Check your options for getting out of debt
If you have lots of debts and are struggling to pay, there are things you can do to get out of debt.
You might be able to talk to your creditors and arrange a way to pay them, or make a formal agreement called a 'debt solution'.
You’ll need to decide what the best solution is for your situation. It’ll depend on things like:
- the types of debts you have
- the total amount of debt you have
- how much money you can pay towards your debts.
You’ll need help for most of these solutions, but it’s worth knowing what your options are. If you need more help understanding the different options, get advice from a Citizens Advice Bureau.
It's important to talk to your creditors and let them know you’re having difficulties paying your debts. You might be able to come to an agreement with them to pay off your debts, or get more time to work out your situation. Find out about making a plan to pay your creditors.
If you've already agreed to make payments to your creditors and you’re struggling to make the payments, check if other debt solutions could help you - there might be a better way forward.
If you don’t feel able to talk to your creditors directly, or they won’t agree to your offers, get advice from a money adviser.
Before you explore any debt solutions, you’ll need to:
- collect information about all of your debts
- check which of your debts to pay first - these are called priority debts
- work out your budget and what you can afford to pay your creditors after you’ve paid your priority debts and living costs
- check if you can increase your income to give you more money to pay your debts
- check if you can reduce your living costs.
If you're not ready to use a debt solution or you can't afford to right now, you could apply for a 'moratorium' to give you extra time.
A moratorium gives you 6 months of breathing space where your creditors can’t take action to make you pay your debts. It gives you time to think about your options and decide what debt solution is right for you.
It’s a good idea to get advice from a money adviser before you apply to the Accountant in Bankruptcy for a moratorium.
If you've got some money to pay off your debts, you must make sure you deal with any urgent debts first. Some debts are more urgent than others because the consequences of not paying them can be more serious. These are called 'priority debts'.
Get help with your debts to check which debts you need to deal with urgently and how to sort them out.
If you have any money to pay off debts, you’ll need to work out the best way of doing this. You have several options, including applying for:
- a debt payment programme under the Debt Arrangement Scheme (DAS)
- a protected trust deed
These 3 options are also called 'statutory debt solutions'.
You’ll have to get money advice from an approved money adviser if you want to set up a statutory debt solution. Your money adviser will help you understand what option is best for you and why.
Once you’ve set up a statutory debt solution, most of your creditors have to stop trying to make you pay your debts.
DAS debt payment programme
If you set up a DAS debt payment programme you agree to pay off your debts with a regular payment to a payment distributor. The payment could be weekly, fortnightly or monthly. Payment distributors are organisations that make payments to your creditors for you.
How long your debt payment programme lasts will depend on how much debt you have and how much you can pay off each month.
If you set up a debt payment programme and continue to make your regular payments, your creditors can’t take any action to force you to pay your debts. The DAS also freezes any interest, charges and fees on your debts.
A money adviser has to help you set up a DAS debt payment programme.
Find out more about setting up a DAS debt payment programme.
If you set up a trust deed you make an agreement with your creditors to pay them back part of what you owe them. You agree to transfer your rights to the things you own to a trustee. The trustee can then sell these things, called assets, to pay back your creditors.
It is important to make sure that your trust deed becomes 'protected'. This is important as a protected trust deed is binding on all your creditors, even if they haven’t all agreed to it. This means that your creditors can’t take any further steps to get back the money you owe them or to make you bankrupt.
Not all your creditors need to agree to a trust deed for it to become protected. You’ll need the agreement of more than half of your creditors who cover at least two-thirds of the total amount you owe.
You’re normally expected to make a monthly payment from your income towards your debts. This will usually be for at least 4 years.
Your trust deed will be organised by a specialist, called an insolvency practitioner. They’ll deal with your creditors for you.
You’ll have to pay the insolvency practitioner for their services. The fees will be added to your repayments. The fees for a trust deed can vary and are usually much higher than for other debt solutions.
If you set up a trust deed you should make sure you understand how much you’ll have to pay the insolvency practitioner and when.
Find out more about setting up a trust deed.
If you don’t have any money left after paying your priority debts and living costs, or you only have a small amount, check if you can increase your income. You should also check if you can reduce your living costs.
If you still don’t have enough money to pay your debts you might be able to apply for bankruptcy.
Check if you can apply for bankruptcy
You might be able to apply for bankruptcy if you have no money left over to pay your debts, or you have so little that it will take many years for you to pay your debts.
Bankruptcy can have very serious consequences - for example, you could lose your home or your job. It's important to understand how it could affect you. Before you apply for bankruptcy, you must get money advice. Get help from a Citizens Advice Bureau.
If you’re earning and have spare income
You’ll have to make payments towards your bankruptcy debts. This is called a debtor contribution order (DCO). A DCO usually lasts for 4 years.
If you miss 2 payments of your DCO, the trustee can instruct a third party, such as your employer, to pay deductions directly from your salary to the trustee.
If you have no spare income
You won’t have to pay any money towards your debts during your bankruptcy if either:
- your only income is from benefits
- you have no spare income to pay towards your debts.
Your money adviser will assess your income and expenditure and give you advice about which bankruptcy process to apply for.
You could apply for bankruptcy under the 'Minimal Asset Process' if your debts are between £1,500 and £25,000 and your only assets are worth less than £2,000. The fee for the Minimal Asset Process is less than for standard bankruptcy.
You won’t have to pay the money back, but going bankrupt could still have a big impact on your life.
Find out more about bankruptcy.
Citizens Advice Bureau
Get free, confidential advice about money and debt issues from a Citizens Advice Bureau. Find contact details on the Citizens Advice Scotland website.
The National Debtline can give free information to people living in Scotland, England or Wales. It also provides an information pack on dealing with debt. Get their contact details on the National Debtline website.
StepChange Debt Charity
StepChange Debt Charity is a registered charity offering free, confidential advice and support to anyone who is worried about debt. Find contact details on the Stepchange website.
PayPlan is an independent company offering free debt advice and solutions to clients. When you contact PayPlan, an adviser will look at your financial situation and help you decide the best option to sort out your debts.
Get contact details for PayPlan on their website.
Money advice centres and law centres
Help with debt problems is available through money advice centres or law centres.
Search online for money advice centres in your area. You can find information about law centres in Scotland on the Shelter Scotland website.
Business Debtline is a dedicated advice service for small businesses.
You can get their contact details from the Business Debtline website.