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 4 or 5 years, then go for it!
Any chance of making affordability complaints? If they could make a big difference, go for them straight away! These could be debts in your DMP or other debts that you have recently settled.
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.
See my list here of ways to speed up a 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 – this is rising to £50,000 in June 2024 – renting, little spare income are the main ones) then there isn’t much to think about – it’s the best choice for you.
- Aan IVA is 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 – about a third of them are failing, leaving people back with their debts.
- read this 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 may be either an IVA or 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?
JOSEPH says
Need advice
I currently pay into a stepchange dmp at £152 a month which was for £23000 debt originally in 2017
Remaining debt is £13000 roughly due to finish in 2030
I have £7000 to do full and final offers to my 10 creditors
OR do I do DRO / Bankruptcy route ?
Car is 2001 worth about £300 and disabled adaptions to vehicle – would I keep this ?
Only issue I can think apart from the credit mark for 6 years my partner transfers me the main portion of the bills each month to pay – it’s a 70/30 split on bills as I don’t earn enough
Which you can’t do under a dro can you ?
Sara (Debt Camel) says
I have £7000 to do full and final offers to my 10 creditors
where has this money come from?
JOSEPH says
Inheritance from grandparents Sara
Sara (Debt Camel) says
Well you cannot have a DRO – you have over 2k in assets.
And in bankruptcy you would lose the remaining money.
Do you think you are likely to need a repalacement car soon?
JOSEPH WICKES says
No I don’t think I would need a new car soon
So it seems the best answer is to use the £7k to carry on paying into stepchange as normal ?
Trying to get it done quicker than 2030 !
Sara (Debt Camel) says
I think full & final offers sound like the best way forward I would put £1000 aside as an emergency fund and offer to spilt the rest beteen the creditors. Do say where the money has come from.
See https://debtcamel.co.uk/debt-options/less-common/full-final/
Josh says
Hi Sarah,
I have recently entered a DMP that at the current rate of paying is likely to last about 10 years. I’m wondering if bankruptcy would be a better solution? I currently private rent, have never fallen behind on rent, utilities, council tax etc. Have no savings and very little assets. I do have a car on PCP, again never fallen behind on a payment of that either (would they make me hand it back)?
Many thanks
Josh
Sara (Debt Camel) says
How large are the car PCP payments? When does the PCP end? How large is the balloon payments at the end?
How much are you paying the DMP every month? How large are the debts in the DMP and what sort of debts are these?
Who is your DMP firm – do they charge any fees?
Josh says
Hi Sarah,
The PCP is £334 a month. I use the car for work and have a car allowance as part of my package so that covers the cost of the car, although it’s a personal agreement and not affiliated to work in anyway. The balloon payment is around £7k I believe.
I’m currently paying circa £472 a month to the DMP through Payplan so no fees. Debts totalling around £55k, mix of loans and credit cards.
Thank you
Sara (Debt Camel) says
So when the PCP ends, you expect to just get another PCP agreement? The problem with going bankruptcy is you would be rejected becuase of your credit score. Unless you have a family member that could pay off the balloon payments for you, this may be a problem?
In bankruptcy you would also be making monthly payments for 3 years. Obviously a lot better than 10 years, but it does mean that you will carry on making payments for some while.
I assume you are renting? Privately? May you need to move?
Read https://debtcamel.co.uk/7-ways-to-speed-up-a-dmp-so-it-finishes-sooner/. In your situation – early in a DMP – the first thing to look at would be affordability complaints.
Josh says
I didn’t really think about the end situation on the PCP. I’m assuming I would struggle with this anyway as my credit rating will decline during the DMP?
I am private renting but not anticipating a move within the next 5 years.
I have started some affordability claims, based on another thread I got some advice from you. The outline of the loans means I managed to secure 8 loans within 2 months, during quite a dark period within my life, which has resulted in having to enter a DMP. I’ve had 2 responses back this morning from the affordability claims, declining my complaint, so looking to escalate these if bankruptcy isn’t the better option.
