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What options are there for dealing with debt
This information applies to Scotland only
Options for dealing with debt
This page tells you about the options you may have for dealing with your debts.
Your options will depend on what money you have to pay off your debts.
For information on how to work out if you have enough money to pay off your debts see How to sort out your budget.
If you've got some money to pay off your debts
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 debts are called priority debts. They include things like mortgage, rent and council tax debts.
As well as priority debts, you may have other types of debt called non-priority debts. Non-priority debts include:
- benefits overpayments
- credit debts such as overdrafts, personal loans, hire purchase, credit card accounts and catalogues
- student loans
- money borrowed from friends or family
- parking penalties issued by local authorities.
These types of debt are less urgent than priority debts. You can't be sent to prison or have your home repossessed for not paying them – although you can have property you've bought under a hire purchase agreement taken away. See Hire purchase and conditional sales.
You must still make arrangements to pay off non-priority debts if you have money left over after paying off any priority debts. If you don't make arrangements to pay off non-priority debts, your creditors may take you to court to gain more powers to enforce the debt by arresting your bank account or your wages.
Non-priority debts don't include loans which have been secured against a house or other property which you own. You can lose this property if you don't pay a loan secured on your property.
For more information about secured loans, see How to sort out your mortgage problems.
If you have any money to pay off debts, you will need to work out the best way of doing this. You have several options, including:
- dealing with creditors yourself. For more about this, see How to deal with creditors of non-priority debts
- asking a Debt Management Company to deal with your creditors
- putting all your debts into one loan. This is called loan consolidation
- applying for the Debt Arrangement Scheme (DAS)
- applying for a trust deed
- applying for bankruptcy (sequestration).
You should weigh up the advantages and disadvantages of each of these options carefully. Get as much information as you can before making a decision and don’t sign anything until you are sure it is the best option for you. Don’t make a final decision until you have had advice from a money advice specialist. Money advice is compulsory before you can join a DAS scheme or apply for a protected trust deed or bankruptcy (sequestration).
Your local Citizens Advice Bureau can help you with advice about your options - where to get advice.
If you've got no money left to pay off your debts
If you've got no money left to pay off your debts and you think your circumstances are unlikely to get better soon, you will have limited options for dealing with your debts. Get as much information as you can before making a decision and don’t sign anything until you are sure it is the best option for you. Don’t make a final decision until you have had advice from a money advice specialist. Money advice is compulsory before you can join a DAS scheme or apply for a protected trust deed or bankruptcy (sequestration). The options you might have are:
- asking your creditors to write off your debt
- applying for bankruptcy yourself. You have several routes you can use to do this.
Debt management plans
If you have enough money left over after paying your priority creditors and essential expenses, you may be able to arrange a debt management plan (DMP).
To find out more about priority creditors and how to work out if you've got money to pay off your debts, see How to sort out your debts.
A DMP is an informal arrangement with your creditors to pay back the debt by regular instalments. Instead of speaking to your creditors yourself to arrange the plan, a debt management company, known as a DMP provider, does it for you. Some DMP providers charge for this service, although there are several who will do it for free.
The advantages of using a DMP provider are that:
- you make only one payment directly to the DMP provider. It divides the payment fairly between all your creditors
- you don’t have to contact your creditors, the DMP provider will do this for you.
However there are also disadvantages to using a DMP provider:
- some DMP providers charge an upfront fee which can be quite high. This leaves you with less money to pay off your debts
- some DMP providers also charge an administration fee to the customer each month. This leaves you with less money to pay off your debts
- some DMP providers take all of the first month's payment as a fee. This puts your account into arrears by a month or more. These arrears will be recorded on your credit file, meaning you could find it difficult to get credit in the future
- DMPs only cover non-priority debts and you will have to deal with the more important priority debts yourself
- some DMP providers do not give benefits advice or financial advice so you may lose out on important information about your finances.
If you do use a DMP provider, check the agreement carefully before signing anything. Check:
- whether you can cancel at any time if you are not happy with the service
- what the fees are
- whether you will get your fee back if you cancel
- which creditors the DMC will deal with and which creditors you still need to deal with.
If you are thinking about using a DMC, you should get advice from an experienced adviser, for example, at a Citizens Advice Bureau - where to get advice.
Putting all your debts into one loan – consolidation
If you have enough money left over after paying your priority creditors and your essential expenses, you could think about taking out a loan to pay off your non-priority debts. This is called a consolidation loan. Always get independent financial advice before taking out a loan for debt consolidation. Many creditors ask for the new loan to be secured against your home. This means you could lose your home if you don't keep up the payments.
You can use a consolidation loan to pay off things like credit card debts and loans.
However, if you can afford the repayments, have stable finances and are good at controlling your spending, this could be an option for you. If you are thinking of borrowing to pay off your debts:
- make sure you have enough money left in your budget to afford the repayments
- check you can afford the repayments for the whole life of the loan
- shop around for the best deals
- don’t borrow more than you need
- if you get a consolidation loan to pay off your credit card loan, make sure you close the credit card account and don't use your card anymore.
If you do take out a consolidation loan, be careful you don't end up with more debt than you started with. Make sure you don't borrow from a loan shark (someone who lends money without a licence. This is illegal). You can report loan sharks on a confidential helpline at 0300 555 2222.
Always get advice from an independent financial adviser before signing a new loan agreement. Make sure that the financial adviser is regulated by the Financial Conduct Authority (FCA). You can check this by looking on the Money Advice Services website at www.moneyadviceservice.org.uk.
For more information about finding a financial adviser, see Increasing your income.
