Guide to Dealing with Your Debt

Best ways to pay off your debts – England and Wales

Find out about the different ways to deal with debts if you are falling behind with day-to-day bills, loan and credit card repayments or other financial commitments, like your rent or mortgage.  Then get some free debt advice before you make a decision.  These are some of the common routes that people take to deal with their debts:

Get Free Debt Advice

It’s always best to talk things through with an experienced debt adviser before you decide how you’re going to pay off debts.

There are many ways to clear your debts and some are more well-known than others.  The one that is best for you will depend on your personal circumstances.

A free debt adviser can help you make the right decisions so that most of your money will go to paying off your debts – meaning you could be debt free sooner than you thought.

A Debt Adviser will:

  • Treat everything you say in confidence
  • Never judge you or make you feel bad about your situation
  • Always be happy to talk to you, however small or big your problem is
  • Suggest ways of dealing with debts that you might not know about
  • Check you have applied for all the benefits and entitlements available to you
  • Give advice about better ways of managing your money


Individual Voluntary Arrangement (IVA)

  • Allows you to pay back what you can afford
  • Lasts a set amount of time (usually 5 or 6 years)
  • Anything you haven’t paid off by the end is written off
  • Is a legally binding agreement – this means once you’ve signed it, neither you nor your creditors can back out of it
How an IVA works

An Individual Voluntary Arrangement (IVA) freezes your debts and allows you to pay them back over a set period.  Any money you still owe after this period is then written off.

You can apply for an IVA if you can afford to pay something towards your debts but not necessarily the full amount that your creditors want.

You will need to show you have a regular long-term income as the repayments will usually cover a period over 60 or 72 months (five to six years).

If you have a lump sum to pay towards your debts, you may also qualify for an IVA.

The IVA is set up by a qualified professional called an Insolvency Practitioner, who will work with you to put together a proposal to take to your creditors for approval.  It very much depends on what your circumstances are as to whether they will agree to the plan.

An IVA is a legally binding agreement between you and the people you owe money to.  This means that once you’ve signed it, neither you nor your creditors can back out.  So you need to make sure it’s right for you.

Which debts can you pay off with an IVA?

You can use an IVA to help pay off many common debts, including:

  • Overdrafts
  • Personal loans
  • Credit and store cards
  • Catalogue debts
  • Hire purchase debts
  • Mortgage shortfalls
  • Council Tax arrears
  • Money you owe to HM Revenue & Customs, like income tax or National Insurance contributions
Which debts can’t you pay off with an IVA?

You can’t use an IVA to pay off:

  • Certain types of car finance
  • Magistrates’ Court fines
  • Child maintenance or Child Support arrears
  • Student loans
Mortgage and rent arrears

Technically, you are allowed to include mortgage and rent arrears and other secured loans against your property in an IVA.  However, your creditors have to agree to this and often they won’t do so.

Check with a debt adviser what you can and can’t include in an IVA.

How to set up an IVA

You have to set up an IVA through an Insolvency Practitioner.

There are fees to pay to the Insolvency Practitioner which are usually taken from your monthly payments.

You should not have to pay any up-front charges before your IVA has been set up.

Any credit you do get is likely to be expensive now and in the future.  IVA’s affects your credit rating and credit reference agencies keep the details on file for six years.


  • Writes off all debts you can prove you owe
  • If you have any assets, they will be taken and used to pay off your debts
  • Allows you to make a fresh start
How to apply for Bankruptcy

To apply for Bankruptcy in England and Wales, you will need to fill out:

  • A Debtor’s Bankruptcy Petition, where you list the reasons why you are applying for bankruptcy, and
  • A Statement of Affairs (Debtor’s Petition), which lists all of your assets and debts

This can only be completed online at

How much does it cost to go Bankrupt?

You will need to pay:

  • £525 to cover the cost of managing your bankruptcy
  • £130 to cover your court costs, although this may be reduced or waived if you are on certain benefits or your income is below a certain amount

The court will then usually:

  • Make a bankruptcy order, or
  • Request further information before making a decision, or
  • Reject your petition, and possibly suggest an alternative to bankruptcy
What happens after I go Bankrupt?

If you are made bankrupt, the Official Receiver (a government official) or an Insolvency Practitioner will be appointed as trustee.

They will assess your income, outgoings and assets and decide how they can be used to meet your debts.

Your creditors have to make a formal claim to the trustee for the money they are owed.  You can’t make direct payments to them and they can’t ask you for payments.

After a period of time (usually one year), most of your outstanding debts are written off and you can make a fresh start.

Until you are discharged from bankruptcy or are still under other bankruptcy restrictions, you won’t be able to apply for credit of £500 or more without telling the lender about the bankruptcy.

Any credit you do get is likely to be expensive now and in the future.  Bankruptcy affects your credit rating and credit reference agencies keep the details on file for six years.

Who is Bankruptcy suitable for?

If you have no real way of paying off your debts and few assets, then bankruptcy could be a suitable option.

If you are a homeowner it’s worth looking at other options because bankruptcy puts your home at risk of being sold if there is enough equity in it.

If you’re a tenant, your landlord can apply to evict you legally if you have fallen into rent arrears.