Sara (Debt Camel) says
yes you will struggle being in a DMP but it will be flat No with bankruptcy on your record. When does the PCP end?
I am not saying you shouldn’t go bankrupt. This is often better than a very long DMP. But you need to think about the car and your options.
Josh says
I’m have about 28 months of PCP remaining, so do need to with about this without any rushed decisions. Would it work out better for my credit score if I were to go bankrupt now in comparison to a 10 year DMP. I’ve just turned 30 with a young family, I have a good career and would be looking to buy a house in the future, so want a solution that works best for all of this.
Thank for all your help.
Sara (Debt Camel) says
There is a lot to be said for bankruptcy if you want to buy a house. At the moment (obviously I can’t say what the mortgage market will be in several your time) Nationwide and a couple of other high street lenders will offer a mortgage 3 years after bankruptcy if you have a large enough deposit – so three years paying an IPA in bankruptcy and then 2 or 3 years to save a deposit? At that point, 5 years into a long DMP, you would not be able to start saving a deposit….and with the large DMP payments being made it would be VERY hard to get a mortgage.
So two things you need to consider are:
– how will you manage when the PCP ends? In bankruptcy or a DMP?
– how much would you be able to get the DMP speeded up with affordability complaints and later settlement offers?
I think you should talk to Payplan about bankruptcy and see if they think there are any other points to consider because they know a lot more about your situation than I do.
Tim says
Hi Sarah,
I have multiple outstanding debts across credit cards and loans totally 85K. Mainly as a result of gambling debts and poor financial management. With increase in mortgage and other priority bills, I have got to the point where payback isnt possible and contacted payplan to help set up a DMP. I am looking at 10/11 years to complete payback on these debts do you think it is likely the creditors will accept this offer? FYI – I am 30yo with mortgage payments of £1450 up from £950
Furthermore, I have some debts around 3/5k which ideally I would keep paying off in full. Is it reasonable/an option to make full payment on these with reduced payment on the larger 15k/20k/25k debts?
Any info you can provide would be appreciated.
Thanks
Sara (Debt Camel) says
do you think it is likely the creditors will accept this offer?
If that is all you can afford, yes.
let me know if any continue to add new interest eg on credit cards or an overdraft.
Furthermore, I have some debts around 3/5k which ideally I would keep paying off in full. Is it reasonable/an option to make full payment on these with reduced payment on the larger 15k/20k/25k debts?
No it isn’t reasonable.
It isn’t fair to the larger creditors – that could mean some of them are not happy with the DMP offer. You need to treat them all the same.
Also there is nothing you will gain from this. It isn’t going to improve your credit score, it will just mean that yiou are wasting money paying interest when all your spare money should be going to repaying your debts.
Who is your mortgage lender?
I suggest you read https://debtcamel.co.uk/7-ways-to-speed-up-a-dmp-so-it-finishes-sooner/ which looks at ways of speeding up a DMP. At the start, making affordability complaints can help. Later on partial settlements may be possible,
Tim says
Thanks for the info. I have agreed £389 a month with payplan for now, going up to £1089 when I clear a priority debt in 3 years. Payplan said the same thing its the fairest way to make sure they all get treated equally.
My current mortgage is with Santander and I have agreed a product transfer that will kick in from February. I didnt want them running a credit check incase they cancelled my product switch and forced me on to the standard rate (£1750 for context) so just went with what they offered.
I have started the process of raising affordability complaints so will keep you informed of what response I get back.
Sara (Debt Camel) says
When is your first DMP payment? Do you need to open a new bank account?
Hopefully affordability complaints will get the debt total down. A DMP gets you into a safe financial place so this is a great time to make them and send them to the Ombudsman if necessary as you don’t mind how long it takes.
After 3 years a lot of your debts should have been sold to debt collectors. At that point when your priority debts are gone, you may want to look at using the extra money to make settlement offers rather than upping your DMP payment. Cross that bridge when you come to it.
Shaun says
Good morning Sara,
Sorry il try keep it to the point and not long winded!
