Serious debt: Your options explained

Millions of people are falling into debt due to the Coronavirus pandemic, prompting HM Treasury to announce millions of pounds worth of extra funding for advice and support for those who are struggling. 

The Money and Pensions Service (formerly the Money Advice Service) has secured an additional £37.8m for debt support in England, and predicts that the need for debt help will increase 60% by the end of 2021. The extra funding is intended to ensure that one million more people in England will get debt advice over the next 12-18 months. A further £5.9m is being allocated to Northern Ireland, Scotland and Wales because debt advice is a devolved matter.

Debts can easily spiral out of control, especially if you’ve been made redundant or have been hit with health issues that prevent you from working, and find yourself facing a sudden drop in income.

Many people end up finding it impossible to pay back what they owe, and if they can’t work out a manageable debt repayment plan with their creditors, can be left with no option but to declare themselves insolvent.

Long before the pandemic, the number of insolvencies amongst women aged 55 and over jumped from 4,628 in 2008 to 7,818 in 2018 – an increase of 69% in a decade, according to new analysis from Rest Less. The insolvency rate of this group increased from 0.06% to 0.08% in the same time period. Insolvencies amongst men aged 65 and above also increased by 29% in the years between 2008 and 2018.

Stuart Lewis, Founder of Rest Less, said: “The over 50s are more likely to be made redundant, to be in long term unemployment and to face age discrimination in the recruitment process when applying for jobs. Women in their 50s and 60s are also more likely to have taken time out of the workplace and to have caring responsibilities, whether for elder relatives, partners or grandchildren. It’s therefore no surprise to see that this hardworking group of individuals are particularly vulnerable to financial shocks from any sudden loss of income ”

The analysis also shows that Individual Voluntary Arrangements (IVAs) and Debt Relief Orders (DROs) are the most common type of insolvency for females aged over 55.

Bear in mind that these options should not be considered lightly as they can have a number of significant consequences. If you are in serious debt, it’s important to speak to your creditors as soon as you can and see if you can come up with a manageable repayment plan. If they are unable to help, contact a charity which specialises in free debt advice, such as StepChange, National Debtline the Debt Advice Foundation.

Here, we explain how IVAs and DROs work, and what other options are available for those in serious debt.

Debt relief orders (DROs)

A debt relief order (DRO) is a formal insolvency procedure aimed at people who cannot pay their debts. They were set up in 2009 in the wake of the financial crisis, as a way of making insolvency available to those who simply could not afford, or could not access, the process of going through formal bankruptcy. The application fee for a DRO costs £90 for example, compared with the initial costs of £680 when going down the formal bankruptcy route.

It’s available to those with a low, or zero income and few assets, who don’t have any other way of paying back what they owe and who don’t own their own home. To qualify, your debts must be less than £20,000. You’ll need to have no more than £50 left each month after you’ve covered your usual household expenses, and if you own a car it can’t be worth more than £1,000, unless it’s been adapted because you have a disability. Any savings you have or things of value you own must be worth no more than £1,000.

You’ll need to talk to a DRO advisor, which is usually free to do, before you apply for an order. You can find an advisor at your local Citizens Advice. You can also find one through other organisations – you’ll find a list of approved organisations here.

If your advisor agrees that a DRO is the right option for you, you must then complete an application which will be submitted to the official receiver. This is when the £90 fee to make a DRO application must be paid. If you need help with the cost of DRO fees, help may be available to you from some charities, provided you meet their eligibility criteria.To find out what help may be available from charitable funds, you can use the Turn2us Grants Search tool.

If your application for a DRO is accepted, you won’t have to make any further payments towards most types of debts. Debts covered by a DRO include credit cards, loans and overdrafts, rent arrears, utility bills, telephone bills, income tax and Council Tax and debts you owe to friends or family. Student loans, child support and court fines aren’t covered.

The debt relief order will typically last for a year, unless your financial situation improves. If your finances have not improved during those 12 months, any outstanding debts will usually be written off.

Individual Voluntary Arrangements (IVA)

An IVA is an agreement which is set up between you and the people you owe money to. It is a legally binding arrangement which allows you to reduce the total amount of your debts, in return for a binding commitment to repay as much as you can realistically afford out of your regular income. According to debt charity the Debt Advice Foundation, an IVA will typically write off between 50% and 60% of an average debt of just under £60,000. This would reduce the amount owed to between £25,000 and £30,000. The actual amount that will be written off will depend on your individual circumstances and how much you can afford to repay.

