How Debt progresses: Understanding my options

The most shocking secret of problem debt isn’t how common it is (around 1 in 6 UK adults have financial issues), or the huge sums of money involved (£119 billion of financial debt). The real surprise is how easily anyone can fall into difficulty. And it’s largely due to a lack of understanding how debts progress, and what the options are.

A common myth is that to build up serious financial problems, you need to be living far beyond your means and spending every penny of credit on luxuries. This may be true in some cases, but if you’re one of the 12.8 million UK households with between £0-£1500 in savings, then it can be just one unexpected bill or additional cost that pushes you into missed payments and defaulting.

Sadly, many people are tempted to avoid dealing with their financial situation, or just pick what seems like the first easy solution. When a better understanding of the debt process and the options available to them might save them a lot of time, stress and money.

A good first step when you start experiencing persistent debts or encountering missed payments is to contact your creditors. Securing a payment holiday for one or two months will give you time and space to arrange a better, more permanent solution. And it’s quick and easy to do, especially if you use the Debt Buffer letter templates to help include all the information you need.

The timeline for unsecured personal debt, and how it can escalate

Whether you’re working or unemployed, it’s likely you have at least one credit or loan product at the moment. And you’re among 75% of UK adults (38.1 million people) who have motor finance, a personal loan, or another form of consumer credit at the moment as identified by the Financial Conduct Authority (FCA).

With rent or a mortgage, bills and living expenses, and credit to pay off, it’s no surprise that many people can find themselves in trouble. Especially in a sudden change of circumstances, or if there’s an unexpected cost to pay. The longer it takes you to act, the more impact it will have on your credit rating, options to solve your debts, and ultimately, your lifestyle.

Persistent Debt:

If you are paying more in interest, fees and charges than actually reducing the amount on your credit card, store card or catalogue account, then it’s deemed to be a persistent debt. The FCA state your credit provider needs to contact you if this is the case.

You’ll receive a letter asking if you can repay more of your debt, informing you of other repayment options and warning you what could happen if you continue making low repayments. This isn’t a demand for money that you can’t afford, but it’s an important time to take action.

  • Contact your providers and see if they are willing to suspend interest and charges for a time. You can use the Debt Buffer letter templates to help provide the right information.
  • Consider switching to a cheaper alternative, and you can let your current provider know in case they can offer a better deal.
  • If you can pay more without impacting on your ability to meet other commitments, then it’s a good idea.

Persistent Debt timeline:

  • After 18 months of repaying more in interest and charges your creditor will contact you.
  • At 27 months if you are still in persistent debt and haven’t contacted your creditor, then you’ll receive another letter.
  • If you still haven’t acted in 36 months, you’ll be contacted again with options including increasing repayments, payment plans etc. And your accounts will be suspended, but you’ll still be charged fees and interest.

A persistent debt means that you haven’t actually missed a payment. But you can still find accounts suspended, and the amount you owe will keep growing in the meantime. Which is why it’s so important to act as soon as you begin to see the charges and interest eating into your repayment amounts.

Late or Missed Payments:

There can be a variety of reasons for making a late payment, or missing one altogether. It could be due to a particularly busy month, and the bill slipped your mind. Or there might have been a delay or problem with wages coming into your account. An unexpected cost or an emergency might have disrupted your routine and left you financially stretched, so you can’t make the payment.

The effect of a late or missed payment will depend on the type of debt you’re dealing with, and the terms of the individual agreement. The implications are generally more serious if it’s a priority such as council tax or your rent.

Consumer credit covers most commercial lending, from credit cards to personal and secured loans, and these are covered under the Consumer Credit Act. Debts which aren’t regulated under those rules include debts to local or central Government, mortgages, household bills, and loans from unlicensed lenders. Many of these will have their own regulators (e.g. Ofgem or Ofcom) or an ombudsman or independent organisation to oversee industry standards and complaints.

Late payments:

For late payments, the main impact will be on your credit score. If it’s recorded on your report, then it can lower your score, and make it slightly trickier to get loans and other financial products in the future.

Although any late payments recorded will remain on your credit report for six years, the impact will go down as time passes (as long as you’re making all your other payments). And if there was a good reason (e.g. redundancy), you can apply to add a notice of correction with up to 200 words of explanation via credit agencies. This is also how you can challenge any late payment records that you believe are a mistake.

