Options for clearing your debt

Options For Clearing Your Debt

If you’re struggling to pay day-to-day bills, or to keep up with loan repayments and other financial commitments, there are a number of options open to you to help clear your debts. We outline some of the most common options you might have heard of below.

1. Start by getting free impartial debt advice

You don’t have to pay for debt advice – use one of Debt Advice Locator‘s listed organisations. They’ll help you decide which of the choices outlined here is best for you to help you handle or clear your debts. The best time to help you get back on track is as soon as you start struggling or start worrying you’ll have trouble meeting your payments or outgoings.

2. Debt Management Plan

If you are struggling with money, you can talk to someone. There are a number of highly qualified advisors who can help you begin to figure out your financial problems.

That is an agreement between you and your creditors, through which you pay back what you can afford on non-priority debts that are not protected against your home after taking your household bills into consideration. It sets out how much you are going to pay back, and agrees with a repayment plan. You usually make a monthly contribution to the debt management agency, which then pays for your creditors. Debt management plans are usually arranged by a third party for you and many charities and organisations can arrange one for you at no cost.

3. Debt Relief Order

A Debt Relief Order is an official order that freezes one year of your debts. It can be given only under particular conditions and for other debts. Arranging a Debt Relief Order would cost £90. However, before your application is accepted you need to have paid the fee in full.

Who can apply for a Debt Relief Order?

You can apply for a Debt Relief Order if:

  • You are on a low income and have £50 or less spare each month after paying your household bills.
  • You have qualifying debts of less than £20,000.
  • You don’t own things of value or have savings over £300 (note that a house with negative equity still counts as having value).
  • You don’t own a vehicle that is worth more than £1,000.
  • You have lived, had a property or owned a business in the last three years in England, Wales or Northern Ireland.

How you apply for a debt relief order

You can request a debt relief order only through an approved person known as an intermediary. Most free debt advice providers have intermediaries approved that can help you. An Official Receiver can issue the Debt Relief Order after you have applied for and paid the charge, and if you qualify. Before determining if this solution is for you, talk to a free debt advice service.

4. Bankruptcy

Bankruptcy is a way of dealing with debts you can’t afford. While you’re bankrupt, any assets you may have could be used to repay your debts. Most of your outstanding debts are written off after a period of time (usually one year), and you can make a fresh start.

You would need to fill out a Petition to file for bankruptcy in Northern Ireland. This includes listing the reasons you are applying for bankruptcy, and a Statement of Affairs, which lists all of your assets and debts.

Going to court and fees

There are three fees that you have to pay when going to court:

  • The court fee of £151 – in some circumstances the court might waive this fee; for example, if you’re on certain benefits.
  • The deposit of £525 towards the costs of administering your bankruptcy, paid to the Department of Enterprise, Trade and Investment.
  • The fee payable to a solicitor before whom you swear the contents of your statement of affairs.

The Court will then usually do one of the following:

  • Issue a bankruptcy order.
  • Request further information before making a decision.
  • Reject your petition, and possibly suggest an alternative to bankruptcy.

Once you are declared bankrupt

If you’ve been declared bankrupt, you’ll need to turn over your properties and your home financial share to an appointed trustee. An Official Receiver or Insolvency Practitioner will be that person – who handles that depends on how large the assets are. Your creditors must make a formal application to the trustee for the money which they owe. You can not make payments directly to them and they can’t ask you for payments.

Offer in full or final settlement

If you have a lump sum that would cover a portion of your debts, you could ask your creditors if they would accept a partial payment and let you write off the rest. Alternatively, they may require you to make recurring payments for a time agreed upon after the balance is written off.

More help if you’re struggling

If you’re struggling financially, there may be other help available to help with day-to-day expenses or other outgoings. People on low incomes have other benefits available, but the benefits system is changing so make sure you know what you’re entitled to.