Debt Relief Orders and Vehicles: Can You Keep Your Car?

Can you keep your car with a DRO?

Most applicants can. The car is often the only thing an applicant owns that is worth anything, so the Official Receiver looks at it closely. The table shows how the common situations are usually treated.

How the £4,000 vehicle rule works

The DRO asset limit is £2,000, which would exclude almost anyone with a roadworthy car if vehicles counted like savings. So one vehicle is disregarded if it is worth less than £4,000. The figure rose from £2,000 on 28 June 2024. The income and asset limits page covers the other thresholds.

The disregard is for a single vehicle you own outright. It can be a car, van or motorbike, and it does not have to be used for work. Anything on finance is treated differently, as explained below.

How your car is valued

What matters is what the vehicle would sell for today, not what you paid or what it is insured for. Your adviser will usually look up the registration in a trade valuation guide and take the private sale or trade-in figure, adjusted for mileage and condition. Mention any damage or a failed MOT, as these bring the value down.

Be realistic in both directions. Overstating the value could take you over the limit unnecessarily, and understating it could later be treated as inaccurate information. If the value is close to £4,000, the adviser may ask for a written valuation from a garage.

What happens if your car is worth more than £4,000

A vehicle at or above the disregard is not partly ignored. The whole of its value counts, so a £4,500 car on its own means you fail the asset test. You then have three options.

You can sell the vehicle and buy a cheaper one. Selling a £6,000 car and buying a £3,000 replacement may be reasonable, as long as the sale is at a fair price and the balance is accounted for. You can sell and do without, in which case the proceeds are savings and count towards the £2,000 limit. Or, if the car is essential and worth well above the limit, bankruptcy or an IVA may fit better. The comparison of debt solutions sets out the alternatives.

Selling a car just to qualify is scrutinised. A sale to a relative for a nominal sum is a transaction at an undervalue and can lead to refusal or revocation. Discuss any sale with your adviser first.

Second vehicles and motorbikes

The disregard covers one vehicle only. If two cars are registered to you, or a car and a motorbike, the second counts as an asset at its full value. That alone is often enough to breach the £2,000 limit. The usual answer is to sell the less necessary vehicle at a fair price before applying.

Registration is not the same as ownership. A vehicle registered to you but genuinely owned and paid for by someone else is a point to raise with your adviser, who will need evidence. A vehicle in someone else's name that is really yours must be declared as your asset.

Adapted vehicles and Motability cars

A vehicle adapted because of a disability, either yours or that of someone who depends on you, is disregarded regardless of its value. Keep evidence of the adaptation and the disability it relates to, as the adviser must show why the vehicle has been left out.

A Motability car is leased, not owned. The scheme owns the vehicle and you pay for it through part of a qualifying mobility benefit. Because you have no ownership interest, it is not an asset. The payments are simply part of your budget, so tell your adviser about the lease.

Hire purchase and car finance

A vehicle on hire purchase, conditional sale or personal contract purchase belongs to the finance company until the final payment, so it is not your asset. Three questions decide what happens to it.

Are you behind with the payments?

Arrears are a problem because the finance company can end the agreement and recover the vehicle. The payments cannot be included in the DRO while you keep the car.

Is there equity?

If the car is worth more than the amount left to pay, your adviser will consider whether that difference should be treated as an asset.

Are the payments a reasonable expense?

The monthly payment goes into your budget as an outgoing. If the car is needed, for example to get to work or to care for someone, a modest payment will usually be accepted. A large payment on an expensive car is unlikely to be allowed. If the payments are not reasonable, or you cannot keep them up, you can return the vehicle. Any shortfall after the sale becomes a qualifying debt. See also debts not included.

Cars needed for work

Needing a car for work does not change the £4,000 disregard. A £7,000 van is still an asset above the limit. What it does affect is the budget. Fuel, insurance, tax, maintenance and any finance payment on a vehicle you need for your job are reasonable expenses. They help show that your spare income is under £75 a month.

If you are self-employed and the vehicle is a tool of your trade, ask your adviser whether it can be disregarded as work equipment. Business Debtline can help with this. See also DRO and employment.