What types of debt can be included in a DRO, an IVA and bankruptcy?

What debts can you include in a DRO, an IVA and bankruptcy? Michael Chamberlain, Director at Chamberlain & Co, explains what types of debts can be included and excluded in certain personal insolvency processes.

DRO IVA Bankruptcy Debts

What types of debt can be included in a DRO, an IVA and bankruptcy?

The table below is a summary of the different types of debt and whether they can be included - or are excluded - from a debt relief order (DRO), an individual voluntary arrangement (IVA) and bankruptcy

Please note that as each type of debt is unique, and there may be specific considerations required, there are added notes for certain debt categories that require further comment. 

Included debts

These are debts which will be dealt within the procedure and, assuming successful completion of the process, will no longer be recoverable from you. 

Excluded debts

Excluded debts are debts which your creditors may still pursue you for, even after entering into one of the processes dealt with above. 

DRO

IVA

Bankruptcy

Included  

Excluded  

Included  

Excluded  

Included     

Excluded  

attachment of benefits and deduction from benefits

X

attachment of earnings

benefits - overpayments

X

X

A person who has been overpaid benefit may be offered an administrative penalty in lieu of prosecution where the benefit provider believes that the overpayment arose as a result of fraud.

bill of sale 

Where a bill of sale has been properly registered as a secured loan, the lender will still be able to exercise their rights under their security.

budgeting loans

bursaries 

cancellation charges

This also applies to cancellation charges arising after or as a result of the DRO, IVA or bankruptcy proceedings.

charging order

X

Although creditors may still exercise their security, in a DRO the existence of a secured asset subject to a charge may result in the client being ineligible for a DRO, depending on the assets value.

child maintenance

X

X

X

debt collection fees for excluded debts (excluding court fines)

X

Council Tax 

This only applies to Council Tax up to the date of the DRO, IVA or Bankruptcy Order. Council Tax arising thereafter must be paid as it falls due.

county court judgement (CCJ)

court costs (excluding fines)

credit union debts

criminal court charge

X

X

The criminal court charge was applied between the period 13 April 2015 and 25 December 2015 and applied to all adult offenders prosecuted and convicted for offences committed during that timescale. It is a specific charge and different from other financial orders the Court may have made or may make. It is a qualifying debt in a DRO.

educational payments (other than student loan)

employer loans

enterprise allowance loans

family debts

fines

X

X

X

Whilst fines should be included in a DRO schedule, they do not count towards the overall debt limit of £30K

guarantees

guarantees for other people’s debts (where a default has arisen)

HMRC

hire purchase/conditional sale/personal contract purchases

X

illegal money lending

See below

See below

See below 

Loans taken illegally should be discussed specifically with an advisor given the risk of violence to the client.

interest free finance agreements

X

joint and several liability

X

A DRO, IVA and bankruptcy will only protect the client subject to those proceedings from joint and several liability, and not the other party/parties.

judgements (exclusive of fines)

X

leases

X

legal fees

X

liability order

X

littering penalty

X

X

X

logbook loan

X

magistrate court fines

X

X

mobile phones (if not subject to a HP agreement)

X

National Insurance contributions 

X

overdraft

X

parking charges 

X

pawnbroking agreements

X

payday loans

X

rent arrears

X

school fees

See below

School fees may be an allowable expense in a DRO and should be discussed with your advisor.

school penalty for non-attendance of children

X

secured creditors 

See below

See below

See below

Secured creditors may always rely on their security and be paid from any sale proceeds arising in the disposal of the asset(s) subject to their security. Any amounts still owing after the disposal of these assets will be included within proceedings. Depending on their value, owning assets subject to security may prohibit you from qualifying for a DRO.

speeding fines 

X

X

start-up loans

X

statute barred debts

See below 

See below

See below 

Statute barred debts are not recoverable, but advice should be sought by the client regarding their disclosure to ensure that the debts are treated in such a way that they remain statute barred.

Student loan

X

X

tax and self-assessment

X

Tomlin Order 

X

trade debts 

X

Evidence will be required that trading was undertaken by the client prior to entering into a DRO.

tuition fees 

X

unliquidated debt

VAT debts

X

About the author

Michael Chamberlain is Director at Chamberlain & Co, licensed insolvency practitioners and business recovery specialists committed to saving businesses and jobs wherever possible. Michael is a fellow member of ICAEW with over 30 years of experience advising lenders, corporates, distressed investors and individuals in complex financial restructuring and recovery situations across a broad range of industry sectors and jurisdictions.

See also

A brief guide to debt relief orders

What is an IVA and is it right for you?

What restrictions are there during bankruptcy?

Image: Getty Images

Publication date: 20 July 2022

Any opinion expressed in this article is that of the author and the author alone, and does not necessarily represent that of The Gazette.