Getting help with debt

Contents

1. Help with debt 2. Step one - make a list of your debts 2.1. Priority debts 2.2. Non-priority debts 3. Step two - work out your budget 4. Step three - deal with your priority debts 5. Step four - deal with your non-priority debts 5.1. If you have money to spare 5.2. Making offers to creditors yourself 6. Debt management plans 6.1. Administration orders [Not applicable in Scotland] 6.2. Debt Arrangement Scheme (DAS) [Scotland only] 6.3. Individual Voluntary Arrangements (IVAs) [Not applicable in Scotland] 6.4. Trust deeds [Scotland only] 6.5. Putting all your debts into one loan - consolidation 6.6. If you have no money to spare 6.7. Asking to write off your debt 6.8. Bankruptcy 6.9. Bankruptcy [Scotland] 7. Negotiating with creditors 8. Local Authorities 8.1. Councils and housing associations 8.2. Northern Ireland Housing Executive (NIHE) 9. Gas and electricity companies 10. Further help 10.1. Citizens Advice Bureau 10.2. Money advice centres and law centres 10.3. National Debtline 10.4. Community Legal Advice 10.5. Business Debtline 10.6. Adviceni

About this information

This information gives you basic advice about debt and simple guidelines for dealing with money problems. It is important not to panic about debt problems, but also you shouldn't ignore them - they won't go away.

There are four steps you can follow to help you deal with your debts:

1. Step one - make a list of your debts

2. Step two - work out your budget

3. Step three - deal with your priority debts

4. Step four - deal with your non-priority debts.

Before you can tackle a debt problem, you need to collect together information about your money affairs. Make a list of all the people and companies you owe money to (your creditors). You will need the following information for each debt:

• The name and address of the creditor
• The account or reference number
• The amount you owe
• A copy of any document you signed creating the debt, e.g. a loan or credit agreement

It's a good idea to keep the latest letter or statement for each debt together in one place so that you can easily find them if you need them.

If you've received any court papers or letters that seem urgent, you may need to act quickly. If you are not sure from the papers what you should do next, get advice straight away from an experienced adviser.

Once you've made a list of all your creditors, you need to work out which ones to deal with preferentially. You need to deal with some debts preferentially because the consequences of not paying these debts can be more serious than for other debts. The debts you deal with preferentially are called 'priority debts'. Other debts are called 'non-priority debts'.

Priority debts include:

• Mortgage or rent arrears - if you don't pay these, you could lose your home
• Fuel arrears - if you don't pay these, you can have your fuel supply disconnected
• Council tax arrears (England and Wales only)- if you don't pay these, a court can use bailiffs to take your goods. If, after this, you still have arrears unpaid, you can be sent to prison. (In Scotland you can't be imprisoned for council tax arrears, but other methods can be used to enforce the debt, for example, your bank account or wages can be arrested or sheriff officers can seize some of your possessions.)
• Rates arrears (Northern Ireland only), If you don't pay these, the Enforcement of Judgments Office has a number of powers in order to recover these, including securing the debt against your property or deducting an amount from your wages each month until the arrears are cleared. For more information, see our 'Enforcement of Judgments office' section.
• Court fines such as magistrates' court fines for traffic offences - if you don't pay these, in England and Wales the court can use bailiffs to take your goods. In Northern Ireland, court proceedings can be initiated against you for unpaid fines. In England and Wales, if, you ignore a court order for unpaid fines, you can be sent to prison. In Northern Ireland the debt will be enforced by the Enforcement of Judgments Office. Parking penalties issued by local authorities are not priority debts.
• Arrears of maintenance payable to an ex-partner or children. This includes Child Support you owe to the Child Support Agency. In England and Wales if you don't pay these, a court can use bailiffs to take your goods and you can be sent to prison if your debts remain unpaid. In Northern Ireland court proceedings can be initiated against you and the debt will be enforced by the Enforcement of Judgments Office in Northern Ireland if it remains unpaid.
• Income tax or VAT arrears - you can be sent to prison for non-payment of income tax or VAT. (In Scotland, you could have your bank account or wages arrested or sheriff officers can seize some of your possessions. If you owe more than £1,500 you could be made bankrupt.) In Northern Ireland, the Enforcement of Judgments Office can use a number of enforcement options to recover the money and, if you owe more than £750, you could be made bankrupt.
• Loans if they are secured against your home
• Hire purchase (HP) is a priority debt if it is for an essential item, for example, if you have bought a car on HP and you need the car to get to work
• (In Scotland) parking offences for which a fixed penalty is issued by the criminal courts or the local authority because if you don't pay these legal action can be taken to enforce the debt by seizing your bank account or other possessions

