Can the Government Help Me Get out Of Debt? – Complete A-Z Guide with Advice, FAQs & More

If you’re stuck with debt that just doesn’t seem to go away, getting help from the government could possibly be your way out.

I’ve written a comprehensive guide on what government debt help schemes look like, how you can avail of them, and the options at your disposal.

Let’s get right into it.

How to Pay Off Debt? – Options in the UK

This section explores the various options you have at your disposal to pay off your debts in the UK.

It’s divided into two main sections. The first one addresses your debt help options in England, North Ireland, and Wales. The second covers debt solutions in Scotland.

Let’s begin

For England, North Ireland & Wales

  1. Debt Management Plan

A Debt Management Plan, or DMP for short, is an informal arrangement between you and your creditor that allows you to pay them back in instalments, over a specified period.

It is designed to make it easier for you to pay your creditor back, even if you’re facing financial difficulties.

Also, it’s probable that creditors be willing to get into an arrangement with you if it means that they’ll keep getting paid.

  1. Individual Voluntary Arrangement

An IVA is one of the many debt solutions you have available to you in the UK.

To put it simply, an IVA is a legal arrangement that allows you to pay your debts back in instalments, usually in a period of five or six years.

Once an IVA expires, all debt associated with the IVA is written off. That means that even if you’re unable to pay your debt back completely, it will be written off once the IVA expires.


However, an IVA can affect your credit report negatively.

Also, it has very difficult conditions for qualification. 

The creditors you owe 75% of your debt to have to agree to the terms of the IVA for it to be valid.

If you need any debt advice in this regard, there are plenty of organisations that offer valuable debt advice options such as StepChange.

  1. Debt Relief Order

A DRO is designed to give you a full year’s worth of time to allow you to get back on your feet and manage your debts.

The way it works is simple.

Once approved, a DRO basically gives you a full year where your creditors or any debt collection agencies aren’t allowed to contact you and ask you to repay the debts you owe them.

On the flip side, a DRO only applies to certain types of loans.

Also, while it does allow you more financial freedom than an option like bankruptcy, it can do quite a number on your credit score as well.

  1. Bankruptcy 

Bankruptcy is a debt solution that, once approved, causes all your debts to be written off.

However, this comes at a cost.

For one, any assets you own are taken from you and are used to contribute to the repayment of your debts.

Also, it’s likely that you’ll face a lot of financial restrictions because of bankruptcy. These may look like you not being allowed to borrow higher than a certain amount of money for a specified period, or more severe restrictions.

While it does give you a fresh chance to start over, it can be very damaging for your credit report, so it’s important to know what you’re getting into.

  1. Administration Order

An administration order is a legal procedure you can avail of in the event that you have either a High Court judgement or a county court judgement against you and you’re not capable of repaying the full debt amount.

The most important condition you need to be aware of, though, is that the total amount you owe should be less than £5,000 for you to be eligible for the debt.

The way it works is that you make one payment per month to the court.

The court then divides this money between your creditors.

Lastly, the creditors that the administration order pertains to are not allowed to pursue you or take any action against you unless that court allows it.

can the government help me get out of debt

For Scotland

  1. Sequestration

Sequestration, also called full administration bankruptcy, is an insolvency solution available exclusively in Scotland.

It is similar to the bankruptcy procedure found in England, North Ireland, and Wales, except it has a few key differences.

Sequestration is managed by the Accountancy in Bankruptcy.

If your sequestration request is granted, your assets, such as your car, or maybe even your house will be taken from you and used to repay your debts.

  1. Minimal assets process (MAP) bankruptcy

Minimal assets process bankruptcy is a type of bankruptcy procedure available in Scotland and is tailored towards people with few assets and small amounts of debt.

The good news is that MAP bankruptcy is much cheaper than regular bankruptcy or sequestration. 

Under normal circumstances, it costs around  £90, which is much cheaper than the costs associated with sequestration or bankruptcy.

Even though MAP bankruptcy is technically a legal procedure, you won’t be called to court during the process.

  1. Debt Arrangement Scheme

A Debt Arrangement Scheme is a debt payment program that is very similar to a Debt Management Plan (DMP), but unlike a DMP, a Debt Arrangement Scheme is legally binding.

Moreover, all interest and charges associated with your debts will be frozen once your debt arrangement scheme is approved.

Also, creditors or debt collection agencies can’t hound you or approach you to ask you to repay them once a Debt Arrangement Scheme is intact.

A DAS allows you to pay your debts back at an affordable rate.

  1. Protected trust deed

The last insolvency solution in this list is a protected trust deed, which allows you to make reduced payments towards your debts over a specified period.

Once the time limit on the protected trust deed ends, your unsecured debt will be written off. Also, just like MAP bankruptcy, even though a protected trust deed is a legal procedure, you won’t have to appear in court to get it.

FAQs

How do I get out of debt with no money?

Getting out of debt with no money is a very tricky thing to do.

You need to generate streams of income, make a budget, follow a schedule, cut your spending, avoid splurging, and maybe even apply for insolvency options once your debt becomes unmanageable.

How can a debt be written off?

You can either convince your creditors to write off your loans, or you can apply for an insolvency procedure that allows you to write your debts off in the event that you can’t pay them back.

Each method has its ups and downs, but in general, once your debt becomes unpayable and you don’t see a way out, it can probably be worth it to try to get your loans written off.

How long before a debt becomes uncollectible?

In the UK, the limitation period for most types of debts expires when no acknowledgement pertaining to the debt has been made between you and your creditor in six years.

However, for home mortgage loans, the limitation period expires when no acknowledgement pertaining to the debt has been made between you and your creditor in twelve years.

Can I go to prison for debt?

No.

You can’t go to jail in the UK for not being able to pay your debts.

However, it’s very possible that you be jailed for committing fraud in matters related to your debt.

If debt collectors are threatening to have you jailed if you don’t pay them, these are most likely empty threats and you shouldn’t be worried.

Where can I get free debt advice?

There are plenty of sources you can consult for both online and in-person debt help.

Here are some of the sources you can look for to get help:

  • Citizens Advice is a great channel that offers help via email, phone, and face-to-face.
  • Advice UK has a strong network of help channels.
  • National Debtline is an amazing source if you’re looking for help. If you want, they’ll even send you a self-help information pack.
  • My Money Steps is a help site you can consult for expert opinions

Other than these options, there are several debt help organizations and charities that will help you for free. All you have to do is look for them.

Wrapping it Up

Sometimes, personal debt can get out of hand.

If you choose to involve the government in matters related to your debt, you need to know what your options are and how to best utilize them.

If you need more debt advice, feel free to reach out. I’d love to help.


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