Debt Solutions

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Bankruptcy Order

If you have a debt problem, one of your options for sorting it out might be bankruptcy. Anyone can apply for bankruptcy if you can’t pay back your debts.

As well as applying for bankruptcy yourself, as we cannot arrange this solution, someone else you owe money to (a creditor) can ask a court to make you bankrupt, even if you don’t want them to. They can only do this if you owe at least £5,000. You can find out more about creditors making you bankrupt. 

Bankruptcy can have serious consequences – it might not be your only option and it might not be the best one for you. You can get more information about other debt solutions, for example a debt relief order (DRO) or an individual voluntary arrangement (IVA). 

Advantages of going bankrupt

When the bankruptcy order is over you can make a fresh start. Other advantages of going bankrupt include:

The pressure is taken off you because you don’t have to deal with your creditors
You’re allowed to keep a reasonable amount from your income to live on.
If you have to make payments from your income, this can only be for 3 years.
Creditors have to stop most types of court action to get their money back following a bankruptcy order, you won’t have to pay back the debts that bankruptcy covers 

Disadvantages of going bankrupt

To apply to go bankrupt you’ll need to pay a £680 fee. Other disadvantages of going bankrupt include:
You could be requested to make payments towards your debts for 3 years
It will be more difficult to take out credit while you’re bankrupt and your credit rating will be affected for 6 years
If you own your home, it might have to be sold – this depends on how much it’s worth after any amounts secured on it are repaid
If you rent your home, your landlord could end your tenancy
Some of your possessions might have to be sold if they are not ‘exempt goods’
Some jobs don’t let people who have been made bankrupt carry on working
If you own a business it might be closed down and the assets sold off
Going bankrupt can affect your immigration status
Your bankruptcy will be published publicly (although if you’re worried you or your family might be the victims of violence, you can go to court to get an order so your address details aren’t given out)
You could have a bankruptcy restriction order made against you lasting up to 15 years which will restrict your financial affairs

What happens at the end of bankruptcy

Your bankruptcy will normally end after a year – this is known as ‘discharge’. After discharge you won’t have to repay the debts covered by the bankruptcy. However you will still have to pay some debts like court fines and loans from the Student Loans Company.

Next steps

Bankruptcy might help you become free of debts but may not be the right option for everyone. It’s important for you to know how bankruptcy will affect your day-to-day life and to explore the alternatives.
It’s important to get advice before going bankrupt, and should this be your preference we can point you in the right direction of your local bankruptcy court to ensure you receive the fullest advice.


Debt Relief Order

A debt relief order (DRO) is one way to deal with your debts if you:
● owe £20,000 or less
● don’t own your own home
● don’t have other assets or things of value
● don’t have much spare income

You don’t have to make payments towards most types of debt included in your DRO and your creditors can’t force you to pay off the
debts. A DRO usually lasts a year unless your situation improves. When the DRO ends, most of your debts will be written off.

As we don’t provide DRO’s, you’ll need to speak to a special DRO adviser at your local Citizens Advice Centre who will help you fill in an application to the official receiver. The adviser can’t charge you for their time but there’s a £90 fee to make a DRO application.

Check if you can get a DRO

You should be able to get a DRO if all of the following apply:

● you’re unable to pay your debts
● your qualifying debts are not more than £20,000
● you’ve got no more than £50 left over each month after you’ve paid your usual household expenses
● you don’t own your home
● other savings or things of value you own, called assets, are worth no more than £1,000 (some assets are ignored when working out the value, for example, basic household items and tools you need to do your job)
● you don’t own a car worth £1,000 or more, unless it’s one that’s been specially adapted because you have a disability
● it’s been at least 6 years since your last DRO was made and you aren’t going through another formal insolvency procedure, such as bankruptcy or an individual voluntary arrangement (IVA)
● you’ve lived, had a property, or worked in England or Wales in the last three years.

Your DRO application might be refused if any of these apply to you. They’ll look at the facts of your case before making a final decision.

Recent activity

You must tell your DRO adviser if in the last 2 years you’ve:

● given away assets
● sold assets for less than their value, for example if you sold a car worth £2,000 to a friend for £200
● prioritised paying back one creditor over others, for example if you paid off a debt you owed to a relative and didn’t pay your other creditors

Your DRO application might be refused if any of these apply to you. They’ll look at the facts of your case before making a final decision.