You may have other debts, which you think it is particularly important to pay. For example, if you're disabled and rely on your car to get around, you may need to make paying for your car a priority debt.

You need to think very carefully about which debts you treat as the most important ones. You must have very good reasons, as you might have to convince a court or your other creditors why it is reasonable for you to treat these debts as more important than others.

Non-priority debts include:

• Benefits overpayments
• Credit debts such as overdrafts, loans, hire purchase, credit card accounts and catalogues
• Student loans
• Money borrowed from friends or family
• (Except in Scotland) parking penalties issued by local authorities

You can't be sent to prison for not paying non-priority debts. But if you don't make any offers to pay, without explaining why, your creditors may take you to court. If you still fail to pay when the court has ordered it, your creditors can take further action. For example, in Northern Ireland they can get another court order, which allows them to send bailiffs round to take your property away. This will be sold to cover your debts. (In Scotland, they can get another court order which allows them to send sheriff officers to your home to take some of your goods away. These will be sold to cover your debts). In Northern Ireland they can get a court order or judgment and, if the debtor still refuses to pay, they can have the order or judgment enforced in the Enforcement of Judgments Office, where enforcement officers have a number of options in order to recover the debt. See our 'Enforcement of Judgments Office' section for more information.

List all the income and expenses for your household. Be honest and make sure that the amounts are realistic.

Under income, include:

• Wages or salaries for your partner and yourself. Put in your net earnings, that is, after deductions. This should be the amount you regularly receive. If the amounts are different each month, average them over three or six months
• Any benefits you are paid, including Child Benefit and tax credits
• Maintenance from an ex-partner for you or your children. Include any Child Support from the Child Support Agency
• Contributions from other members of your family and any lodgers.

Think about the ways in which you might earn extra money or increase your income. You may be able to claim benefits or tax credits. There's a useful website Turn2us that lists organisations which give grants to people in need.

Under expenses, include:

• Housekeeping. Include realistic amounts for what you spend on food, toiletries, school dinners and meals at work, cleaning materials, cigarettes, sweets, children's pocket money and pet food
• Housing costs. This should include mortgage or rent, a second mortgage or secured loan, buildings and contents insurance, service charges and life or endowment insurance cover attached to your mortgage
• Council tax (England and Wales only)
• Rates (Northern Ireland only)
• Fuel and water charges
• Telephone charges
• Travel expenses. Include both public transport and the cost of running a car such as road tax, insurance, and maintenance
• Insurance that is not part of your housing costs
• Childcare costs
• TV licence and any TV rental costs
• Clothes
• Any other essential expenses, such as medical and dental expenses or support for an elderly relative
• Money you should set aside for unexpected events and contingencies. This includes saving for things like the replacement of essential household goods when they break down.

When you've added up all the figures, you'll see if you have any money left over to pay your debts. You may even be able to see if you can make some savings.

Don't ignore letters or phone calls from your priority creditors. Get in touch with them as early as possible and explain to them why you are in debt. If you phone, you should follow up the call with a letter, confirming what you said on the phone. Keep copies of any letters you write to them.

If your priority creditors are threatening to take court action or have started to take court action against you and you need a little time to sort out your finances, send them a holding letter explaining your problems. Say that you will contact them again within two or three weeks. Ask them not to take any further action during this time.