Late payments often also incur a penalty fee and interest. So, if you think you might need to make a late payment, it’s best to contact your creditors as early as possible to see if a temporary solution is available.

Missed payments:

Completely skipping payments is obviously a more serious issue than settling them a few days late. The exact response will depend on individual creditors and the agreements you’ve signed with them, but typically it can escalate quite quickly if you don’t start working on a solution as soon as possible.

  • One or two payments missed: At this stage, most creditors will send you reminders as per late payments. They’ll be relatively sympathetic and open to options including temporary payment holidays or paying a reduced amount in the short term.
    Missed payments will be recorded on your credit score for six years, and like late payments, will have an impact on your ability to access financial products. But this will reduce over time, as long as they’re relatively rare on your credit report.
  • Three to four payments missed: Your creditors are likely to be less understanding, although they’ll still be keen to resolve the debt amicably if possible. Your accounts will likely be suspended or closed, and if your debt falls under the Consumer Credit Act, it’s likely you’ll receive a default notice.
  • Five to six payments missed: By this time the contact from creditors will be piling up, and you’ll be very likely to have defaulted on your debts. This is the stage at which most creditors will pass on your debts to a specialist debt collection agency. For regulated debts, debt collectors don’t have any special powers to collect money or enter your home.
    However, creditors can apply for a Country Court Judgement, which will enforce repayment. Bailiffs will become involved if you then fail to meet the requirements set by the court – the only exception is HM Revenue and Customers, who can use bailiffs without taking you to court first.

There is action you can take at every stage of the process to improve your situation. Even after a County Court Judgement (CCJ) has been issued, you can apply to payments reduced if you can’t afford them. Or to have it cancelled or ‘set aside’ if it shouldn’t have happened in the first place.

The key thing is to start working on resolving your debt problems at the earliest stages possible. By working with creditors and getting advice from debt charities or specialist advisors when you first miss a payment, you can minimise the effect on your credit score.

Even if you wait a little longer, you can potentially avoid a default notice, or the added stress of constant chasing from debt collection agencies.

But what you don’t want to do is leave missed payments until they’ve grown into a CCJ judgement, or bailiffs are involved. At this stage, you can still sort out your financial issues, but it becomes more difficult the longer you put things off.

That’s why the best response to missing any payments is to immediately get in touch with your creditors, and we’ve made it easier by providing Debt Buffer letter templates to help. This will give you some time and breathing room to speak with debt support charities or advisors, sort your budget realistically, and research the range of options available to find the right financial solution for your individual circumstances.


A default occurs when a lender closes your account due to missed payments. Normally this will take some time to happen, but there is no set minimum amount or time limit.

If your debt is regulated under the Consumer Credit Act, you must be issued a default notice and given time to solve the issue before further action is taken. This should be at least two weeks. You’ll be able to recognise it by the following text in large or bold letters “’Default notice served under section 87(1) Consumer Credit Act 1974’”

Receiving a debt notice letter doesn’t impact on your credit rating, and it will ask you to pay the full amount of the outstanding debt. At this stage you can offer to make up missed payments and continue with affordable instalments, but this requires your creditor to agree.

Defaulting on your accounts can lead to further action, including passing the debt to a collection agency, court action, or applying to a court to take back goods or vehicles if the debt was a hire purchase agreement.

You’ll have any defaults recorded on your credit file for six years, even if you pay off the debt in full. And this makes it harder to get any further credit, from credit cards and mortgages to mobile phone contracts. You may be refused outright, or offered a much higher rate of interest on any credit you are able to secure.

In addition to the big impact on your credit rating, defaulting on an account may also impact your job if you work in the financial sector.

Some debt solutions, such as a debt management plan (DMP) or an Individual Voluntary Arrangement (IVA) are an agreement to freeze interest and charges. And to make affordable payments rather than the original amounts demanded by your creditors.

As a result, if you are on a DMP or IVA, you may still receive default notices as you are paying a new amount. And you should carry on with your payment plan as agreed by your DMP provider or your IVA supervisor.

You should always inform your DMP provider or IVA supervisor if you’re informed a debt is being passed to a collection agency, you receive a ‘letter of claim’ from your credito indicating court action may be starting, or any other paperwork from county courts.