An IVA is usually only suitable for people who have a source of income, and who owe at least £10,000 or more to two or more lenders. If you owe less than this, a debt relief order might be more appropriate.

You need to use an insolvency practitioner, usually a lawyer or an accountant, to set up an IVA – you can’t do it on your own. The insolvency practitioner will charge you for doing this, and fees can be as much as £5,000. They typically range from around 15-20% of payments made. These can usually be paid as part of the debt repayments you make during your IVA, so there won’t be any additional costs to pay. You can find a licensed insolvency practitioner here. It’s a good idea to get a few different quotes before choosing one so you can be certain you’re not paying more than you need to.

Once you’ve appointed an insolvency practitioner, they’ll put together an IVA proposal outlining to your creditors how you might pay back some of your debts. If the creditors approve it – and at least 75% of them must agree to it – then it’ll be up to your practitioner to supervise your IVA for as long as it lasts and to ensure everything goes smoothly.

Be wary of debt management companies which say they can arrange an IVA for you, as they’ll charge a fee on top of the insolvency practitioner’s charges. It’s likely to be more cost-effective to go direct to an insolvency practitioner yourself using the Government website here.

An IVA typically lasts for five or six years, during which time you make monthly payments to your creditors from your available income. You may also agree to pay a lump sum too. Once you have made all the payments, any remaining debts you have will be written off.

If you receive a lump sum during your IVA, perhaps because you inherit some money, you must disclose it and the cash will usually be paid to your creditors.


If you can’t find any other way to manage your debts, bankruptcy is another option to consider.

It isn’t something that should ever be entered into lightly though – if you own your home you’ll usually have to sell it to repay your debts, along with your any valuables or possessions. You’ll usually only be able to keep things such as everyday household items or any things you need for you to do your job. For example, if you work as a mechanic, you’d be allowed to keep your tools, or if you need your car to get to work, you’d also be allowed to keep that.

Your bank will usually freeze any accounts you have so you won’t be able to make or receive any payments. That means you’ll have to contact all the companies you make regular payments to, such as your gas and electricity supply and work out an alternative way to pay your bills.

If you’re more than £5,000 in debt, the person or company you owe money to can force you into bankruptcy, or you can apply for it yourself. You can only do this online here, but always seek specialist debt advice first. There’s a £680 fee payable which must be paid before you submit your application. If you can’t afford to pay it all at once, you may be able to pay in instalments.

Alternatively, you might be able to apply for a grant or get help from a charity. You can search for a grant on the Turn2us website.

Bankruptcy usually lasts for a year, but there are significant longer term consequences for your credit rating (explained below).

Long term impact of IVAs, DROs and bankruptcy

An IVA, DRO or bankruptcy will be recorded on your credit file for six years from the date it started. While this information is on your credit file, you’re likely to find it very difficult to take out a loan, credit card or any other form of borrowing.

Your name will also have to be added to the Individual Insolvency Register, where it will usually stay for 15 months. This is an online database of everyone who’s gone bankrupt or who has arranged an IVA or DRO.

If you’re made bankrupt, some jobs won’t be available to you at all. These include working as a company director or charity trustee. If you already work in certain occupations, such as in the financial services industry or in the legal profession, being declared bankrupt is likely to affect your job. If you’re not sure, check your employment contract or you could talk to your HR department in confidence.

A DRO won’t affect your mortgage because you can’t be a homeowner to get one. With an IVA, you usually won’t have to sell your home, although you might be expected to remortgage in the first instance, to release equity so you can pay back some of your debts.

Having an IVA or DRO won’t usually affect your job either, although again your employer may have an issue if you work in the finance or legal sectors.

Advice for serious debt

If you’re considering either an IVA, DRO or bankruptcy, make sure you’ve discussed what these options will mean for you first – there may well be other less extreme ways to sort out your debts. For example, one option may be to think about remortgaging to consolidate your debts, although bear in mind this will mean increasing the amount of debt you have which is secured on your property.

If you want to speak to someone about the best option for you, charities specialising in free debt advice include StepChange, National Debtline and the Debt Advice Foundation.


Have you been in serious debt and managed to find a way out? If so, we’d love to hear from you. You can get in touch via [email protected] or post on the Rest Less Community forum, a place where you can get tips and support from like-minded people.

Links with an * by them are affiliate links which help Rest Less stay free to use as they can result in a payment or benefit to us. You can read more on how we make money here.


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