When you have worked out how much you have left over after paying your expenses, contact each of your priority creditors and try to make an arrangement to pay back what you owe. For example, you may be able to pay an extra bit each month until the arrears are cleared. Or you may not have any extra money at the moment but know you will have a lump sum in three months' time, which will clear the debt completely.

If you can't afford to pay anything to your priority creditors and your situation isn't likely to get better, the outcome may be very serious. Get advice straight away.

After dealing with your priority debts, you will need to work out how to deal with your non-priority debts. How you deal with your non-priority debts will depend on whether you have any money left over from dealing with your priority debts and paying for essential household expenses like housing costs and food.

If you have money to spare, you may have several options for dealing with your non-priority debts.

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. If you have any questions, get advice.

Any money you have left over after paying your expenses and your priority creditors is called your available income. You can use this to pay off your non-priority creditors.

You should share out your available income fairly between all your non-priority creditors. This means you should offer each creditor a percentage of your available income, based on the amount you owe them. These offers are called pro-rata offers. To work out your pro-rata offers, first of all multiply each individual debt by your available income. Then divide this sum by the total amount you owe to all of your non-priority creditors.

Example:

You have total debts of £15,000. You have available income of £200 a month. You owe £10,000 to credit card company A and £5,000 to credit card company B.

Credit company A

Multiply £10,000 (debt to company A) by £200 (your available income). This equals £2,000,000.

Divide this by £15,000 (your total debt). This gives you the sum of £133 per month to offer to company A.

Credit company B

Multiply £5,000 (debt to company B) by £200 (your available income). This equals £1,000,000.

Divide this by £15,000 (your total debt). This gives you the sum of £66 per month to offer company B.

You will need to write to each creditor. Send them a copy of your personal budget and a list of your other creditors to show them how you have worked out your offers. Make sure you keep a copy of everything you send to your creditors.

Creditors don't have to accept your offers, but usually they will accept them if the amount you offer is fair. Creditors often want to look at your offer again after a fixed time, for example six months, to see if your situation has improved.

If creditors don't agree your offer and you can't persuade them, they may take further action.

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.

A debt management plan is an arrangement with your creditors to pay back the debt by regular instalments. Instead of you speaking to your creditors yourself to arrange the plan, a Debt Management Company (DMC) does it for you. Usually you have to pay for this service although there are some DMCs who will do this for free.

The advantages of using a DMC are that:

• You make only one payment direct to the DMC. They divide the payment fairly between all your creditors
• You don't have to contact your creditors yourself, the DMC will do this for you.

However, there are also disadvantages to using a DMC:

• Most DMCs charge an upfront fee which can be quite high. This leaves you with less money to pay off your debts.
• Most DMCs also charge an administration fee to the customer each month. This leaves you with less money to pay off your debts.
• Some DMCs 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.
• DMCs only deal with non-priority debts and you will have to deal with the more important priority debts yourself
• Most DMCs do not give benefits advice or financial advice so you may lose out on important information about your finances.

If you do use a DMC, 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.

If you have enough money left over after paying your priority creditors and essential expenses, you may be able to apply to the county court to have all your non-priority debts put together into one affordable monthly payment. This is called an administration order.

You can apply for an administration order if your total debts are less than £5,000 and you have a county court judgment (CCJ) against you. The court decides what is a fair amount depending on your income. The court can agree that you only pay part of the total debt. This is called a composition order.

Once the court agrees the order, you make one regular payment to the court and your creditors can't take any further action to get the money back, as long as you keep to the payments.

You don't have to pay a fee to apply for an administration order. The court will take off an administration fee every time you make a payment.

The Debt Arrangement Scheme (DAS) is a payment arrangement system set up by the Scottish Government, to help people manage their debts. Under the scheme, you enter into a Debt Payment Programme (DPP). Once your DPP has been approved you make one regular payment to an approved payment distributor, who sends the money to your creditors.