After six years, a defaulted debt will be removed from your credit file, even if you haven’t finished paying it off. And the impact of it on your credit score will get lower over time, if you’re meeting your current financial obligations.

If you’ve reached the stage of defaulting, your credit rating will already be suffering. So there’s no point in continuing to struggle to make payments which are going on interest and charges. And letting your debts potentially grow even further.

Now is the time to take back control of your money, and life, by using one of the various debt solution options available to pay off smaller amounts of your debts. It won’t lower your credit score any further, and means you can start the process of rebuilding your finances for the future.

County Court Judgements (CCJs)

Creditors can proceed with a Country Court judgement (CCJ) as part of the debt collection process. This will generally follow the other attempts to find a repayment option that works for all parties, and still allows for a resolution before a court decision.

First a creditor will need to send you a ‘letter of claim’ with details of the debt. And this gives you 30 days to respond via a provided reply form which allows you to supply a financial statement with an offer of payment, let the creditor know you’re seeking debt advice, and request more information if you need it. If an agreement is reached at this stage, the court action is avoided.

If your creditor wishes to proceed with court action, you’ll then be sent a County Court claim form. You then have just over two weeks to respond. The N1 claim form should also be accompanied by other forms in the post, including the N9 Response pack, the N9A – Admission (specified amount) form and the N9B Defence and counterclaim form.

As with other details, your CCJ will show on your credit file for six years, and will heavily impact the chance of you being able to take out any further credit during that time. However, it will also be added to the Register of Judgements, Orders and Fines database. This is searchable by anyone for a small fee.

This shouldn’t impact your job unless you’re in a financially responsible role. But it’s important to check any employment contracts and rules. A CCJ will also prevent you from applying for a job with the police

When your debts are leading towards court action, you can’t delay action any longer. By this stage, your credit rating will have already been heavily impacted. The only option is to start improving things by sorting out a proper debt solution as soon as possible. And it means you can start paying a lower amount to satisfy your creditors, without necessarily needing to settle your debts in full.

Debt Collectors and Bailiffs:

You’ll typically have a reasonable amount of time to resolve financial issues before debt collectors and bailiffs become involved. The exceptions are for debts not governed by the Consumer Credit Act, such as council tax, mortgages or from unlicensed lenders.

In those cases, you can check for other regulators, such as Ofgem and Ofcom. Or an ombudsman or independent organisation covering standards and complaints for a specific industry.

Debt Collectors:

A debt collector will work for a creditor or specialist debt collection agency. If your debt has been passed onto them (or they’ve purchased your outstanding debt from your lender), they will inform you that the money is now owed to them.

It’s important to always remember that debt collectors do not have any special powers enabling them to collect payments or take items. Generally, they’ll use letters, emails and phone calls to get money from you. This can be worded in ways which make it seem more serious and threatening than the reality of the situation.

If you’re receiving any worrying letters or notices, it’s important to contact a debt support organisation for advice. Often if you can actually call and speak to someone at the debt collection agency, they’ll  be able to explain everything in a more human and sympathetic way. And some will allow for payment holidays if you’re experiencing temporary difficulties.

Should a debt collector actually turn up at your home, they need to show ID if asked, and you have no obligation to open the door or let them in. If you ask them to leave, they have to follow your instruction, and they can’t take anything with them. And if they’re asking for an immediate payment, you don’t have to do it. But if you choose to do so, then you can either pay directly to your creditor online or over the phone, so you’re less pressured into offering an amount you might not be able to afford. And if you ever do make a cash payment, ensure you get a receipt and store it safely for your records.

Most debt collection agencies in the UK are regulated by the Financial Conduct Authority, and are members of trade bodies such as the Credit Services Association.

Bailiffs & Sheriff Officers:

Bailiffs, or enforcement agents (sheriff officers in Scotland), can work on behalf of private companies or councils. And they will collect debts relating to Country Court Judgements (CCJs), council tax or child maintenance arrears, criminal or parking fines or money owed to HM Revenue & Customs.

Unlike debt collectors, bailiffs have a legal right to visit your property and sell your goods to pay off a debt. In most cases, they will only be sent to your home after a court action has been taken, and if you then either ignored the correspondence from the court or failed to set up a payment. The exception is HM Revenue & Customers, who can use bailiffs without taking you to court first.

