a much lower rate of pay and at the same time move out of your parents, you will then have rent and other household bills to pay, so you pay not have enough spare to pay an income payments order. Especially if you make sure not to work any overtime for the first year. 

sourcrates

Although your circumstances may be causing you personal difficulty right now, it would be the ideal time to deal with the debts, I would not worry about names on registers or potential IPA`s, most people are unaware of either even existing.