Step 4 Dealing with your non-priority debts

What if I have no money left to pay my creditors?

No payments or token payments

After paying your outgoings and making arrangements to pay your priority debts, there may be nothing left to pay other creditors. If you have nothing left, say so. Show your creditors by sending them your budget and a letter to back this up. Ask your creditors to hold action until your circumstances improve. This is called asking for a ‘moratorium’. If you prefer, you could offer a token payment of £1 a month to each creditor instead.

Token offers or no offer of payment sample letter

Debt relief order

You may be able to apply for a debt relief order (DRO). DROs can be another option instead of bankruptcy and are cheaper to apply for. You may qualify for a DRO if:

  • you owe £20,000 or less in total;
  • you can’t afford to pay more than £50 a month to your creditors; and
  • you have total assets of £1,000 or less and a car worth less than £1,000.

If you get a DRO, your debts are written off after 12 months. You will need help to fill in an online application from an approved advice agency, such as a money advice centre, citizens advice bureau or Business Debtline. You will have to pay a fee to the Insolvency Service to apply for a DRO. Contact us for advice.

See our fact sheet:

Debt relief orders (DROs)

Bankruptcy

If you owe a lot of money and you cannot see a way out of your debts, bankruptcy might be a good option for you. You should consider going bankrupt if you have no assets or you are prepared to lose your assets and possibly your business.

See our fact sheet:

Bankruptcy

You must owe £5,000 or more before a creditor can make you bankrupt (although two or more creditors can club together and apply to make you bankrupt). Non-priority creditors are less likely to make you bankrupt than priority creditors because it costs them money in fees and costs.

They will probably not recover the debt and the costs of making you bankrupt unless you have assets that can be sold to pay your debts.

Once you are declared bankrupt, your creditors can usually take no further action against you. Going bankrupt can have important effects, particularly if you own your home and it is worth more than the mortgage you have left to pay. In this case, your home could be sold as an asset. Being made bankrupt could also affect your ability to carry on being self-employed. Bankruptcy may also affect you if you are a paid employee, if your contract of employment does not allow you to become bankrupt.

You can make yourself bankrupt but the fees are high. Your bankruptcy will normally last for one year. After this, usually debts that have not been paid are written off and you are discharged from the bankruptcy. You may still have to make monthly payments for a total of three years under the terms of your bankruptcy order. If a creditor has threatened to make you bankrupt, or you think it may be an option for you to consider, contact us for advice.

See our fact sheet:

Partnerships.

Extra advice:

partnerships

If you are a partner in a partnership you will need consider whether you should make your partnership bankrupt as well as making yourself personally bankrupt. There are different fees and forms to complete if you are applying to make your partnership bankrupt. Contact us for advice.

Will my creditors write off my debts?

If you have no money for creditors and no assets, creditors may agree to write off your debts. This is very rare but may be an option if your circumstances are extremely difficult due to illness, age or a death in the family. You will need to give your creditors evidence of your circumstances.

Write off the debt sample letter