Even at this stage, you still have some options. Bailiffs have to let you know they’re intending to visit by sending you a notice of enforcement which should be received seven clear days before they arrive. So, you have some more time to either pay the debt in full or come to a repayment arrangement.

The powers of a bailiff will depend on the type of debt, and your circumstances. For most types of debt, they can only enter your house in a peaceful way with your permission, and it’s generally suggested you don’t let them in. Bailiffs also have to follow extra rules if they are dealing with vulnerable clients, including those with a serious illness or disability, anyone dealing with a life shock such as a bereavement or redundancy, pregnant women, those with communication issues and older people.

For example, bailiffs cannot enter a property if only vulnerable adults or children under-16 are present, take medical equipment or vehicles used by some with a disability, or recover funds from someone identified as vulnerable without getting them the opportunity to get assistance and advice.

Don’t believe everything you see on TV. Documentary series following bailiffs will show them finding ways to access property, but bailiffs can only break in for specific circumstances, such as business debts, or criminal fines.

Priority Debts:

When you’re organising your budget and any repayment plan, it’s important to prioritise certain debts. As mentioned above, some financial obligations are outside the Consumer Credit Act, and have different timelines for progressing for a missed payment to court action or enforcement.

It’s also important to prioritise utilities which could seriously impact your health and wellbeing if you get behind on payments and your service is disconnected. For example, your water and heating. But internet access would also be a priority if it’s essential you can work from home.

  • Mortgage or rent
  • Service charge or ground rent
  • Council tax
  • Electric
  • Gas
  • Water
  • Hire purchase goods
  • County Court judgments (CCJs)
  • Magistrate or court fines
  • Child maintenance
  • Broadband internet (if working from home)
  • Other tax and Government payments

For example, the council tax arrears timeline takes place much more quickly than for a commercial credit arrangement (for instance, credit card debt). And local authorities have extra legal powers to enforce it.

  • After 14 days late payment for council tax you’ll be sent a reminder letter.
  • If you pay within 7 days, you can continue paying in instalments.
  • If you don’t pay within 7 days, you need to pay the full amount. And any further late payments also remove the option of instalments.
  • In a further 7 days you can then be taken to court.

The exact process will depend on your local authority, but typically councils will only write off any council tax arrears if there is severe hardship, bankruptcy, or a debt relief order.

And although bailiffs can’t enter your home purely for missed council tax payments, the money can be deducted straight from your wages (using an attachment of earnings), or from any benefits you receive. It’s possible that the debt can be secured to your home, you can be made to go bankrupt, or even receive a prison sentence of up to 3 months, but these steps are extremely rare and only used as last resorts.

Understanding your options:

The earlier you act to control any problem debts, the more options you have available. Late and missed payments will start to impact on your credit score, but you can minimise the effect by taking positive steps. One or two blemishes on your credit rating might mean a slightly higher interest rate on credit, but it’s a marginal issue compared to defaulting or receiving a County Court Judgement.

Your first move should be contacting creditors straight away to get communication started. By being proactive, you can offer a better representation to lenders, and they’re likely to be more sympathetic. And it will also get you some time and space to properly look at the debt solution options which might be the best fit for you.

Administration Order:

An Administration Order (AO) is a formal and legal debt solution approved by a court. To qualify you will need debts totalling no more than £5,000, an unpaid County Court judgement (which includes a traffic penalty registered for enforcement in the Traffic Enforcement Centre at Northampton County Court), and two or more debts.

Your repayments are based on how much you can afford, with 10% kept by the court to cover their costs. You won’t have to pay any fees to apply, and you can also apply for a composition order to add a time limit, usually 3 years, or the repayments, with the rest written off at the end of the period.

Administration orders are entered on the Register of Judgements, Orders and Fines and remain for six years, as well as on your credit file for the same period.


If you can’t see a way to pay your debts, have few belongings or equity in your home, and your situation is unlikely to improve in the near future, then bankruptcy might be a suitable option.

You’ll need to pay a £680 application fee, but any debts covered will be ‘discharged’ after 12 months, meaning you don’t have to repay them. The exceptions include student loans and court fines.

Advantages include removing the pressure of your debts, and contact from creditors. But although you’re allowed to keep a reasonable amount from your income, you may be required to make payments towards your debts for three years.

