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I Can’t Pay My Debts – All You Need to Know & FAQs

I Can't Pay My Debts

For free and impartial money advice and guidance, visit MoneyHelper, to help you make the most of your money.

Not having the financial means to pay off your debts can be both fiscally and emotionally devastating for a person. 

That being said, there are certain solutions available in the UK which you can utilise to take care of your debts even if you can’t contribute money towards them at all. 

In this post, I’ll be looking at options you have to take care of your debts if you can’t afford to make payments to them. 

What Should I do if I Can’t Pay My Debts? 

As you may or may not know, there are many different types of debt solutions available in the UK.

These debt solutions work in different ways in order to accommodate different types of people and their different financial situations. 

For example, an Individual Voluntary Arrangement (IVA) is designed for individuals that can afford to pay off their debts but need some framework to make their payments manageable. IVAs involve you paying most of your debt(s) with a portion of them being written off. 

A debt management plan (DMP) is a repayment plan where you make regular payments towards your debt every month until it has been repaid in full. 

However, these debt solutions are of no interest to you if you can’t afford to pay your debt(s) at all. 

If you can’t afford to make any payments towards your creditor(s) and you reside in the UK, you have two options available to you: bankruptcy or a Debt Relief Order (DRO)

Let us take a closer look at these two options: 

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Bankruptcy is a type of formal insolvency which involves all of your debt being written off. It allows you to start fresh with a clean slate. 

It’s a process that is opted for by individuals that have little to no hope of paying their debt within a reasonable amount of time. 

When you opt for bankruptcy, almost all of your unsecured debt(s) are written off. 

Please note that while bankruptcy can write off most types of debt, there are still certain types of debt that bankruptcy does not cover. 

This is why it’s important for you to be aware of what types of debt are covered by bankruptcy so you can make the right decision for yourself based on what types of debt you have. 

The types of debt that are not covered by bankruptcy include: 

  • Magistrates court fines
  • Any criminal fines or payments that a court has ordered you to make
  • Child maintenance fees and any fees or payments that have resulted due to family proceedings
  • Student loans which were supplied to you by the Student Loans Company
  • Secured loans
  • Debt or payments that you owe that arose because of the personal injury or death of a person
  • Social fund loans

Bankruptcy has some great benefits as your unsecured debt is written off, your creditors won’t take legal action against you and you also won’t receive any further calls or letters from your creditors. 

However, bankruptcy has several risks and drawbacks which you also need to be aware of. 

Firstly, you need to be aware of the fact that bankruptcy would mean that your valuable assets such as your home and your car would be seized and sold off. This would be done in order to raise funds for your debt. 

If you work in the financial sector, then becoming formally insolvent through a bankruptcy would mean that you would most probably be dismissed from your job. 

Furthermore, bankruptcy will be recorded in your credit file and it will continue to have a negative impact on your credit score for six years. 

When you opt for bankruptcy, your name and details are entered into a public register that anyone can view. 

Bankruptcy fees can vary depending on where you live in the UK. 

If you reside in England or Wales, you will be paying a total of £680, £130 of which is a fee to the adjudicator and £550 is to the official receiver. 

If you reside in Northern Ireland, you will be paying a total of £683, £151 of which is the court fee, £525 is the bankruptcy deposit and £7 is the solicitor’s fees. 

Debt Relief Order (DRO) 

A debt relief order is a debt solution that is aimed at individuals that have low income and little to no assets to their name. 

Paying off your debts can be difficult but a debt relief order would mean that you won’t have to make any payments and your debt will be written off. 

DROs even cover priority debts such as council tax, income tax, rent arrears, etc. 

When a DRO is put in place, all of your debt repayments are frozen and your creditor(s) cannot add further interest and charges on your debt(s) either.

The repayments are frozen for a period of 12 months which is known as the ‘moratorium’ period. 

Once this period comes to an end, your financial situation is assessed. If it’s determined that you still are unable to pay off your debt, then your debt(s) are written off. 

While a DRO is definitely a great solution for people with low income, it’s important to note that it has very strict eligibility criteria. 

In order to qualify for a DRO, you must: 

  • Owe less than £30,000
  • Have a disposable income of less than £75. Your disposable income is the money left once you’ve attended to all of your essential monthly living costs
  • Have resided or been employed in England or Wales over the last 3 years
  • Not have assets that are worth more than £2000 in total
  • Not have had a DRO in the last 6 years. 

Please note that just like bankruptcy, there are certains types of debt that a DRO does not cover. This is why it’s important that you get debt advice before opting for any single debt solution to ensure that the types of debt you have are covered by the debt solution you’re going for. 

A DRO takes care of most types of unsecured debt such as credit card debt. However, the debt(s) it does not cover include: 

  • Child maintenance fees or any payment(s) that have arise due to family proceedings
  • Student loans
  • Social fund loans
  • Secured loans
  • Fines incurred due to drug-related crimes
  • Fines due to damages that a court has ordered you to pay
  • TV license arrears
  • Any debt you incur after your DRO has been granted

Please note that just like bankruptcy, a DRO will also get recorded in your credit file and stay there for six years. 

This means that for six years, you’re going to have trouble obtaining any type of credit. You may have to go to specialised lenders that offer credit to people with low credit scores. 

You may be able to get yourself approved for a loan but even that might be at an extremely high interest rate or you might not be able to secure a loan amount that is as high as you wanted it to be. 

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Just because you can’t make monetary contributions towards your debt does not mean that all hope is lost. There are a number of different options you can explore in order to become debt-free. 

Just be sure to get help from a professional in order to make an informed decision about which debt solution would be best for you.


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