A DAS Debt Payment Programme can be a useful option if you have some income available to pay towards your debts, but your creditors have refused to negotiate or accept your offers of repayment. This is because it is not easy for creditors to block a fair and reasonable DPP. Another advantage of a DPP is that, as long as you make your agreed payments, your creditors can't take any further action to enforce the debt owed to them. Interest on your debts is also frozen as soon as your DPP is approved. When the programme is completed, the interest and charges are cancelled, which means that you will be clear of your debts.

You can't apply directly for a DPP. A money adviser who has been approved under the scheme must make an application on your behalf. Visit DAS Scotland for a list of DAS-approved money advisers.

If you have enough money left over after paying your priority creditors and essential expenses, you may be able to arrange an Individual Voluntary Arrangement (IVA).

An IVA is a legal agreement with creditors to repay your debts. This could either be in part or in full. The arrangement is negotiated, written up and checked regularly by an independent solicitor or accountant called an Insolvency Practitioner. Not all the creditors have to agree to an IVA as long as creditors, to whom you owe 75% or more of the value of your debt, agree.

Example:

You have a total of £100,000 debt. You have three creditors:

Creditor A (£6,000)

Creditor B (£70,000)

Creditor C (£20,000)

Creditor C doesn't agree to an IVA but it doesn't matter because Creditors A and B do agree and between them, they have more than 75% in value of the debt. Creditor C still has to keep to the terms of the IVA.

The costs of setting up an IVA can be high and you may have to pay an upfront fee. If you don't keep to the payments, you can be made bankrupt.

A trust deed is a formal agreement between you and your creditors. It passes your assets and property to a person called 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. A trust deed is legally binding. If it meets certain conditions, a trust deed can become protected, which means that your creditors can't take any further action against you or take action to bankrupt (sequestrate) you.

The advantages of a protected trust deed are:

• Creditors can no longer contact you directly and all dealings are conducted through the trustee
• You are not barred from certain types of employment or public office
• A protected trust deed does not legally restrict you from obtaining credit (though in practice this may be difficult) and you can still have a bank account
• A protected trust deed is binding on all creditors (even those who don't agree to it) and prevents them taking any further action to enforce payment of the debt
• You will be discharged from your debts usually after 36 months.

The disadvantages of protected trust deeds are:

• You may have to dispose of major capital assets, including your home
• If your creditors have already started legal action against you to enforce payment of a debt, such as a wages arrestment, this will not be stopped by a trust deed
• You can't be the director of a limited company unless the terms of the trust deed allow it
• If you don't co-operate with the trustee, they can try to make sequestrate you.

The Accountant in Bankruptcy publishes a useful Trust Deed Guide, which is available on its website.

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. You can use a consolidation loan to pay off things like credit card debts and loans.

It's usually not a good idea to borrow more money to repay your existing debts as this can make things worse and cost more in the long run. 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.

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 account, 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.

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 Services Authority (FSA). You can check this by looking on the FSA website at Financial Services Register

If you have little or no money left after you have done your budget, you have nothing of value to sell and you think your circumstances are unlikely to get better soon, you will have limited options for dealing with your non-priority debts.

In exceptional circumstances, your creditors may agree to write off your debt or stop action altogether. This is most likely to happen if you have a low income and your situation is particularly difficult and unlikely to get better. For example, you may have long-term serious health problems or be very elderly.

You will usually need to show proof of your situation, for example, medical evidence, before creditors will agree. If creditors do agree, ask them to put this in writing.

If you have no money left over in your budget, or you have so little that it will take many years for you to re-pay your debts, you may want to look at bankruptcy as an option.

Going bankrupt can take the pressure of creditors away from you. You are allowed to keep certain things, like household goods and a reasonable amount to live on. When the bankruptcy order is over, you can make a fresh start and the money you owe is usually written off. In many cases, this can be after only one year. Creditors have to stop most types of court action to get their money back following a bankruptcy order (note that the bailiffs may still be able to take your belongings away in some cases in England and Wales).