You may also have to sell your home and some of your possessions, although there are exemptions for everyday household items, tools for your job, or a car worth less than £2,000 if you need it for commuting or you’re a carer.

Bankruptcy also has implications if you’re renting (depending on your tenancy agreement), and for your employment depending on your career. In addition to your credit record, it will also be publicly available, and if you own a business it may be closed and have assets sold.

Sequestration and MAP Bankruptcy

In Scotland there are two forms of insolvency which are slightly different to bankruptcy in the UK. These are Sequestration (also known as full administration bankruptcy) and Minimal Asset Process (MAP) bankruptcy.

Sequestration is similar to bankruptcy in the UK. It will normally last for a year, and your details will be added to the public Register of Insolvencies for five years, and it will be on your credit file for six years.

To qualify, you’ll need to owe more than £3,000, be living in Scotland, and not have been made bankrupt in the last five years. You’ll also need a certificate for sequestration from an approved debt advisor, and a charge for payment served on you which you haven’t paid within the 14 days allowed.

There’s a £150 fee (reduced from £200 until at least the end of September 2020), which is paid to the Accountant in Bankruptcy (AiB). But your creditors won’t be allowed to contact or chase you, and all your unsecured debts will be written off (although you may be required to make a contribution).

Sequestration is similar to bankruptcy in that you’ll also have restrictions on employment, borrowing any more credit, and you may be required to sell valuable assets such as homes and cars.

MAP Bankruptcy is more equivalent to a Debt Relief Order, and is aimed at those on a low income without many assets.

Although MAP Bankruptcy is a formal legal process, you don’t need to appear in court and the application fee is £90. It will typically last six months, after which most debts will be written off, and your creditors can’t chase payments, add more interest and charges, or take court action.

To qualify, you’ll need to live in Scotland, be on a low income (either income-related benefits, or just enough to cover your essential living costs without anything left over), and you’re not a homeowner. You also need to owe between £1,500 and less than £25,000 (increased from £17,000 until the end of September 2020).

Your car will need to be worth £3,000 or less, and your other assets must be less than £2,000 in total, with no item over £1,000.

The MAP will usually last six months. Your details will be added to the Register of Insolvencies for five years, and it will appear on your credit file for six years. During the MAP bankruptcy period and for six months after, you won’t be able to borrow more than £2,000 without telling the lender you’re bankrupt.

Debt Arrangement Scheme:

This is an option only available in Scotland, and lets you use a Debt Payment Programme (DPP) to voluntarily enter into an agreement with creditors to repay at an affordable rate, with interest and charges frozen.

You’ll repay your debts in full over the agreed period, but you can apply to vary the amount or take a break if your situation changes. A DPP will appear on your credit file for six years and you will also appear on the DAS register which is publicly accessible.

Failing to make your payments without applying for a break or reduction means the DPP could fail. At which point your creditors can add interest charges or take further action.

If you don’t live in Scotland, there’s the similar Debt Management Plan (DMP) available in the rest of the UK.

Debt Consolidation Loans

If you’re starting to have financial problems and struggle to manage a number of creditors, then a debt consolidation loan may be a potential solution.

The main benefit of this option is simplicity. By taking out new credit, you will be able to pay off your existing debts. And you’ll only need to make one regular payment to a single lender going forwards.

Debt consolidation can be attractive if you’re juggling demands and missed payments from a variety of companies. But there are lots of things to consider before choosing this route, as essentially, you’re just bringing all of your debts together in one place.

You’ll need to ensure that the new payments are affordable, and you won’t be tempted to take out more credit again in the future. Otherwise you’ll be back in the same position again.

With any loan, you’ll also need to carefully look at the interest rates and length of the repayments involved. If you’re offered lower repayments, it’s likely you’ll be paying off your debts over a much longer amount of time.

You also need to understand if the debt consolidation loan requires you to secure it against your home, which leaves you vulnerable to having it repossessed if you default on your repayments.

The final thing to consider is that if you’ve already got a poor credit score, then the debt consolidation loans that are available will come with higher interest rates. So, by the time you start having problem debts, it’s less likely to be the best option for you.

But there will be some cases where debt consolidation is the best option. Especially if you’re typically good at managing your budget and paying your debts in full, and you can avoid the need for any further credit in future. Just make sure you seek impartial debt advice before making a decision.

