What options are there for dealing with debt
Coronavirus - more protection from action by creditors
If you're worried about creditors taking enforcement action against you or you are thinking of applying for Bankruptcy (sequestration), a Protected Trust Deed or the Debt Arrangement Scheme (DAS) you can apply for a moratorium, which prevents creditors taking action whilst you seek advice. The moratorium protects you for six months but it does not stop interest or charges building and may impact on your credit rating.
If you are worried remember that creditors and sheriff officers should be reacting sympathetically to Covid 19 related financial hardship and you should ask them to treat you fairly as per the Financial Conduct Authority’s rules. If this does not work and your creditor has sent you a document called a “Charge for Payment for Money” giving you 14 days to pay your debt in full, then you should apply for a moratorium.
You can apply for a moratorium yourself but it is recommended you only do this after getting advice. Once you have applied for a moratorium bear in mind that if you do not get advice within 6 months, and make an application for either DAS, protected trust deed or bankruptcy, then it will expire and your creditors can take action again. Read more about protection from action by creditors on the Accountant in Bankruptcy website.
Coronavirus - changes to bankruptcy fees and debt levels
From 27 May 2020:
- fees for bankruptcy have been removed if you are getting certain benefits or reduced if you aren't getting those benefits
- the people you owe can only make you bankrupt if you owe them £10,000 or more.
These are temporary changes that have been introduced to help people whose debts have increased due to coronavirus. The changes are in force until at least 30 September 2020.
Read more about these changes to bankruptcy fees and debt levels on the Accountant in Bankruptcy website.
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 don’t think you owe money that you are being asked to pay OR someone you think you owe money to hasn’t been in touch for some time, get some advice from an experienced money adviser. There are quite a few reasons why you might not be liable for a debt and an adviser can go over this with you.
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.
To check which debts you need to deal with urgently and how to sort them out, see Get help with your debts.
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 Work out what you can afford to pay
- 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.
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. 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.
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. A loan shark is someone who lends money without a licence, this is illegal. You can report loan sharks on the Trading Standards Scotland website or you can call 0800 074 0878.
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.
For more information about finding a financial adviser, see Getting financial advice.
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 intend to apply for a statutory debt solution, you can apply to the Accountant in Bankruptcy for a 'moratorium'. This is a period of six months 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.
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. Creditors can't take any legal action to force you to pay your debts while you're in the DPP. Also it freezes any interest, charges and fees on your debts.
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 our page Debt Arrangement Scheme in Scotland.
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 our page Trust Deeds in Scotland.
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:
- a money adviser can apply for you if you have no disposable income or are on benefits, you have assets of less than £2,000 and you owe at least £1,500. This route is called the Minimal Asset Process (MAP)
- a money adviser can apply for you to the Accountant in Bankruptcy if you owe more than £3,000. This is standard bankruptcy
- your creditors can apply to court if you owe one or more creditors a total of £10,000.
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 have to pay a contribution towards your debt under a 'debtor contribution order'. You'll have to pay this for up to 4 years in total unless your circumstances change at which point your situation will 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.
You can find out more about sequestration and how to find an approved money adviser on our page Bankruptcy in Scotland.
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 Work out what you can afford to pay.
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
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 National Debtline can give free information to people living in England, Wales and Scotland. It also provides an information pack on dealing with debt. Their contact details are:
- helpline - 0808 808 4000
- website where you can get debt advice
- webchat with an adviser (Monday to Friday 9.00am to 8.00pm, Saturday 9.30am to 1.00pm)
StepChange Debt Charity
StepChange Debt Charity is 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 (Monday to Friday 8.00am to 8.00pm, Saturday 8.00am to 4.00pm) where you can speak to a Debt Counsellor
- a website where you can get information on how to deal with your debt problems
- 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.
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 their website or on freephone 0808 278 3071.
Business Debtline is a dedicated advice service for small businesses. You can get their contact details from their website or phone them on 0800 197 6026.