Frequently Asked Questions
We have compiled some frequently asked questions about debt. You can find more information with our factsheets on Money Talks.
What is Bankruptcy?
Bankruptcy is one way of dealing with debts that you cannot pay. Bankruptcy should not be taken lightly as it may mean that you could lose your home and anything else you own of value i.e. such as your car if it is worth more than £1,000. To be able make yourself bankrupt, you must owe at least £750.00 and you must petition (apply) to the Court on the ground that you cannot pay your debts.
You must fill in a bankruptcy petition and a form giving full details of your income and expenditure and details of any property and goods you own. One of our Debt Action advisers will help you to fill out these forms online . The court will then decide whether to make the bankruptcy order which will place all of your finances with the Official Receiver who will carry out an overall assessment of your situation.
You do not have to become bankrupt just because you are in debt, there may be other options available to you.
What are the advantages of Bankruptcy?
The advantages of Bankruptcy are:
- You no longer have to deal with certain creditors as this will now be done by the Official Receiver.
- You will no longer have to pay certain creditors but it is advisable to continue to pay your mortgage or rent and utility bills such as gas and electricity.
- Bankruptcy will last for 1 year and you are automatically discharged which means that you are no longer responsible for most of your debts.
- Once you decide to become bankrupt, your creditors are forced to accept this
What are the disadvantages of Bankruptcy?
The disadvantages of bankruptcy are:
- It can be costly to become bankrupt. From 1 Oct 2019 it costs approximately £683 which is made up of £151 Court fee, £525 deposit and affidavit £7
- There is a big possibility that you may lose your home and other valuable goods.
- Creditors like your mortgage lender are not affected by bankruptcy and may still take action against you for the debt i.e. repossession of your home.
- You may find it difficult to get credit in the future.
- Your bankruptcy will be advertised in the Belfast Telegraph.
- Be careful as bankruptcy may affect certain jobs i.e. Solicitors.
You can find out more bankruptcy by reading our Money Talks factsheets.
Debt Management Plans (DMP)
What is a Debt Management Plan (DMP)?
A debt management plan is an informal voluntary arrangement made between you and your creditors. You will need to complete an assessment of your weekly or monthly household income and expenses.
All Debt Management Companies must be authorised for debt adjusting and debt counselling and adhere to FCA Regulations
If you have income left over then this will be shared among your creditors. The payments are worked out by the amount you owe to each creditor. This is known as pro rata payments.
What are the advantages of a Debt Management Plan?
The advantages of a debt management plan are:
- All your creditors will be treated fairly.
- All your debts will be paid off at the same time.
What are the disadvantages of a Debt Management Plan?
The disadvantages of a debt management plan are:
- Not all creditors will agree to a debt management plan and they cannot be forced to do so.
- The debt management plan may take many years to repay and it is important to look into other options before agreeing to this.
- You may still be charged interest.
- Debts maybe sold to debt collectors
You can find out more about debt management by reading our Money Talks factsheets.
Debt Relief Orders (DRO)
What is a Debt Relief Order (DRO)?
A Debt Relief Order (DRO) is a form of insolvency. A DRO is similar to bankruptcy but is cheaper and will help people who have relatively small debts (less than £20,000), little assets, and available disposable income (less than £50).
What does insolvency mean?
Insolvency means that you are unable to pay your debts when they become due and where you have more debts than assets that could be made available to pay them.
What is disposable income?
Disposable income is the amount you have left over after you have paid essential living costs.
I have joint debts with my partner, will they be written off after the end of the DRO period?
You will no longer be responsible to pay the debts. However, any joint borrowers or guarantors will not be affected by your DRO and the lender can still pursue them for the debt.
What will happen at the end of the DRO?
You will be released from the debts included in the DRO including any interest and charges.
Will I have to go to Court?
No you will not have to go to Court as the DRO application is made to the Insolvency Service who will decide whether to grant the DRO.
What happens during my DRO?
Your creditors will be told that the DRO has been made and as a result they cannot take any action in relation to the debt. Your DRO will usually last for 1 year.
During this time, you must not make any payments towards the debts included in the DRO. You will be protected from any action by your creditors and in most cases, your debts will be written off once the DRO comes to an end. You must still pay your ongoing essential expenditure such as rent, rates utilities etc.
I have less than £20,000 of debt, my disposable income is less than £50 per month and I have no assets, Is there anything that can stop me from applying for a DRO?
You cannot apply for a DRO if:
- You are an un-discharged bankrupt
- You are still in an Individual Voluntary Arrangement
- You are subject to a Bankruptcy restriction Order or Undertaking
- You are subject to a Debt Relief Restriction Order or Undertaking
- You have a pending bankruptcy petition
- You have had a DRO in the last 6 years
Will my name be advertised in the Belfast Telegraph?
No the DRO will not be advertised in the paper. However, your name will be put on the Debt Relief Order Register. This DRO Register can be found on the Insolvency Service website and can be viewed by the public. In some circumstances, you will be able to stop your address from appearing in the register.
