Debt solutions
This content applies to England only.
Housing laws vary between England and Scotland. Get advice relating to Scotland
There are a number of possible solutions to debt problems that could be achieved through negotiation with your creditors. An early solution to debt problems can save you the worry of being chased for payment, threatened with court action or even bankruptcy. Find out about some of the solutions you may be able to use.
If you already have overwhelming debt problems, you should also consider the pros and cons of bankruptcy, and formal alternatives to bankruptcy.
Debt management plans
If you can’t afford to pay your debts, a debt management plan set up with the help of a qualified debt adviser could provide a solution to your problems. These plans are set up without involving the courts, but can only help with debts that are not secured on your home, so mortgage arrears, second mortgages and other secured loans won’t be included.
Debt charities such as CCCS and the Debt Advice Foundation and National Debtline provide debt management plans for free. There are also many private companies that provide this service, but you will be charged fees.
A plan provider will help you to work out a sustainable budget and agree an affordable monthly amount for you to repay your debts. You make one payment each month to the debt charity or company and they distribute the money to your creditors.
Under the terms of a debt management plan, you will eventually repay all the money you owe to your creditors, but this could take a long time. There is no legal requirement for creditors to suspend interest payments or charges if you take out one of these plans – but it may help you if your debt adviser can try to negotiate this on your behalf. Also, your creditors don’t have to join the plan and could choose to pursue you separately for the money you owe them.
To find out more, download National Debtline's factsheet on Debt Management Plans.
DIY Debt management plans
If you want to resolve your debt problems yourself, you could consider using on-line debt management tools such as
Paying off a lump sum in full and final settlement
Your creditor may agree to a one-off lump sum payment in full and final settlement if you have little or no income, but can access some capital – such as by selling a valuable asset like a car.
If you are thinking about making a full and final settlement, you should never make the lump sum payment until the arrangement is accepted and confirmed in writing by your creditor. You should also get the creditor to agree to amend your credit reference file to show the debt is paid off or ‘satisfied’. If you have a number of creditors you want to settle debts with, you will need to make pro-rata offers to each – get advice from a debt adviser on how to do this.
Partial write-off
Your creditor is unlikely to write off all of the debt, but they may agree to a partial write-off if you are able to pay the rest of the debt in regular instalments. A partial write-off may be appropriate where you have some income, or access to capital but cannot afford to pay the full debt – or where paying off the full debt would take years.
Suspension of payments
A suspension of payments is also known as a moratorium. This allows you to suspend your payments for a limited period of time. This is usually only appropriate if your financial problems are only likely to be short-term, and the creditors believe that there is a reasonable prospect that repayments will be resumed in the near future.
Token Payments
Token payments are when you make small regular payments such as £1 per month to your creditors, typically where a creditor won’t agree to write off a debt or accept no payments. Some creditors may agree to freeze interest charges only on condition that you make token payments. An offer of token payments may be a way of preventing court action for the debt. Token payments are not a long term option, and will never result in the debt being repaid.
Voluntary charge on your property
It is essential to seek specialist debt advice if a creditor asks you agree to a voluntary charge on your property – a creditor can use a charge against your property to force its sale.
A voluntary charge will only be in your best interests in very limited circumstances – for example, if you are terminally ill and won’t need the money from the eventual sale of the property, and settling in this way would save you stress.
You may need to consider this option if you think that your creditor is going to issue, or has already issued bankruptcy proceedings against you – seek advice immediately if you receive a statutory demand – a notice that has to be served before bankruptcy proceedings can begin.
Voluntary charges can be written in such a way that a creditor is prevented from repossessing your house and that interest charges stop building up, but you will need specialist advice to achieve this.
If you have agreed to a voluntary charge on your property that also requires payments to be made, your home will be at risk if you fail to make the repayments.
Write-off
Your creditor may decide to accept a write-off the debt if you have little or no income, or assets. However, in practice this is unlikely to be acceptable to a creditor, and will only ever apply in a very limited number of cases.
