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Tackling your debts

Help with debt while on benefits

Posted 02 March 2016

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Are you on benefits and looking for help with unmanageable debt? There are solutions that might be right for you. Read on to find out more and then get in touch with an expert.

In this blog we’re going to look into the help that’s available for people who are living partly, or solely, on benefits and who also are not able to keep up with their debt repayments. If this sounds like you, don’t worry, whatever your income, there is always a way out of unmanageable debt. If you’d like to know exactly where you stand with your finances, why not complete our free money smart report? Once you get your results you’ll have a better idea of what you personally need to do next. 

For now, let’s have a look at the options that are available for people who are on benefits and need help with their debts. 


A debt solution could help

There are a handful of debt solutions out there designed to help people in various different situations with unsecured debts. For example, the solutions that are available in England, Wales and Northern Ireland are, Debt Management Plans, Individual Voluntary Arrangements, Bankruptcy, Debt Relief Orders and debt consolidation. There also a range of solutions available in Scotland, for details on these, have a look at our Scottish solutions page. 

First of all, it is possible to start a debt solution if you live on benefits. All the solutions above aim to free you from problem debt in one way or another, but some require you to make a monthly payment and others do not. If you are relying on benefits to cover the cost of the basics in life, you may find that you don’t have a lot, or any, disposable income. Just to be clear, disposable income (also known as DI) is the money that you have left over each month after all of your essential living costs have been accounted for. The amount of DI your benefits leave you with - amongst other things - can have an effect on which debt solution is right for you. 

Let’s have a look at some examples of debt solutions, including one where you’d have to pay something each month and others where it may be possible to stop payments towards your unsecured debts if you can’t afford them. 


Debt Management Plans

Debt Management Plans (DMPs) involve contacting your lenders and offering to pay them a lower amount than what was originally agreed to. That amount would be what you could realistically afford, when you take into account all the other things your money has to pay for each month – your priority bills, such as utilities, food, transport, council tax and so on. If, after allowing for all your essential costs, you still have a disposable income then this would be split fairly amongst your lenders and offered to them under a Debt Management Plan. If your lenders accept this proposal, you would pay this smaller amount over a longer period of time until the whole of the debt was paid off.

With a DMP, which is an informal debt solution, you would need to be able to put something towards your debts each month, therefore a reliable income is very important. If you were living partly or completely off benefits, with little to no disposable income, it’s unlikely a DMP would be best for you as you might struggle with the repayments. That’s not to say it’s impossible, but whether you could have a DMP would depend on the amount you could offer to pay and how long it would take you to pay the whole amount off. 


Debt Relief Orders

Now let’s look at another example of a debt solution, but this time you are not required to make payments each month – Debt Relief Orders (DROs). DROs are designed to help people who are on low incomes, and who have a low amount of disposable income to deal with their debt. Because they are designed to help the people who are struggling the most, the criteria that you have to meet to be eligible for one are very specific. In order to qualify, you cannot have more than £20,000 in unsecured debts, you can’t have assets worth more than £1000 (or a car worth more than £1000), and lastly, you can’t have more than £50 each month in DI. 

Now, DROS allow you to actually stop payments altogether towards your unsecured debts for a year, and after that time, if your situation has not improved, your debts are written off entirely. If the fact that you are living on benefits has left you with a low disposable income, and your benefits are just covering your essentials, then a DRO might be right for you. 


Bankruptcy

Bankruptcy is another option to deal with insolvency, and if you don’t qualify for a DRO this is an option that a debt advisor may look into for you. With bankruptcy your income is assessed and the Trustee, who oversees the bankruptcy, decides whether you need to continue paying something towards your debts. If you were to go bankrupt and your income was made up solely of state benefits, you would not be expected to put anything into the bankruptcy each month at all. So whether or not you pay anything into bankruptcy just depends on how much income you have and where that income comes from. 

If you had a benefit only income then you might be eligible for a reduction in the £180 court fee required with bankruptcy. Check here for the Government’s advice on how to apply for help. If bankruptcy was the right thing for you and affording the fees was the only thing stopping you might be able to get help with the administration fee as well - which is £525 – by contacting a charity. For more info on this make sure you read our blog What should I do if I can’t afford the bankruptcy fees? 


Make sure you’re getting all you’re entitled to

There are some people that would not actually need to go on a debt solution if they claimed everything they’re entitled to. If you’re not claiming anything at the moment, or you are but you’re not sure whether you should be getting anything else, make sure you check the Government’s dedicated page on this. Turn2us also have a simple to use calculator to check what you could be entitled to. 

The best way to find out which debt solution is right for you, whether you’re on benefits or not, is to speak to an experienced debt advisor. If you give one of our advisors a call they will take you through your income and expenditure and point you in the direction of the very best solution for 

by Christine Walsh

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To find out more about managing your money and getting free debt advice, visit Money Advice Service, an independent service set up to help people manage their money.