Debt relief: 3 alternatives to bankruptcy

By Jemma Porter

Times are tough. The average household debt in the UK (excluding mortgages) has risen to nearly £8000, according to Credit Action, while the economy continues to falter.

Many Britons are struggling to pay their bills -- and some have accumulated so much debt, they are unable to pay it off with their own resources.


If you, too, are in serious financial trouble, you may already be considering bankruptcy. However, there are other options available.

Here are three debt relief alternatives that you may want to consider if you're grappling with debt you feel you cannot pay:

1. A debt relief order (DRO)
A debt relief order or DRO is available to debtors who are not homeowners, have few assets and do not have the ability to repay their debts.

Once a DRO is in place, the lenders are not able to take any debt recovery action for at least 12 months without court permission. During this period, you must continue to pay your normal household bills, such as your rent and utility bills. However, you won't have to pay toward your debts. Once this period of time, known as a moratorium, is up, your debts will be written off.

To be eligible for a DRO, you must not be able to pay any debts. You also must have outstanding debt of less than £15,000; have less than £50 per month spare after everyday household expenses; have assets of less than £300; not have a motor vehicle worth more than £1000 and either be a resident of England or Wales or have lived or conducted business in England or Wales in the last three years.


  • Although there is a £90 fee, a DRO is much cheaper and simpler than bankruptcy.
  • A DRO includes most debts, including rental arrears, council tax and credit cards or loans.
  • Once the DRO is in place, you are not required to make any more debt repayments, relieving financial stress.


  • You will not be approved for a DRO if you have any large assets, such as a home.
  • Evidence of the DRO will remain on your credit file for six years.
  • Secured lenders can still take debt recovery action against you, despite the DRO.

2. An individual voluntary arrangement (IVA)
An IVA is a formally agreed arrangement between the county court, your creditors and yourself to pay off a fixed amount of your debt over a specified period of time.

If you choose this option, you will need to hire an insolvency practitioner to assess your situation and help you negotiate an arrangement. The insolvency practitioner will negotiate with creditors a fixed sum you will pay each month. The sum will be based upon how much income you have leftover after paying your household bills.

If you continue to pay the agreed amount toward your debt for the length of the IVA, the remaining debt will then be written off.

An IVA is suitable for individuals with debts of more than £15,000 from two or more creditors. You must also have enough income to pay at least some of the debt. IVAs typically last approximately five years.


  • You can negotiate your arrangement with your creditors.
  • Creditors are barred from taking legal action against you for the length of the IVA.
  • If creditors agree, you can keep assets such as your home.


  • Creditors could object to being included into the IVA proposal.
  • Evidence of the IVA will remain on your credit file for six years.
  • An IVA will appear on the public individual insolvency register.

3. An administration order (AO)
An AO is a county court order that treats all debts as one, allowing individuals to make one single monthly payment to the court. The court then spreads the money out to the people you owe on your behalf.

To qualify for an AO, you must have unsecured debts totalling less than £5000 and have one county court or High Court judgment against you.

Once you reach the end of your agreement with the court, the remaining debt will be written off.


  • No further action can be taken against you without permission from the court.
  • Fees and interest charges on your debt are stopped.
  • There are no-upfront fees to pay to the court. Instead, you will pay just 10 pence per pound of debt repayment for the duration of the agreement.


  • Creditors can object to being included on the AO.
  • Evidence of the AO will remain on your credit file for six years.
  • Your agreement may be revoked if you don't keep up with the payments.

Tip: When searching for the right debt relief plan for you, you may want to seek help from a credit counsellor. However, watch out for credit counselling or debt relief companies that charge fees or claim to be able to erase your debts. Instead, look for help from a registered charity, such as the Consumer Credit Counselling Service, that specialises in giving consumers free and impartial advice.

See related: What you need to know about debt management plans; How to rebuild your financial life after bankruptcy

Published: 9 December 2011