Can You Get a Debt Relief Order If You Own a Home?

Can you get a DRO if you own a home?

You cannot. Property is the one DRO criterion with no threshold and no exceptions. A DRO was designed as a simple, no-cost procedure for people with nothing that could be sold to pay creditors. Property, even heavily mortgaged property, is an asset that a trustee in bankruptcy could sell, and the DRO process has no way of dealing with it.

Rather than try to value equity, the law says that anyone with an interest in a dwelling or other land does not qualify. Unlike the asset and income limits, there is no figure below which a property is ignored.

What counts as an interest in property

The rule catches more than straightforward ownership of the house you live in. Your approved debt adviser will treat any of the following as disqualifying.

• Sole ownership of your home, with or without a mortgage
• Joint ownership with a partner, relative or friend, however small your share
• A home in negative equity, where the mortgage is more than the value
• A shared ownership property where you own a percentage and rent the rest
• A property you own but do not live in, such as one that is let out
• Land or property abroad, including a share in a family home overseas
• A beneficial interest in a property held in someone else's name
• Property that has passed to you under a will or trust

The last two are the ones people overlook. Paying towards the deposit or mortgage on a home in your partner's sole name may give you a beneficial interest, even though you are not on the deeds. Tell your adviser about any arrangement like this. It is far better to settle the question before applying than to face revocation later.

Situations that are not ownership

Many people worry about this test unnecessarily. None of the following gives you an interest in property.

• Renting from a private landlord, whether or not your name is on the tenancy
• A council or housing association tenancy
• Lodging in someone else's home
• Living with parents or other family, even if you pay towards the bills
• Supported, temporary or hostel accommodation
• Living in a home your partner owns, provided you have no financial stake in it

A tenancy is a right to occupy, not ownership. Even a council tenant with a right to buy has no interest in the property unless the purchase has gone through.

Renting with a DRO

If you rent, two separate things are true. Rent arrears that exist on the day of the application are a qualifying debt and can be included. They count towards the £50,000 limit and are written off at the end. Rent that falls due after the order is approved is a new liability and must be paid in full and on time.

The DRO does not remove your landlord's rights under the tenancy. A landlord may still be able to seek possession on the basis of the arrears that went into the order. The DRO also does not stop a tenancy being ended by other routes, such as a valid notice. Many social landlords will work with a tenant who keeps up ongoing rent, but there is no guarantee. Raise your housing situation with your adviser so they can check the tenancy type. See also what happens during a DRO.

Alternatives for homeowners

If you own property and cannot pay your debts, three routes are usually considered. Each treats your home differently.

Individual Voluntary Arrangement

An IVA is a legally binding agreement supervised by a licensed insolvency practitioner, usually over five to six years. Homeowners generally keep their home, but may be asked to release equity by remortgaging in the final year. Creditors holding 75% of the voting debt by value must approve it. See our DRO vs IVA comparison.

Debt management plan

A DMP is an informal arrangement, available free from charities such as StepChange, where you pay what you can afford each month. Nothing is written off and creditors are not bound, but your home is not at risk from the plan itself. See DRO vs debt management plan.

Bankruptcy

Bankruptcy is open to homeowners, with no debt limit and a £680 fee. Your interest in the home passes to the trustee, who can sell it if there is equity. Where there is little or no equity, a family member may be able to buy the interest back. The DRO vs bankruptcy comparison sets out the trade-offs.

Advisers also consider whether selling the property and then applying for a DRO is realistic. That can work where there is little equity and renting would be cheaper. Any proceeds you keep count as assets, and a sale below market value can be treated as a transaction at an undervalue.

Inheriting property during a DRO

The property rule applies throughout the 12 months, not just on the application date. If you inherit a house or a share of one, are given property, or buy property, you must tell the Official Receiver straight away. Because an interest in property means you no longer meet the conditions, the likely outcome is that the DRO is revoked. Your debts then become payable again, with the property or its proceeds available to deal with them.

The same applies if you become entitled to property under a will before probate is complete. Tell your adviser about any expected inheritance when you apply. Our guide on what to do if your circumstances change explains how reporting works.

Why transferring property to a relative does not help

Signing your share of a home over to a partner or child before applying is a transaction at an undervalue. The Official Receiver reviews the two years before the application and can refuse or revoke the DRO on that basis. The transfer may also be reversed. If you own property, the honest route is to look at the alternatives above with an approved adviser. The DRO requirements page explains the two-year look-back in more detail.