However, there are disadvantages to going bankrupt, for example:

• It will cost you money (up to £495) to go bankrupt
• If you own your own home, it may have to be sold
• Some of your possessions might have to be sold, for example, you may lose your car and any luxury items you own
• If you own a business, it is possible that your business may be closed down and your employees will be out of work
• You can't keep your bankruptcy private. A list of bankrupt people is published on the Internet and your case could also be published in your local newspaper. In Northern Ireland bankruptcy petitions are usually advertised in the Belfast Telegraph and the Belfast Gazette.
• Even when you are no longer bankrupt, you could have another order, called a bankruptcy restrictions order made against you. These orders can be made if, for example, you took on debts knowing that you had no hope of paying them back. A bankruptcy restrictions order can last for 15 years and will make your financial affairs very restricted.
• Even when you are no longer bankrupt, there are some debts such as court fines and student loans that will never be written off.

Bankruptcy is sometimes also known in Scotland as sequestration.

If you have no money left over in your budget, or you have so little that it will take many years for you to re-pay your debts, you may want to look at bankruptcy as an option.

Bankruptcy is a process where you are formally declared bankrupt by the Accountant in Bankruptcy (AIB) or by a court. You can apply for your own bankruptcy if you have debts totalling £1,500 or more, or your creditors can apply to have you bankrupted if you have debts totalling more than £3,000 and meet certain other conditions.

Bankruptcy can take the pressure of creditors away from you as creditors cannot take any further action against you to get their money back. You are allowed to keep certain goods and a reasonable amount to live on. When the bankruptcy is over (usually after 1 year), you can make a fresh start and the money you owe is usually written off (although there are some debts such as court fines that are never written off).

However, there are disadvantages to being bankrupted, for example:

• If you own your home, it will usually have to be sold
• If you run a business, you may have to close it
• Some of your possessions will have to be sold, for example, you will usually lose your car and any luxury items you own
• You must co-operate with the Accountant in Bankruptcy, handing over all property, financial records, life policies and credit cards. Failure to do so is a criminal offence
• You can't hold certain jobs, stand for public office or act as a company director when you are bankrupted
• Your access to credit is limited to £500
• After the bankruptcy, adverse credit references may affect your credit worthiness for several years
• There are a number of criminal offences associated with bankruptcy
• If you are a member of the armed forces, police or HM Revenue and Customs you may be dismissed from your job
• If you are a crofter you will lose your croft
• Bankruptcy may jeopardise your application to become a British citizen.

The Accountant in Bankruptcy publishes a useful debtor's guide, which provides more information about bankruptcy. It is available on the AIB website

You are allowed to negotiate with your creditors and most creditors will consider any reasonable request or offer of repayment that you make. Sometimes, you need to contact creditors several times before they will agree to what you are asking.

What you ask your creditors for will depend on:

• What debts you have
• Whether you have money left over to offer
• Whether you have belongings worth selling to pay some or all of the debt off
• Whether or not your situation is likely to get better

It's important that creditors can see that what you are asking for is reasonable in the circumstances. So make sure you:

• Are clear about what you are asking for
• Always ask to freeze interest. Unless they freeze interest, your debt will carry on growing even if you are making regular payments
• Tell them how often you can make payments; e.g. monthly or weekly
• Explain your situation fully. If you have priority debts, explain to non-priority creditors that you have to pay off priority debts first and say what you are offering to each of your priority creditors
• Show evidence to support your request or offer of payment, for example, medical evidence if you can't pay your debts because of illness
• Mention any changes that you know are going to happen which will affect your ability to pay or the amount you are offering.

Keep copies of all your letters to creditors and their replies and a note of any phone calls with them, in case you need them later.

Don't be tempted to offer more than you have if creditors are difficult. If you can't get the creditors to agree after a few tries, get help from an adviser.