Debts covered by a DRO

Debts that can go into a DRO are called ’qualifying debts’. During the DRO period creditors can’t ask you for payments – if they do, you don’t have to pay them. They include:

● credit cards, overdrafts and loans
● arrears with rent, utility bills, telephone bills, council tax and income tax
● benefits overpayments
● hire purchase or conditional sale agreements
● buy now – pay later agreements
● bills for services like vets or solicitors
● debts you owe to friends and family
● business debts

If you obtained any of these by fraud, you will still have to pay them when the DRO has ended.

If you’re behind on your rent, your landlord can still take action to evict you, even if the rent arrears are included in your DRO. This means you may have to continue paying these after a DRO is made.

Debts not covered by a DRO

Not all debts are covered by a DRO. You’ll still need to pay:

● magistrates court fines and confiscation orders relating to criminal activity
● child support and maintenance
● student loans
● social fund loans
● compensation for death and injury

If you have any of these debts they don’t count towards the £20,000 limit.

If you’re unsure whether a debt would be covered by a DRO, check with your DRO adviser. If they aren’t you’ll still need to pay them if you get a DRO.

If you forget to include any debts in your DRO you can’t add them after. If any missed debts would have taken you over the £20,000 limit then your DRO might be cancelled. It’s important that you tell the DRO adviser about all of your debts.

Check if a DRO is right for you


A DRO can provide a way out of debt. However, it’s important to know the impact a DRO will have on all areas of your life before you apply. For example:

● if any of your debts are for goods bought on hire purchase, you might need to give the goods back
● your DRO will stay on your credit record for six years – this might make it difficult for you to get credit or find a new home in the future
● if you have a tenancy agreement it could be affected, your DRO adviser can check this
● your bank might close your account and you’ll need to open a new one
● if you hold a power of attorney over someone else’s financial affairs or someone else has one for you, this will end
● it might affect applications you make for British citizenship – if you are unsure then you should get advice from an immigration specialist

You’ll also have to follow certain rules, called ‘restrictions’, during the DRO period. This means:

● you can’t borrow £500 or more without telling the creditor about the DRO
● you can’t get involved in promoting, managing or setting up a limited company, or be a company director, without getting permission from the court
● if you have a business under a different name from the one under which you got the DRO, you’ll have to tell everyone you do business with the name you used when you got the DRO
● while the DRO is in force, and for three months afterwards, your details will appear on the Insolvency Service’s Individual Insolvency Register, which can be viewed by anyone

If having your address on the register could lead to violence against you or a member of your family, you can ask the court to order that your address doesn’t appear on the register. You’ll need to apply for a court order before you make your DRO application – your DRO adviser can help you with this.

If you’re not sure a DRO is the best option, you can contact your local Citizens Advice Centre who will go through all the options for you.

Individual Voluntary Arrangement

An individual voluntary arrangement (IVA) is a formal and legally binding agreement between you and your creditors to pay back
your debts over a period of time. This means it’s approved by the court and your creditors have to stick to it.

An IVA can be flexible to suit your needs.

How an IVA works

An IVA must be set up by a qualified person, called an insolvency practitioner. This will be a lawyer or an accountant. The insolvency practitioner will charge fees for the IVA but these fee’s will only come from your agreed monthly repayment. The insolvency practitioner deals with your creditors throughout the life of the IVA. and Debt Advice Bureau Ltd work with Insolvency Experts Limited and their trusted partners.

How the repayments work

If you decide to try and get an IVA, you will work out a repayment plan with the introducer and in turn the insolvency practitioner. This could be monthly payments, a lump sum or a combination of both.

The repayment plan should be based on an amount you can reasonably afford and the creditors will need to agree it. If you’re making monthly payments the IVA will usually last for 5 or 6 years.

Any repayments will be paid directly to the insolvency practitioner. They will then distribute the money to your creditors.

If the payments you make aren’t enough to pay your debts in full by the end of your IVA, you won’t have to pay the rest, they will be legally written off.