I have been in a DMP for 12 months now and was fine, few months ago though I tried to get credit which I didn’t think was possible, but I managed to get it off –
Credit spring
Money boat
Mr lender
Cash asap
Capital on. CC
Zilch CC
Now this is all my fault and got myself back into a stupid cycle of added debt thinking il manage il pay it off then suddenly lending off another to pay the other and back to square one! These are all 6 month loans but am stuck in a rut with them now.
I have suspended my first dmp payment to stepchange and will only be the time I do this. My question is though I live at home with my parents and just have my car which is in my dad’s name. Is a bankruptcy order a better way than my DMP? Will this completely wipe my debts out and start and absolute fresh start with zero debt? Also does it affect anything with my parents house etc because it would be a straight no go if it did.
Thanks for reading. Any advice is much appreciated.
Sara (Debt Camel) says
Your parent’s house is not at risk in any way – so bankruptcy isn’t ruled out, but is it your best option?
Can I ask if you have a gambling habit or some other problem?
How large are the debts in your DMP?
How large are the payments you are making to the DMP?
The car – is it on finance?
How much do the new lot of debts add up to?
Shaun says
Hi Sara, thanks for reply.
In short probably yes to gambling, probably lead to problems and basically being young and stupid and living beyond my means. Although I gamble a lot less now but it’s still there.
My DMP payment is £577 a month.
My car is owned probably worth £1200.
These other debts add up to about £3.5k
Credit spring
Money boat
Cash asap
Are all 6 months, so in my head am like if I can just finish them il be okay but am just in a cycle with them unfortunately.
Thanks Sara.
Sara (Debt Camel) says
And how large are the debts in the DMP? What sort of debts were they?
Shaun says
Hi Sara,
Few pretty big ones like.
NatWest was main one £14k loan
Virgin credit card £8k credit card
TSB 5k loan
Capital one £1.5k
Lowell finance £3k
New day £1.5k
That’s most in the DMP plan
Thanks Sara
Sara (Debt Camel) says
is the 577 a month as a DMP payment affordable? or is it leaving you short which is why you have ended up borrowing more?
Shaun says
Hi Sara
I would say it was manageable, but then done the stupid thing of getting carried away thinking extra money il be able to pay it off and it snowballed into a problem. So just thinking what’s the best way to reset and move forward after yet another mistake.
Thanks.
Sara (Debt Camel) says
So I suggest you tell StepChange what has happened and ask to add these new debts into the DMP.
Your DMP will finish in about 5 years. Not really worth going for bankruptcy where you would be paying any way for 3 years.
And also look at affordability complaints against all your DMP debts, old and new. Win any and the balances will reduce so the DMP ends even sooner. See https://debtcamel.co.uk/tag/refunds/ for articles about these complaints with templates to use.
Shaun says
Hi Sara
Will step change be okay with this il feel a fraud that let them down by going back down the borrowing route. Will they cancel the DMP? I feel I can try get back on track because I wouldn’t want to disrupt it. Would the people am paying now accept a reduced payment after a year of paying so much?
The affordability claim can I do this if I don’t mention what I’ve done to stepchange, maybe win and get back straight that way? Or just best telling them from the off?
Thanks again
Sara (Debt Camel) says
I think you have to ask. Sound very sorry.
But obviously if they do agree you can’t do this again…
Affordability complaints often take a very long hike to sort out. And they only remove the interest.they are a good way to get the balances in a DMP down but not really an alternative to it.
Sara (Debt Camel) says
Also your creditors would prefer a slightly lower and longer payback through StepChange to you going bankrupt, when they would get a lot lot less
Shaun says
Hi Sara
Thanks for advice I have contacted stepchange.
They said because new credit I’ve broken T and C’s
Of DMP so I said can you not put them on but they said they have to now but not to worry I should be ok. The creditors might question it but if they do they will speak to me, worried me a bit actually but they seemed fine in the end. Fingers crossed!
As for complaints shall I do it or will this annoy the lenders and make it hard for me especially if just adding them to my plan now?
Thanks Sara.
Sara (Debt Camel) says
Perhaps wait a month or two…