It’s really important you don’t make a decision to go bankrupt alone.  Talk to a free debt adviser first.

Can I be made Bankrupt?

The minimum level of debt for which someone who you owe money to can force you into bankruptcy is £5,000.

However, high-street lenders rarely use this option and will prefer to work with you to find another way to pay off your debts.

Debt Relief Order (DRO)

  • Suitable if you are on a low income with very few assets
  • Freezes debt for a year then writes it off completely if your circumstances haven’t changed
How a Debt Relief Order works

Once a Debt Relief Order is agreed, you make no further payments to the people you owe money to (your creditors).

Your creditors are only likely to agree to a Debt Relief Order if it is unlikely that you will ever be able to clear your debts.

Can I apply for a Debt Relief Order?

You can apply for a Debt Relief Order if:

  • You have qualifying debts of less than £20,000
  • You have £50 or less spare each month after paying your household bills
  • You don’t own things of value or have savings over £1,000
  • You have lived, had a property or owned a business in the last three years in England, Wales or Northern Ireland
You can’t apply for a Debt Relief Order if:
  • Your creditors have applied to make you bankrupt but the hearing hasn’t yet taken place (unless your creditors agree that you can still apply)
  • You have been given a Bankruptcy Restrictions Order or Undertaking
  • You have petitioned for bankruptcy but your petition has not yet been dealt with – however, this doesn’t apply if you’ve petitioned for bankruptcy and the judge has referred you for a debt relief order instead
  • You’re currently bankrupt
  • You have an Individual Voluntary Arrangement or are applying for one
  • You have had a Debt Relief Order in the last six years
  • You have been given a Debt Relief Restriction Order or Undertaking
Which debts can I pay off with a Debt Relief Order?

The debts you can use a Debt Relief Order for are called qualifying debts.  They include money you owe on:

  • Credit cards
  • Overdrafts
  • Loans
  • Catalogues
  • In-store credit agreements
  • Rent, Council Tax
  • Utility and phone bills
  • Benefit overpayments
  • Money owed to HM Revenue & Customs, like Income Tax or National Insurance Contributions
Which debts can’t I pay off with a Debt Relief Order?

The debts you can’t use a Debt Relief Order for include:

  • Child support and maintenance arrears
  • Magistrates’ Court fines
  • Confiscation orders
  • Social Fund loans
  • Student loans

For all the debts you can and can’t include in a DRO, get in touch with a free debt adviser.

How do I apply for a Debt Relief Order?

You can only apply for a Debt Relief Order through an approved person known as an intermediary.

Most free debt advice providers have approved intermediaries who can help you.

It costs £90 to arrange a Debt Relief Order and you can pay in installments over six months.

You need to pay the fee in full before your application will be looked at.

Once you have applied and paid the fee, an Official Receiver will grant the Debt Relief Order if you are eligible.

Debt Management Plan (DMP)

  • Suitable if you have non-priority debts like credit or store cards, overdrafts and personal loans
  • Allows you to pay back your debts at a rate you can afford
  • Your DMP provider will help you work out an affordable payment and talk to your creditors
  • You make one monthly payment to the DMP provider
Which debts can I pay off with a Debt Management Plan?

You can only use a Debt Management Plan for non-priority debts.  These include:

  • Credit card, store card debts or payday loans
  • Catalogue, home credit or in-store credit debts
  • Overdrafts
  • Bank or building society loans
  • Personal loans
  • Money borrowed from friends or family
Which debts can’t I pay off with a Debt Management Plan?

You can’t use a Debt Management Plan to pay off priority debts.  These include:

  • Mortgage, rent and any loans secured against your home
  • Income Tax, National Insurance and VAT
  • Council Tax
  • Gas and electricity bills
  • Child support and maintenance
  • TV Licence
  • Hire purchase agreements, if what you’re buying with them is essential
  • Court fines
Who offers Debt Management Plans?

Many free debt advice organisations can arrange a Debt Management Plan to ensure that all the money you pay into it goes towards paying off your debts.  This means you could be debt free sooner than you had hoped.

Free debt advisers give expert advice to hundreds of thousands of people every year and will understand the situation you are in.  They are highly trained and will be able to give you the support you need to manage and reduce your debts.

If you choose a fee-paying provider, you should be aware that all Debt Management Plan providers must be authorised by the Financial Conduct Authority (FCA) to ensure they meet agreed standards.

Before you agree to taking out a plan with a fee-paying provider, check they have been authorised.

Informal Arrangement

This is where you look at your finances and try and arrange reduced payments yourself with your creditors.

The pros are that you can save costs as you do it yourself and there are no fees, and you may be able to agree lower more management payments.

The cons are that you need 100% of creditors to agree to this.

If you do not keep up with payments or a creditor withdraws support then the creditors may take action against you.

You will have to pay back all that you owe and creditors may not agree to freeze interest.


This is where you get one large loan to pay off all your smaller debts.

The pros are that you could reduce your payments to one affordable level.

If you do this there would have no further impact on your credit rating.

The cons are that you are unlikely to be able to get a loan large enough to pay all of your debts.

A fee may be charged in arranging the new credit, which may increase the level of your overall debt.

If you did there would be no debt forgiveness.

Also if you failed to pay this loan then the new creditor may take action against you.

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