If you come into a sum of money

If you receive a windfall during your IVA, for example an inheritance, this will usually be taken and paid to your creditors. If you find out that you’re due some money because of something that happened before the IVA, your creditors might have the right to claim it too – even if your IVA has finished.

When an IVA may be right for you

An IVA may be right for you if:

● you have at least two separate debts
● you have debts that add up to more than £10,000
● you have at least two different creditors. Creditors are people you owe money to
● you don’t want to have to deal with your creditors directly.
● Remember that an IVA can be flexible – if you don’t quite match all of these criteria, you may still be able to get an IVA.

Complete the free debt check to see if you are eligible.

Benefits of an IVA

Some benefits of an IVA are:

● it is legally binding. This means all creditors have to stick to it and they can’t chase you for the debt once the IVA is in force
● an IVA is time limited and you only have to repay for the period of the IVA – usually five years
● creditors will usually accept that only part of the debts will be repaid – the rest is legally written off. This can be as much as 90% of all of your debt. Contact The Advice Bureau to see exactly how this can be achieved.

Debt Management Plan

If you’re struggling to keep up with debt payments on things like credit cards, loans and store cards, a debt management plan (DMP)
may be right for you.

This page explains what a DMP is, how it works and what you need to think about before getting one. An adviser at your local Citizens Advice Centre will help you through to finding a suitable organisation as we don’t offer this solution for clients.

What are priority and non-priority debts?

Priority debts include:

● mortgage or rent arrears
● gas and electricity arrears
● council tax or rates arrears
● magistrates’ court fines
● arrears of maintenance payable to an ex-partner or children
● income tax or VAT arrears
● TV licence or TV licence arrears

They’re called priority debts because the consequences of not paying them can be more serious than for other debts. You can’t include these debts in a DMP so you need to make sure you’ve got a way to deal with your priority debts before you set up a DMP. 

Non-priority debts are less urgent and include things like bank loans, credit cards, student loans, water charges and benefits overpayments.

What is a DMP?

A DMP is an informal agreement between you and your creditors for paying back your non-priority debts. Non-priority debts are things like credit cards, loans and store cards.

You pay back the debt by one set monthly payment, which is divided between your creditors.

Most DMPs are managed by a DMP provider who deals with your creditors for you. This means you don’t need to deal with your creditors yourself.

A DMP is not legally binding, meaning you’re not tied in for a minimum period and can cancel it at any time.

Is a DMP right for you? 

A DMP may be a good option if the following apply to you:

● you can afford the monthly repayments on your priority debts (such as mortgage, rent and council tax) and your living costs, but are struggling to keep up with your credit cards and loans
● you’d like someone to deal with your creditors for you
● making one set monthly payment will help you to budget.

However, you need to be sure you understand the impact a DMP will have:

● it may take longer to pay back your debt because you’ll be paying less each month
● your creditors won’t necessarily freeze the interest and charges on your debts, so the amount you owe might go down by less than you think
● your DMP provider might charge you a fee, although there are several free providers you can use so there’s no need to pay if you don’t want to
● your creditors might refuse to co-operate or continue to contact you
● the DMP may show on your credit record, making it harder for you to get credit in the future.

If you’re unsure about whether this sounds like it’s right for you, you might want to think about other options for dealing with your

Joint debts and DMPs

If you have a debt in joint names with someone else, this can be included in your DMP. However, your creditors may still chase the other person for all of the debt. This is because whenever you take out a credit agreement, such as a loan or bank account, with another person, you’re both liable for the full amount of the debt. This is known as joint and several liability.

If both you and your partner are struggling with debts, you might want to consider setting up a joint DMP where you’d both be equally responsible for the repayment plan. It doesn’t matter if you have different levels of income or debts. You can also include debts that are only in one name in a joint DMP.

How to get a DMP

If you’ve decided a DMP is right for you, you’ll need to follow these steps to set one up:

● Contact The Debt Advice Bureau or complete your Free Debt Check.
● make sure you’ve sorted out your priority debts first
● work out your budget to see if you have enough available income to make your monthly payment
● choose a DMP provider, remembering that you can choose a free provider
● check the agreement or contract carefully.


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