Dealing with many debts
If you have many different debts, there are several ways, using the courts, to sort things out yourself.
Administration order (AO)
If you have at least one High Court or County Court Judgment (CCJ) against you, and your total debts are no more than £5000, you can apply for an 'administration order' (AO). With this, you make regular payments (for example, monthly) to the court at a rate you can afford. The court then sends payments to your creditors. Creditors must not take any further enforcement action against you unless the court accepts their application to end the order. The AO can include, for example:
- 'non-priority' debts;
- Council Tax;
- gas and electricity arrears; and
- water arrears.
Creditors may tell the court that they don't want to be included on the AO, but the court will decide whether or not to include them. The court may set a hearing date to hear any objections from creditors.
You can ask the court for a composition order, which is a way of limiting the payment period. You pay your debts at a rate you can afford for a fixed period, normally three years. After this time, any money you owe is written off.
Individual voluntary arrangement (IVA)
An individual voluntary arrangement (IVA) is a legally-binding arrangement between you and your creditors. You must agree to pay money as a lump sum, instalments, or both. You will often have to pay the insolvency practitioner before you can set up an IVA. Your creditors may write off part of the debt and not take court action against you or make you bankrupt.
You have to pay all the costs and fees and also a large amount of the debt, so an IVA is realistic only if you have a fair amount of spare money or things you can sell to pay your debts.
If you are considering this option, you should shop around to compare insolvency practitioners' advice and charges. Remember that the insolvency practitioner will not necessarily act in your best interests; they are businesses that need to make a profit. It is therefore important to get independant advice before signing an IVA.
Most creditors can't pursue you for your debts once you have been made bankrupt. The Official Receiver, a government agency responsible for controlling people's affairs during bankruptcy, will investigate the reasons for bankruptcy. Your bankruptcy will normally be discharged (ended) within a year. However, if you have £100 or more a month disposable income (income left over after you have paid essential living expenses), the Official Receiver may ask you to make regular payments at a level you can afford for up to three years. If you refuse to pay because you believe this level is more than you can afford, the Official Receiver may apply to the court, which will decide what you should pay.
Bankruptcy is not an easy option and you should get expert advice before applying to make yourself bankrupt. It is often the right option when you have large debts that will take many years to repay. It may not be suitable if you:
- have a certain type of job (for example, if you work in finance or you are a solicitor);
- own (or are buying) your own home;
- have other assets; or
- are likely to inherit money or goods during the bankruptcy period
And there are some types of debt you will still have to pay after bankruptcy:
- 'magistrates' fines;
- maintenance for a partner or children;
- debts from fraud;
- student loans;
- compensation you owe to another person.
Finally, you must make a lump-sum payment including:
- £335 for the Official Receiver; and
- £150 court fees.
You can apply to have the court fee waived if you are receiving certain benefits or can't afford to pay it.
Additional sections in the Community Legal Advice leaflet 'Dealing with Debt':
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