When someone goes into debt, for instance by taking out a loan or mortgage or making purchases using a credit card, they do so on the understanding that they'll pay off the debt according to terms outlined in a contract they sign. However, not everyone is able to pay off the debt they accrue. When this happens, debt and bankruptcy law helps people deal with the debt in a way that does not put undue hardship on them, but is as fair as possible for the creditors.

Legal Options for Dealing with Debt

When someone has debts they can’t repay, their options for managing the debt depend in part on how much they owe, and on what kinds of debts they have. In some cases, the value of any assets they own may also be a factor. Debt management options include a debt management plan, individual voluntary arrangement, court order, or bankruptcy.

Debt management plan

In a debt management plan, your creditors agree to accept a reduced monthly payment, either temporarily or until the debt is paid. If you’re in debt you can talk to your creditors to arrange the plan or get help from a solicitor or debt management company.

Individual voluntary arrangement

A trained insolvency expert helps you come up with a plan for paying off the debt within five years. For the arrangement to be put into action 75% of your creditors have to agree to it.

Administration Order

An administration order applies if a court judgement orders you to pay your creditors, but you can’t afford the full amount. The administration order collects as much as you can afford to pay each month, to give to your creditors.

Debt relief order

A debt relief order is for people with few assets and little discretionary income, who have less than £20,000 in debt. Under the debt relief order the debt can be written off after a certain period of time.


Generally bankruptcy is considered a last resort when other options either aren’t practicable or don’t apply. When someone is declared bankrupt, their assets are shared between their creditors, and they must then abide by certain financial restrictions for 12 months.

Bankruptcy Resources

Citizens Advice - you can learn more about bankruptcy on the Citizens Advice website.


If any students wish to contribute to this section or add relevant subsections related to bankruptcy and the processes involved please do so through the university portal by updating Resource No.00032.