If you are only making low payments to a Debt Management Plan, then it may take many years to clear all your debts even if interest is frozen on all of them. Unless you really expect that your finances are going to improve in the next few years, then this DMP is not a good plan to clear your debts as it is going to take far too long.
If the DMP will take too many years to finish, then you need to investigate the alternatives.
How long is too long?
Everyone has their own view of what may be a tolerable length of time for a DMP. If you are single in your twenties or thirties, you may feel comfortable with 8 or even 10 years as an option. That is your choice.
But this wouldn’t make sense if you want to be able to save up for a house deposit and get a mortgage that will be repaid before you retire. Or if you are older and will be retired before the DMP finishes! Or if you have a young family – you would be spending most of their childhood in debt, with constant scrimping and no holidays.
Speed up your DMP
The first thing to do is look at whether your finances can be improved so you can pay more each month to clear your debts, see all the ideas here.
If you have any assets that could be sold, then you are likely to lose them if you go bankrupt anyway, so if selling them now would reduce your DMP length to a more manageable 3 or 4 years, then go for it!
Any chance of making affordability complaints? If they could make a big difference, go for them straight away!
If you already have a DMP set up with a commercial company that charges you fees consider changing to StepChange where all your money goes to your creditors. That could take a year or more off the time to complete your DMP.
Bankruptcy
Insolvency is something you should be realistic about. There are three types of insolvency in England, Wales and Northern Ireland:
- If you meet the criteria for a DRO (debts total less than £30,000, renting, little spare income are the main ones) then there isn’t much to think about – it’s the best choice for you.
- An IVA is pretty unlikely as with this sort of long DMP you aren’t usually paying back enough each month for an IVA to work. And IVAs can go wrong – in 2019 about 30% of them are failing, leaving people back with their debts.
- Have a read through Debt Camel’s Guide to Bankruptcy – that tries to use as little jargon as possible to answer your questions.
If you don’t want to go bankrupt because of concerns about your job, then you need to weigh these against the problems of your current situation. If you earn a lot as a solicitor or an accountant it makes sense to want to keep that job – but in that case why can’t you afford to pay your debts off faster? If you are a bank clerk who doesn’t earn a fortune in the City, then perhaps you should explore if there are other jobs which you could do that pay similar amounts where bankruptcy wouldn’t be a problem.
Can’t go bankrupt because of your house?
If you have little or no equity in your house, then don’t rule out bankruptcy – it may be possible to keep your house.
If you have too much equity in your house to go bankrupt, then your best alternative to an overly long DMP is probably selling your house. You may really not want to do this, but you have to be realistic. A very long DMP if you have a house with equity can go badly wrong if your creditors get fed up with the DMP and start adding interest again, or go for a CCJ and then a charge over your house.
N says
Hi Sara,
I am on disability benefits and have £8k credit card debts which i can no longer pay. I have had a BR previously in 2003 and a DRO in 2015. Stepchange have recommended a Payment Suspension (with BR also an option to consider). However my situation is not likely to improve at all in the short or long term due to worsening health. Will I be penalised if I go BR again? Thanks
Sara (Debt Camel) says
The only penalty you may get is a Bankruptcy Restriction Order. But that isn’t certain as it has been 5 years since your DRO and your last bankruptcy is very old.
But do you care if you get a BRO? Will it really make any difference to you?
Read https://www.citizensadvice.org.uk/debt-and-money/debt-solutions/bankruptcy-2/bankruptcy-restrictions-orders/
Most people find that a BRO doesn’t really matter at all.
Your other option may be – you would need to confirm this with StepChange, to ask for payment suspensions now and then go for a DRO next years when it has been over 6 years since your first one. If you can get the bankruptcy fees, it’s probably not worth the streess of trying to do this. But if you can’t get the bankruptcy fees than waiting for a second DRO could work for you.
Naomi says
Thanks Sarah,
I was made redundant from my very part time job this month so have £770 redundancy pay which I presume I could use for the BR fee (even though I was going to use it for the car mot due soon). I know I will have to do the DRO or BR in reality, but I just feel awful even though the DRO and my current situation has come about due to ill health, I guess I am worried that very few people have been BR twice, and worry about the stigma of it.
Sara (Debt Camel) says
How much is your car worth?
Naomi says
I brought it for £700 a year and a half ago and it is an old wreck. I doubt I would get £50 for it.
Sara (Debt Camel) says
You can’t be refused bankruptcy because you have been bankrupt or had a DRO before.
I can’t say you won’t get a BRO, but if you were happily paying your credit card debts until your health got worse, then you may not.
And even if you do get a BRO, I really don’t think it will make any difference to your life at all.
As you say, you don’t have a practical alternative. That is too much debt to clear if your are in poor health and can’t work. If StepChange have receommended bankruptcy as a good option for you, that should reassure you.
naomi says
thanks so much Sarah
Nathan says
Hi guys,
I am 25 and have been suffering with a gambling problem that has left me in debts with firends and family & banks of about £75k. The debt is having serious negative impacts on my mental health and I am thinking to go bankrupt. I have 0 assets…what is the best option for a fresh start to life?
Sara (Debt Camel) says
With no assets to protect, bankruptcy may well be a good option for you for a clean start.
Talk to National Debtline about this, its implications and if there other possible debt solutions.
It is likely you may get a BRO, read https://debtcamel.co.uk/bankruptcy-restriction-order-bro/. This is not a bad thing for someone trying to sort out a gambling problem as it makes it MUCH harder for you to borrow. I hope you are getting some help with this?