Debt problem in the UK has soared to a level unseen before in the recent memory of the UK. People in the UK live in a credit economy. This means you don’t need to have or own the money you spend. As you then start to spend this money (which you don’t own) you begin to gradually build a world of debt.

In general being in debt is not necessarily a problem, the problem comes from being unable to manage the debt. One unpleasant feature about debt is that it grows, this means you will need to repay the money with interest. As can be seen from the above analysis, debt problem can be described in a few words as the inability to manage one’s finances.

There are different causes of debt problem and they include mainly loss of employment caused by various different reasons, illness and disability, personal difficulties such as relationship breakdown and bereavement, lack of good financial knowledge which leads to poor financial decision/management.

Our focus here is what to do once you have reached that point of insolvency. Obviously the better place to be is not to have any debt problem at all.


  1. Amount
    • 1a Renegotiate repayment amount
    • 1b Administrative order and composite agreement
  2. Ask for a write off
  3. IVA( individual voluntary agreement)
  4. Bankruptcy

1a Renegotiating repayment of debt:

Once you have reached the point of insolvency your first point of action is to let your creditors know your situation. Generally such a step will affect your credit rating but as an insolvent person your credit rating should no longer be an issue of priority for you and it really should not be, for a low credit rating is an inevitable consequence of your situation.

When you contact your creditors explain the following to them – the reason why you are unable to make your regular repayment, tell them the amount you are temporarily able to pay and for how long it will be before you return to the regular amount of repayment. If on the other hand you are unable to offer any amount of payment tell them so, including information of how long your non-payment will last for. Alternatively you might offer them a token (nominal payment) of £1/month for a given period.

Carrying out all the above actions is no guarantee that your creditor will be sympathetic to you or that they will accept your offer. The advantage of the above action is that at least your creditor will be aware of your financial situation and know that the reason for your non payment is not a wilful disregard of your obligation but is because you don’t have the money. The other advantage is that it may reduce the chances of them taking further legal action this is because once they get to know that their debtor is insolvent and that he/she hardly has any asset it will dawn on them that taking further legal action is not a commercially viable option as the legal fees they will incur in taking the further legal action will not be recoverable.

The method suggested for you to use to carry out the negotiation with your creditor is simply by writing them a letter detailing all that has been suggested above. Attach a financial statement (showing your income, outgoing and information about other debt owed) with your letter. Send the letter to them by recorded delivery. Avoid doing the negotiation by phone.

Your creditor may not respond to your letter and may simply pass or sell your debt to a debt collector. You should deal with the debt collector exactly as it is been suggested above to you to deal with your creditor. Debt collectors are generally but not always more difficult to deal with than your creditors. They may reject your offer of payment. You should continue to re-offer it to them if your situation has not changed and if possible start making the offered payment.

If you are unable to make any headway with your creditors after carrying out the above suggested actions seek advice and assistance from a debt advisor. Note of warning – Taking on a new loan to pay for an outstanding loan that you are presently unable to manage is always a risky and potentially a financially unwise action to take.

1(b) Administrative order and composite agreement

2. Asking for a write off

Asking for a write off is a realistic option for people who have good reasons to ask for it. There is no specific reason that guarantees the granting of such a request. Each request will be assessed on its merit. Obviously when you ask for a write off, one of your reasons will be because you are unable to repay your debt and the other reasons will be that given your circumstances it will be a good decision on their part to write off your debt. Please find below two case studies to further illustrate how this option may work

Case study 1- A woman aged 70 had multiple debt which became unmanageable for her as she had become insolvent. She was shortly later diagnosed to be suffering from the early stages of Alzheimer disease. She then brought this to the attention of her creditors and explained to them that she had no asset, had very limited financial resources and that her financial future was very bleak given her age and medical condition. Her creditors eventually wrote off her debt

Case sturdy 2- A woman operated a joint account with her partner. Shortly after her separation from him, he went to deliberately make four different withdrawal from their joint account well over their authorised overdraft limit before disappearing away. There was no dispute as regard her being jointly and severally liable for debt attributed to that account given that it was a joint account but she was able to successfully argue for a write off on the ground that the Bank was negligent in allowing an unauthorised withdrawal on four different occasion.

I hope the above case study will give you a better understanding of how this option can be used.

3. IVA (individual voluntary agreement)

This option if successful allows people who are insolvent but have asset’s to preserve them. This option is simply a formal rearrangement of your repayment amount to your creditors using a formal procedure that will involve an insolvency practitioner. To successfully use this option you must have a regular source of income.

4 Bankruptcy

Bankruptcy can be described as a process which allows the discharge of a debtor from his obligation to pay debts owed. Not all debts can be cleared by bankruptcy. (E.g. you can not clear a student loan debt by bankruptcy). Obtaining a bankruptcy order involves following a laid down procedure. You can either petition for bankruptcy yourself or your creditor can apply to make you bankrupt.

There are many advantages and disadvantages of going bankrupt. You have to seriously consider this option and if possible seek advice before making your decision.

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