How to get debt free in a year
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Bankruptcy and Debt Relief Orders both allow people to become debt free in a year. Read on to find out more.
Want to get debt free in a year? If your goal is to get debt free in the near future, there might be a debt solution suitable for you that can make that a reality, namely, Bankruptcy and Debt Relief Orders. If you live in Scotland, the equivalents are Sequestration and Minimum Assets Process.
How does bankruptcy work?
Bankruptcy is a formal debt solution and can be the right way to tackle unsecured debts in certain circumstances. It involves cutting or suspending your payments towards your unsecured debts each month and then after a year, the rest of your debts included on the plan, along with your interest and charges are written off. You have to be insolvent to go bankrupt, which means that either you can’t afford to pay your debts when they are due, or that your debts are worth more than your assets.
Bankruptcy can be the right debt solution for some people, but it is a big step and has downsides. For instance, your assets will be at risk and you may have to sell your house, if you own one, unless there’s a reason why you have to live in a certain house or area, or if you have less than £1,000 in equity. You’ll also have to pay any savings you have into the bankruptcy and you may be asked to sell other assets – such as an expensive car.
You may have to pay something towards your debts each month with this solution, known as an Income Payment Agreement, and if this is the case, this will normally last for three years in total. Having said that, you will only be expected to make these payments if your Trustee can see you can afford it and your debts will still be written off after a year.
Bankruptcy will also have a negative effect on your credit history and will stay there for six years from the date that you start the solution.
How does a Debt Relief Order work?
A Debt Relief Order (DRO) is another formal debt solution but it works slightly differently to the full bankruptcy process – and it’s only available to people with debts of less than £20,000. With a DRO you have to prove that you have less than £50 to put towards your debts each month and that your assets are worth less than £1,000 in total. Your car is looked at separately, and also has to be worth less than £1,000.
If you meet the criteria, then your payments towards your unsecured debts are suspended for a year and if your financial situation hasn’t improved after that year, your debts are written off altogether, along with interest and charges.
Again a DRO will have a negative effect on your credit history, but if you meet the criteria and you’re unable to make your repayments, it may be the best way to deal with your debts.
How to find out more
Both Bankruptcy and DROs give people the chance to be debt free in a year, but there are other solutions available and it’s really important you find the right solution for you. Make sure you speak to a trained debt advisor, like the ones we have here at Debt Advisory Centre – you can use the options at the top of the page to do this today.
by Christine WalshBack to blog home