Even if you believe that you have sent all the information to your creditors that they need, you will sometimes find that creditors will not accept your offers at first. Creditors may try to find reasons to pressurise you into paying more than you can afford. Or one creditor may ask you to pay more than you are paying other creditors. If you find this is happening, you should get advice.

Creditors may challenge your budget and claim that you can afford to pay more than you are offering. In these cases, you will have to be prepared to provide proof of your income such as wage slips and benefits details, and proof of your spending, such as copies of fuel bills and details of rent payments or mortgage payments, and justification for it.

If you are not confident about negotiating with your creditors, or you are finding it difficult to negotiate with them, you should get advice.

If creditors do not reply to your offers, start paying them what you can afford anyway, and get advice.

Even if an advice agency or Debt Management Company is involved in negotiating with your creditors, this does not guarantee a favourable outcome. And even if creditors agree to a payment plan and even if you keep to the plan, this does not prevent them taking court action against you. It is therefore very important that you don't ignore any letters from your creditors even if you believe that an agreement has been reached. Make sure that your adviser or DMC sees any letters that the creditor sends to you at home. And if a creditor seems to be going back on an agreement, get advice straight away.

When you have fallen into arrears with a loan, creditors are expected to treat you fairly when they are negotiating with you or trying to collect the arrears. For example, they are not allowed to intimidate you, harass you or pretend to have more legal powers than they really have. Also, creditors are also not allowed to discriminate against you because of your race, sex, disability, sexuality, or religion. A debt collector must be very careful when dealing with someone who has a physical or mental illness. For example, a debt collector should not continue with a home visit if it is obvious that someone is suffering from a mental illness.

If you think you aren't being treated fairly by a creditor or debt collector, you should get advice about what to do from an experienced adviser.

There are also rules that apply to the collection of arrears by other organisations such as local councils and gas and electricity companies.

Councils and other social landlords must treat you fairly. For example, if you are a council, or other housing association tenant and owe rent arrears, your landlord must try and come to an agreement with you to make affordable repayments and help you to claim Housing Benefit before they can start any action to evict you. Social landlords cannot discriminate against you because of your race, sex, disability, sexuality, or religion. Many councils or housing associations also have a policy that says they will not discriminate against you because of other things, like whether you have HIV or caring responsibilities. If you feel that you've been treated unfairly or discriminated against by your council, or other housing association, you can check what their policy says and make a complaint.

NIHE and other social landlords have the same obligation as councils and social housing organisations in England and Wales to treat consumers fairly. At the heart of their policies are the values of fairness and equality and, as in England and Wales, they will help you to claim Housing Benefits before they can commence any action to evict you. NIHE and other social landlords cannot evict you themselves.

If you have gas and electricity arrears, your supplier should offer you an arrangement to pay off the arrears at a rate you can afford or to install a prepayment meter. They must offer special protection to customers who can't pay because of misfortune or an inability to cope and are not allowed to disconnect certain groups of vulnerable customers such as people of pensionable age or those who have long-term ill-heath.

Citizens Advice Bureau offer advice about debt problems. To search for details of your nearest CAB, including those that can give advice by e-mail, click on Citizens Advice

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. Or you can look on the Gov.uk website or on Money Advice Scotland website or in Northern Ireland the Debt Advice Northern Ireland.

The National Debtline is a free, confidential and independent telephone helpline. 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 National Debtline.

Community Legal Advice has a telephone helpline, which offers advice to people in debt who are on a low income or on benefits. Help is also available on a number of other topics including employment, benefits, tax credits and housing.

The helpline number is 0845 345 4 345. It's open from 9am-6:30pm Monday to Friday. Outside of these hours, you can leave a message and they will call you back the next working day.

You can find information on the Community Legal Advice website about dealing with debt. This includes some information in other languages and a number of leaflets which are available in Braille and audio.

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.

Adviceni is a network of advice-giving agencies in Northern Ireland. You can get their contact details on their website or phone them on 028 9064 5919.