What do you do if you can’t pay your bills?

According to the Financial Conduct Authority – the body which regulates financial services – there are currently around 11 million adults in the UK who are struggling to pay their bills. This is 3.1 million higher than this time last year.

Much of this is due to the continuing rise in the cost of living in the UK and across the world. In particular, food and energy prices have been rising rapidly over the past year because of the conflict in Ukraine. This comes at a time when there is already pressure on prices as the world recovers from the Covid-19 pandemic. And in the UK, rising interest rates also means that mortgages are more expensive for thousands of households, which also impacts on the rental markets.

In light of all this, what can you do if you find yourself in financial difficulty? Do you look for an emergency loan, or try to sort things out another way?

In this article we look at some practical steps you can take if you are in the position when you can’t pay your bills.

Make contact with organisations you owe money to

Financial problems are really stressful, and the last thing you will feel like doing is talking about them. But the problem is that if you just try and ignore the problems, they won’t go away, they will get worse.

So, if you owe money and are struggling to pay your bills, the first thing to do is to work out how much you owe and who to. Organisations you owe money to are known as creditors. Then identify your most urgent debts. Mortgage or rent, council tax and energy are known as priority debts as there could be serious consequences if you do not pay them. So you should aim to sort these out first.

Once you have a clear picture of your debts and priorities, you then need to make contact with your creditors and explain the situation. For example, your mortgage provider, landlord or housing association, local council, and energy supplier. Many organisations will be willing to work out a way forward with you, for example allowing you to reduce your repayments or take a payment break. But unless you ask, you won’t get! So don’t ignore bills or letters from organisations – get in touch.

The same applies to loans and credit cards. If you have borrowed more than you are now able to repay according to the current schedule, contact your lender to see if an alternative way forward can be found.

Look for external help

If you get in touch with your creditors but are still in financial difficulty, or if you find the whole prospect too overwhelming, there is help available. Various organisations exist who can give you information and support, and can talk you through the options available to you. So try to get in touch with one of the following:

One thing they may be able to help arrange for you is some breathing space. People in England and Wales who are receiving debt advice can apply for the Debt Respite Scheme which can provide up to 60 days protection from creditors while you get debt advice and make a plan. During this time, you will still need to make debt repayments that you are able to, but creditors are not allowed to contact you about debts, add interest or charges to your debt, or take any enforcement action against you.

You can find out more about the Debt Respite Scheme on the Gov UK website.

Look at ways of boosting your income

An important part of tackling your debts is to work out a budget so that you know how much debt you can afford to repay each month but still have enough money for living expenses. Unless you do this, you are likely to continue to slip into further debt.

Also check whether there are any kind of benefits or allowances you are entitled to in your current situation. One thing to explore is whether your local council through their Household Support Fund. Each council runs their own scheme, but it may be able to help pay for essentials such as food, clothing or utility bills. You may also be able to claim a reduction in council tax.

To find out more about how your council may be able to help, get in touch with them. If you are not sure of their details, you can enter your postcode into the Gov UK local council finder.

Also investigate whether you might be able to claim any new benefits or increase your current benefits. There is a useful guide to benefits on the independent MoneyHelper website. Also take a look at one of the following benefits calculators:

What about the bailiffs?

One thing that terrifies many people when they are in debt is that bailiffs may visit. A bailiff is an enforcement agent who works on behalf of a creditor. It is possible that they may visit your home if you do not pay your debts, but you should be warned in advance by letter if this is going to happen. If you are warned that a bailiff might visit you it’s important to get advice as soon as possible from one of the organisations listed above.

If a bailiff does come to your home, you do not have to open your door or let them in. Bailiffs cannot enter your home by force, for example by pushing past you, unless as a very last resort to collect long-term unpaid criminal fines, tax or stamp duty. But they are not allowed to enter your home between 9pm and 6am or if only children under 16 or vulnerable people are in the home.

If a bailiff comes you have the option of paying them or offering to make weekly or monthly repayments. But if you can’t do this, and you have let them into your home, they may take some of your belongings. They are not allowed to take things you need – such as clothing, kitchen equipment, or work items – but can take luxury items, such as TVs or games consoles. If you do not let a bailiff in or agree to pay them they could take things from outside your home, for example your car.

Bailiffs are usually just sent in as a last resort, and by far the best thing is to avoid the prospect altogether by following the steps we have outlined above.

Insolvency

A final option to consider – if you honestly feel you have no prospect of paying off your debts and have taken advice – is personal insolvency.

There are three main forms of personal insolvency:

Bankruptcy

If you declare yourself bankrupt, an official receiver will be appointed to sell off your assets to go towards paying your debts. Depending on the scale of your debts, this is likely to include your house and/or car.

If you are bankrupt, any remaining debts will be written off. But the bankruptcy will show on your credit record for at least six years.

In England and Wales you have to declare yourself bankrupt online. It costs £680 but you can pay in instalments. There is a different process for Scotland and Northern Ireland.

Individual Voluntary Arrangement

An IVA – Individual Voluntary Arrangement – is an arrangement with your creditors made with the help of an insolvency practitioner to gradually repay some of your debts over a fixed period, for example five years.

Once the IVA is approved, all interest on unsecured debt is frozen. However, if you do not make the required repayments, the insolvency practitioner can then declare you bankrupt.

Debt Relief Order

If you have less than £30,000 in debt, and less than £2000 in savings or other assets, you may be eligible for a Debt Relief Order (DRO). You would need to apply for a DRO via an approved debt adviser.

A DRO normally lasts 12 months. During this time, you stop making payments towards the debts listed in the DRO, and after the 12 months, these debts are cancelled. A DRO will remain on your credit record for 6 years from the date it was approved.

You can find out more about Debt Relief Orders on the Gov UK website.

We hope that this article gives you some useful information about what to do if you can’t pay your bills, and where you can get further help if needed.

For more useful financial and lifestyle tips, visit us here again soon at Loans 2 Go.