Steps to follow

• Is your bank account continually in the red? Are you falling further and further behind with you bill or mortgage payments? Are you being turned down for credit with high street banks and having to turn to more dubious lenders instead? Are you relying on your credit card to make loan payments or withdraw cash? These are warning signs that your debt problems are spiralling out of control and something needs to be done.
• Make a list of all your outgoings and the money you have coming in – if the former is more than the latter, make whatever spending cuts you can.
• Ensure you’re claiming all the grants, benefits and tax allowances you’re entitled to and that your employer is using the right tax code.
• If you own your home, consider remortgaging to free up some cash.
• If you’ve made all the cuts you can but you’re still struggling, get advice from a debt advisor who should be able to help you come up with a plan to manage your debt while keeping your creditors at bay. Avoid debt management companies if you can – there’s plenty of free and independent advice available online, via phone or face-to-face for people with debts.
• If you decide to try to sort it out with your creditors yourself, make it a priority to pay secured creditors who have a hold over your home or some other asset and priority creditors such as utility companies who could cut you off.
• Write to your unsecured creditors, and tell them how much you can afford to pay and ask for charges to be frozen. If they refuse your offer, pay what you suggested, writing again to say you can’t afford more.
• If there’s no way you can repay your debts, bankruptcy might be your best bet. When a court makes a bankruptcy order (which lasts a year), the Official Receiver will sell off most of your assets to pay you creditors. You’ll probably have to make regular payments into court for three years and bankruptcy remains on your credit reference file for six years. You’re also banned from working in certain professions while the order is in force.
• If your assets are worth more than £2000 and your unsecured debts less than £20,000 an individual voluntary arrangement is an option which imposes fewer restrictions than bankruptcy. A court appoints an insolvency practitioner who will sell your assets to pay your creditors.
• If your total debts are £5,000 or less, the court could make an administration order. You’ll have to make regular payments to the court, which will be used to pay your creditors. Creditors can't charge you interest or take any further action against you to get their money for the duration of the order, without asking the court first.

What to watch out for

Keep talking to your creditors – don’t ignore them. If you have an unpaid debt with one of them of over £750 they can have you declared bankrupt. If your debts are very serious, bankruptcy may eventually be your best option but, since it does place a number of restrictions on you it’s best to explore other options first.

Solicitor’s top tip

You may be tempted to consolidate your existing debts into a single loan. Don’t be pushed into this: it can ease your cash flow problems in the short term but you could face sky high interest rates which you won’t be able to afford on a long term basis. Since these loans are usually secured against your home, you could lose it if you can’t keep up the payments.

Useful links

Free advice

Business Debtline
Citizens Advice England and Wales
Citizens Advice Scotland
Citizens Advice Northern Ireland
JobCentre Plus
Consumer Credit Counselling Service
Financial Ombudsman Service
The Insolvency Service
National Debtline

Online services

Debt Help UK
Bankruptcy Services
ACS Bankruptcy
Free From Debt

Useful articles

Missing mortgage payments
Recovering debts from other people or companies
Repossession of a home you own
Managing debtors
Is bankruptcy right for you?
Overview of bankruptcy
Bankruptcy basics