Debt Management Plan

A Debt Management Plan (DMP) allows you to agree affordable repayments with your creditors to pay off your debts. It’s possible to organise the voluntary arrangement directly, or to use one of the many DMP providers that exist. Some services will do this for free, while others will require a fee to manage your DMP.

To find out what you can afford, it’s important to work out a realistic monthly household budget. What’s left can then be used for one regular monthly repayment to your DMP provider, who will then distribute it to your creditors.

One benefit of a DMP is that most creditors will agree to reduce or stop any interest or charges. This means your payments will go towards paying the principal debt. You can also add any arrears on your priority household bills (rent, mortgage or utility bills), and you can switch DMP providers during the repayment period if you wish.

The main risk with a DMP is that it’s a voluntary agreement (unlike an IVA which is approved by a court), so lenders might not agree to reduced payments, or halting interest and charges. You can also find that creditors will still contact you, particularly if your debt is passed onto a collection agency.

Debt Management Plans aren’t specifically recorded on your credit file. But the reduced payments could impact on your score. And any missed payments or defaults will show for six years.

It’s definitely worth considering a DMP as a solution if you typically have a reasonable amount left towards your debts at the end of each month, but can’t meet the full amount demanded by creditors.

A DMP is also worth considering if you want more flexibility than you might get with other options, such as an IVA. Although you need to provide proof of earnings when taking out a DMP, the management of your budget and information isn’t as detailed or strictly enforced.

Some Debt Management Providers will allow you to take a short payment holiday each year if you encounter an unexpected cost. And you can also adjust the repayment amount if your circumstances change, along with reviewing it annually. Typically, you won’t have a problem with getting car insurance, mobile phone contracts, or with utility providers. A DMP also shouldn’t be a problem if you rent or own your home, although it will make it difficult to take out a new mortgage.

Debt Relief Order

You’ll need to meet some fairly strict requirements to qualify for a Debt Relief Order (DRO). But if you do find that you’re eligible, then it can mean most of your debts will be written off after just 12 months. And your creditors cannot recover their money without the permission of the court.

The criteria include:

  • Your qualifying debts are no more than £20,000
  • You’re unable to pay your debts, and have no more than £50 left each month after your usual household expenses.
  • You don’t own your own home.
  • You don’t own a car worth £1,000 or more, unless it’s been specialist adapted for a disability.
  • Your assets are worth no more than £1,000. This includes savings and things of value, but not basic household items or tools you need for your job.
  • It’s been at least 6 years since your last DRO, and you aren’t going through another formal insolvency procedure (e.g. bankruptcy or an IVA).
  • You’ve lived, had a property, or worked in England or Wales in the last three years.

If you want to proceed, you’ll need to speed to a special DRO advisor, who will help you complete an application to the official receiver of the bankruptcy court. The advisor can’t charge for their time, but a DRO application requires a £90 fee. And you’ll need to tell them if you’ve given away assets, sold them for much less than their value, or prioritised one creditor over the others.

A DRO will cover most unsecured debts, business debts, and also arrears for rent, utility bills, council tax and income tax. The exception is if any of these were obtained by fraud, and although your rent arrears are included, you could still be evicted by a landlord if you’re behind on payments.

A Debt Relief Order will be on your credit record for six years. And during the DRO, and for three months afterwards, your details will appear on the Insolvency Service’s Individual Insolvency Register.

If any of your debts are for items bought with a hire purchase agreement, you might need to return the goods, and you can’t borrow £500 or more without telling the creditor about your DRO. You also can’t be involved in promoting, managing or setting up a limited company, or be a company director, without getting permission from the court.

A Debt Relief Order can be cancelled if your finances improve, or you don’t cooperate with the official receiver. And the 12-month period can be extended if careless or dishonest behaviour caused your debt problem.

Debt Settlement Offers

If you come into a significant amount of money, you may be able to look at a debt settlement offer (DSO), also known as a full and final settlement offer.

This may be due to an inheritance, a gift from family or friends, compensation, redundancy, selling a valuable asset or part of your pension if you’re aged over 55. If the amount covers your full debts, then you can just pay everything off.

But if you can’t cover the total amount of your debts, then it’s worth suggesting a Debt Settlement Offer to pay off as much as you can. The creditors will then agree to write off any outstanding amount.