What will be counted as an asset?
Your assets must not be more than £300 in total. Assets include property, savings, stocks and shares, Credit Union shares, caravans, antiques and collectables. The following items will not be counted as assets:
- Tools, books and other equipment that are necessary for use in employment, business or vocation (this does not include a vehicle);
- Clothing, bedding, furniture, household equipment and items that are necessary for the basic domestic needs of you and your family.
- A car which has been specially adapted due to a substantial and long term physical disability
- 1 domestic motor vehicle worth less than £1,000.
If I forget to add a debt in my application, can I add it at a later date?
No you cannot add a debt at a later date which means if you forget to include a debt, that creditor will still be able to take action against you. You should always get a copy of your credit reference file before sending in your application to ensure that all debts are included. Your intermediary should be able to help you with this.
The main credit reference agencies are Equifax, Callcredit and Experian.
How do I apply for a DRO?
You must apply for a DRO through an approved intermediary. An approved intermediary will be a debt adviser. Our Debt Action NI advisers are approved intermediaries who will be able to complete and send the form on your behalf. The application is sent to the Northern Ireland Insolvency Service who will decide whether to grant the Debt Relief Order.
I am self employed and have a work van as well as a family car; will I be able to apply for a DRO?
You are allowed only 1 vehicle up to the value of £1,000. Any other vehicles/assets must not total more than £300. Therefore if you have 2 vehicles, it is unlikely that you will be able to apply for a DRO.
How long do I have to pay the fee once my application has been submitted online?
The Insolvency Service must receive the fee within 24 hours after the application has been sent. Your application will be automatically rejected if the Insolvency Service does not receive your payment within the 20 days. Be careful as it will take 10 days for your fee to clear. We would strongly suggest that you have the money ready once you have decided to apply for a DRO and pay for it on the same day as submitting your application.
What happens if my circumstances improve during the DRO period?
If your situation improves and your income and/or assets go over the limit, the DRO can be cancelled.
How much does it cost to apply for a DRO and how do I pay?
The current fee is £90. Please note that this fee is non-refundable and will always be payable. Payment must be made via Post Office or Paypoint terminal.
Are there any debts that will not be included in my DRO?
There are some debts that you will still be liable to pay in full after you make a DRO application. These include:
- Magistrate or High Court Fines
- Money owed under a Criminal Confiscation Order
- Child Support Agency or Child Maintenance Service arrears
- Student or crisis loans
- Any debt that has arisen from a personal injury claim against you
How will the DRO affect my credit rating?
The DRO will stay on your credit file for 6 years and this could affect your ability to obtain credit. During the DRO you will be unable to take out credit of £500 or more without informing the lender that the DRO is in place.
You can find out more about Debt Relief Orders by reading our Money Talks factsheets.
Individual Voluntary Arrangements (IVAs)
What is an IVA?
An IVA is a formal legally binding arrangement between you and your creditors. In order to get an IVA you will need the help of an Insolvency Practitioner who will write up a legally binding agreement that you and your creditors will sign up to. Most IVAs will last for 5 years but this can change depending on your situation. Once your agreement ends, you will no longer be liable for the debt. You will be considered for an IVA if you have debts usually over £8,000 (but lower levels can be approved and you need to have a reasonable amount of income left over each month after living expenses or a lump sum to offer.
You need to have at least two creditors for voting purposes.
What are the advantages of an IVA?
The advantages of an IVA are:
- An IVA is flexible and will only be based on your situation i.e. what you could pay back each month.
- Interest and charges cease when 75% in value of those who vote accept the proposal.
- You are less likely to lose your home or your job than if you become bankrupt.
- IVA's can sometimes be cheaper than bankruptcy.
- If you own your own business you will be able to continue with this.
What are the disadvantages of an IVA?
The disadvantages of an IVA are:
- If the IVA fails, you may be forced into bankruptcy but only if a creditor such as HMRC adds a modification to your proposal.
- Your repayments may be higher and go on for longer than if you became bankrupt.
- An IVA may not cover all your creditors i.e. your mortgage lender.
- If you own your home or own anything of value, creditors may request you to sell these before they will agree to your IVA.
- Be aware of costs as some Insolvency Practitioners may ask for a fee up front. Seek advice if you find yourself in this situation as it is not good practice.
- Creditors may not agree to your IVA.
You can find out more about IVA's by reading our Money Talks factsheets.
Types of Debt
What debts are the most important?
The debts that you need to deal with first are your mortgage/rent payments, your rates or fuel bills such as gas and electricity. These are known as priority debts and if you don't keep up the payments on these, you could lose your home, be sent to prison or be disconnected. If you find that you cannot keep up with these types of payments then seek help as soon as possible.
What is unsecured credit?
Unsecured credit is where you have been lent money that has not been secured against something that you own i.e. your home or your car. Examples of unsecured debt are credit cards, catalogues, bank loans, overdrafts and store cards. If you fall behind repaying unsecured credit, the creditor cannot take any of your property or goods unless in extreme circumstances they take court action.