Statutory debt solutions
There are three statutory debt solutions. They are formal solutions which provide legal options for people who cannot pay their debts. You can negotiate with creditors to accept lower payments but once you are in a statutory debt solution creditors of most of your debts (not those secured against a property or land) cannot continue trying to make you pay your debt. You may have to pay a contribution from your income to your creditors but this will be assessed using a tool called the Common Financial Statement. If you tell the Accountant in Bankruptcy that you intend to apply to be in a statutory debt solution you will then have six weeks when creditors have to stop trying to make you pay the debts. Money advice is compulsory for all three statutory debt solutions and your money adviser has to help you to understand what option is best for you and why.
Debt Arrangement Scheme
The Debt Arrangement Scheme (DAS) is a scheme set up by the Scottish Government to help people manage their debts. You can arrange a Debt Payment Programme (DPP) under the Debt Arrangement Scheme (DAS). Once your DPP has been approved you make one regular payment to a payment distributor, who sends the money to your creditors. You can’t apply directly for a DPP. An approved money adviser must make the application on your behalf. You can find more about DPPs and how to find an approved money adviser on the website www.dasscotland.gov.uk.
You can arrange a trust deed for your creditors. This is a legally binding agreement between you and your creditors. Your assets and property are passed to a trustee who will manage your financial affairs with the aim of paying your creditors as much as possible of the debt owed to them. If your trust deed becomes protected your creditors can’t take further action against you or make you bankrupt. In order to set up a trust deed you need to have at least £5,000 worth of debt. You will usually be expected to make regular payments towards your debts for at least 4 years. After 4 years, if you have met your obligations under the trust deed, you will be discharged and most remaining debts will be written off.
There is more information about trust deeds on the Accountant in Bankruptcy's website at www.aib.gov.uk. If you are interested in setting up a trust deed, you should get advice from an experienced adviser - where to get advice.
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 re-pay your debts under the current arrangements you have negotiated with your creditors you may want to look at bankruptcy (sequestration) as an option. Your creditors can also choose to apply to sequestrate you. There are several routes to sequestration and money advice is compulsory before you can be made bankrupt. The routes are:
- you can apply yourself if you have low income (for example only on benefits) and assets of less that £2,000 and you owe at least £1,500. This route is called the Minimal Asset Process (MAP)
- you can apply yourself to the Accountant in Bankruptcy if you owe a total of £3,000 and have some income to pay towards your debts (this could be in the form of assets like a privately owned home)
- your creditors can apply to court if you owe one or more creditors a total of £3,000.
Choosing sequestration can take away the pressure from you of trying to pay creditors or negotiate with them. You are allowed to keep certain things, like household goods and a reasonable amount to live on.
When the sequestration is arranged, you can make a fresh start. You may be expected to pay a contribution towards your debt under a 'debtor contribution order'. This would be payable for up to 4 years in total unless your circumstances change at which point your situation would be reassessed. In many cases, you could be discharged from sequestration after only one year but this is not automatic. There are some disadvantages to sequestration, for example, if you have any assets like a house or other property you may lose them but there are some safeguards to protect your family from losing their home if they live with you.
If you are thinking about applying for sequestration or creditors are already applying for it, you should get advice from an experienced adviser. Your local Citizens Advice Bureau can give advice about bankruptcy - where to get advice.
Asking to write off your debt
If you have no money to spare to pay off your debts, your creditors may agree to write off your debt. They may even agree to stop action against you altogether but this is unusual.
To find out how to work out if you've got money to pay off your debts, see How to sort out your debts.
Your creditors are only likely to agree to write off your debt in exceptional circumstances. If you have a low income and your situation is particularly difficult and unlikely to get better they may write them off.
You will usually need to show proof of your situation, for example, medical evidence that demonstrates that you cannot work or are seriously ill, before creditors will agree. If creditors do agree to write off the debt, make sure that they put it in writing.
Some creditors may want an adviser to make this request on your behalf. Your local Citizens Advice Bureau can make the request on your behalf - where to get advice.
Further help and information about debt
You can get more information about how to deal with debt on the following Adviceguide pages:
- How to sort out your debts
- How to deal with the creditors of non-priority debts
- Mortgage problems
- Bankruptcy fact sheet [ 120 kb]
Money advice centres and law centres
Help with debt problems is available through Money Advice Centres or Law Centres.
The addresses and telephone numbers of Money Advice Centres and Law Centres can be found in the telephone directory.
The website of the Law Centres Federation can also help you to find your nearest law centre. Go to www.lawcentres.org.uk.
The National Debtline can give free information to people living in England, Wales and Scotland. It also provides an information pack on dealing with debt. The line is available on Monday to Friday 9.00 to 9.00 and on Saturday 9.30 to 1.00. The National Debtline telephone number is 0808 808 4000 and the website is www.nationaldebtline.org.
StepChange Debt Charity
StepChange Debt Charityis a registered charity offering free, confidential advice and support to anyone who is worried about debt. StepChange Debt Charity has:
- a freephone helpline on 0800 138 1111 where you can speak to a Debt Counsellor
- a website where you can get information on how to deal with your debt problems at www.stepchange.org
- an online Debt Remedy tool. This asks you a series of questions about your household, income and expenditure and then provides you with a Debt Remedy tailored to your personal circumstances. Go to www.stepchange.org.
Payplan is an independent company offering free debt advice and solutions to clients, such as debt management plans (DMPs). When you contact Payplan, an adviser will look at your financial situation and help you decide the best option to sort out your debts. If a repayment option is appropriate, they can help you approach your creditors with a repayment plan and distribute repayments on your behalf until the debts are repaid.
You can contact Payplan on freephone 0800 716 239 or at www.payplan.com.
Business Debtline is a dedicated advice service for small businesses. You can get their contact details from their website at www.businessdebtline.org or phone them on 0800 197 6026.