There is no guarantee that creditors will agree to a Debt Settlement Offer. You’ll need to work out how much you can offer, ask your creditors to accept in writing (and keep those letters safe for at least six years after paying), and possibly negotiate with anyone who doesn’t accept your initial offer.

The chance of acceptance will depend on your individual circumstances. If it would otherwise take you a long time to pay your debts, then creditors are more likely to agree. And it’s worth speaking to debt advisors before making an offer.

If a DSO for less than the full amount is accepted, then your debts will be marked as ‘partially settled’ on your credit report. And this will be removed six years after you have paid, or six years after the date it defaulted, if this was earlier.

Individual Voluntary Arrangements

An Individual Voluntary Arrangement (IVA) is similar to a DMP in that you make affordable repayments based on your household bills and budget.

But the key difference is that an IVA is a formal, legally-binding, agreement approved by court. You’ll need to work with a qualified insolvency practitioner to set things up, and their fees will be part of your repayments.

If your creditors agree, the IVA will let you make a single monthly repayment to your insolvency practitioner. They will also handle contact from your lenders, and conduct a budget review every year to make sure your budget hasn’t substantially changed. After the agreed term of 5 or 6 years, any outstanding debts covered under the IVA will be written off.

Most common unsecured debts can be included, along with council tax arrears, mortgage shortfalls and debts to HMRC. Interest and charges are frozen by law, and debt collectors can’t take any further action against you.

All of those benefits can make an Individual Voluntary Arrangement seem like the ideal debt solution. But there are some important disadvantages to consider before entering into a legal agreement.

The budget and spending restrictions agreed with your insolvency practitioner need to be followed throughout the IVA period. This means you can’t suddenly splash out on luxuries, and any unexpected windfalls above £500 will need to be added into your arrangement. You’ll also have to split any income increase above 10%, and there are specific requirements for homeowners to either re-mortgage or make additional payments.

The IVA will also be recorded on the public Insolvency Register, and stay on your credit file for six years after the date it was accepted. You also won’t usually be able to run a company or act as a company director, although there is a specific Self-Employed IVA available to those who need more flexibility around their income and business activity.

Trust Deed

Essentially the alternative to an IVA for those living in Scotland, a Protected Trust Deed is a formal legal debt solution arranged by working with a licensed insolvency practitioner who acts as the Trustee. The proposal agreement will be registered with the Accountant in Bankruptcy (AiB), and then gain protected status if the majority of creditors agree.

The Trustee acts on behalf of your creditors. So, they won’t contact you directly once the process is underway, and your proposal has been registered on the AiB website. Once the Trust Deed is protected, any interest and charges on your debts are frozen, and your creditors can’t take any legal action against you. The exception is if there’s no majority agreement, and the trust deed isn’t given protected status.

The Trust Deed will normally operate for a minimum of four years. During this time, you’ll need to make affordable monthly repayments. After this point, any remaining debts will be discharged and written off.

As with an IVA in the rest of the UK, there are restrictions with a Protected Trust Deed. You can’t be a company director, and might not be able to run your own self-employed business. And if you come into money or property within four years of the start, these can be claimed by your trustees. You may also have to sell your home, although you can apply to the sheriff court to ask for the sale to be refused or delayed for up to 3 years.

Start solving your problem debts today

The wide range of debt solutions can potentially seem almost as overwhelming as your financial problems. But you can start solving your debt problems today by securing some time and space to get help and support.

A quick way to do this is by contacting your creditors to let them know that you’re in the process of finding a debt solution. And our Debt Buffer letter templates will help you know what to include and say to give you the best chance of a sympathetic response.

That will reduce the immediate pressure. Which will give you time to speak to impartial debt advisors and charities, and find the solution that will work best for you. The best option will depend on how far your debts have progressed, and your individual circumstances. So, it’s important to take back control by organising your bills, being realistic with your budget, and speaking honestly about debt advice.

The most important thing is to remember you’re not alone. The number of debt solutions available demonstrates the widespread need for financial support across the UK. And how easy it can be to slip from one missed payment to ending up in court by doing nothing about your situation. It’s time to stop sliding into more difficulty, and take back control of your debts. Just by taking the first step, you can begin the journey to financial recovery.