Debt Relief Orders

One of the biggest issues that is stopping many DRO applications is the fact that virtually any pension plan will break the £300 assets limit, as we have discussed in the past. But one group of people unlikely to have any kind of pension provision are students.

The life of a student nowadays is a long way from the commonly held memory of student grants and long days spent in the pub arguing about philosophy. The reality is that students are under financial pressure from the day they start. Having to take out student loans to cater for the lack of a student grant is one thing; the increase over the years of rent and cost of living is another. But basically, many students come out of University with a huge debt, and little money coming in initially.

A Debt Relief Order is specifically not allowed to cover student loans, but they can be used on any other debt that a student has built up. In fact students are almost the perfect candidate for a DRO application. Let’s compare against some of the main criteria for a successful DRO application:

1. You must be unable to pay your debts.
   We’ll take this as a given! a DRO is not something to do just for fun!
2. You must owe less than £15,000.
   Remember, we can’t include student loans, so this will be any credit card loans and personal loans.
3. You can own a car to the value of £1000 but the total value of other assets must not exceed £300.
   Not many students will have a huge amount of assets, and not a pension, which is the big issue…
4. After taking away tax, national insurance contributions and normal household expenses, your disposable income must be no more than £50 a month.
   With the cost of rent and low wages for graduates, this quite possible.

So students match the criteria quite well. Even better is that student loans don’t have to be paid back until the graduates is earning over a £15,000. So a potential thought process could be this:

1. I have a student loan to pay off. I can’t do anything about that.
2. I have £13,000 on my credit cards that is killing me financially every month.
3. Why don’t I take a McJob for £10,000 or so and apply for a Debt Relief Order
4. I work that job for a year, and at the same time, lose the £13,000 debt, so in effect I am being paid £23,000 for the year
5. After the year is up (remember a DRO lasts for a year, and if your income goes up, you may have to make repayments), go for a higher paid job, knowing that the only debt remaining is the student loan.

If you are a recent graduate, or are graduating this year, and you’re looking into this process, then please drop us a line and let us know how things progressed.