What Happens If You Can’t Pay Your Debts in the UK | DebtShift

The letters are piling up. You’ve done the numbers three times. They still don’t work. You genuinely cannot pay.

That’s not a character flaw. It happens to millions of people every year — redundancy, illness, a relationship ending, costs that just kept climbing until the maths stopped working. What matters now is what you do next.

Here’s what actually happens when you can’t pay your debts — and every real option you have.

What creditors can and cannot legally do

When you stop paying, creditors don’t have unlimited power. They have specific legal tools — and specific lines they cannot cross.

What creditors can legally do:

• Contact you by phone, letter and email
• Add default charges and interest
• Register a default on your credit file after 3–6 months of missed payments
• Pass the debt to a collection agency
• Apply to court for a County Court Judgement (CCJ) — there’s no minimum debt amount required to do this, so even a small balance can technically end up in court, though creditors usually don’t bother below a certain point since court fees make it uneconomical for tiny sums

What creditors cannot legally do:

• Visit your home without prior arrangement
• Threaten you with prison for consumer debt — this is illegal
• Take money from your wages without a court order
• Contact you at unreasonable hours or with excessive frequency designed to intimidate
• Pretend to have legal powers they don’t have

If a creditor or debt collector crosses any of those lines, that is a breach of FCA consumer credit rules. You can report it to the Financial Conduct Authority and the Financial Ombudsman Service. Use our Know Your Rights tool to check exactly what collectors can and can’t do in your situation.

The first thing to do — contact your creditors before they escalate

A woman once called StepChange after months of ignoring letters, convinced nothing could be done. The adviser called her creditor while she was on the line. Within 20 minutes, her account was on a 3-month payment pause with interest frozen. She’d been dreading that call for four months.

Most lenders have hardship teams. They deal with this every day. A temporary payment pause, a reduced payment arrangement, or a temporary interest freeze are all genuinely possible — but only if you ask before the account goes to collections. Once it does, those options largely disappear.

You don’t need a script. You just need to say: “I’m experiencing financial difficulty and I’d like to discuss a payment arrangement.”

Get free debt advice — before making any decision

Before you decide anything about your debt — speak to a free debt adviser. Not a paid one. A free one.

You have access to some of the best free debt advice services in the world. StepChange, Citizens Advice, National Debtline, and Debt Advice Foundation all offer free, confidential, impartial advice. They are not trying to sell you anything.

A debt adviser reviews your full picture — all your debts, your income, your essential outgoings — and tells you exactly which option is right for your situation. This takes about an hour. It is genuinely the most important hour you can spend right now.

Also use our What Happens If I Stop Paying Debt tool to understand the specific consequences for your type of debt before making any decision.

Your legal options when you can’t pay

There is no single right answer — the right option depends on your total debt, your income, your assets, and how long you’ve been struggling. Here’s what each option is and who it suits. One distinction worth making early: there’s a real difference between genuinely can’t pay and choosing not to. The formal options below exist for people who can’t. Creditors and courts treat “won’t pay” very differently, as the imprisonment section further down makes clear.

Breathing Space — 60 days of legal protection

Best for: Anyone who needs immediate breathing room without creditor pressure while they get proper advice.

The Breathing Space scheme (officially the Debt Respite Scheme) gives you 60 days of legal protection from creditor action. Interest and charges are frozen. Creditors cannot contact you. Enforcement is paused.

You apply through a debt adviser — not directly. It takes a few days to set up. It is not a solution to your debt. It is time — time to get proper advice and make a real plan without a creditor calling every day.

There is also a Mental Health Crisis Breathing Space for people receiving mental health crisis treatment. This has no fixed time limit — it lasts for the duration of the treatment plus 30 days.

Debt Management Plan (DMP) — one affordable monthly payment

Best for: People with a regular income who can afford to pay something — just not the full amounts being demanded.

A DMP is an informal arrangement where you make one monthly payment to a debt management organisation — StepChange offers this completely free — who distributes it proportionally to your creditors.

Creditors are not legally required to accept a DMP. But most do, and many freeze interest and charges while you’re on one. Your credit file will show the arrangement. It doesn’t write off debt — it restructures repayment at a pace you can actually afford.

A DMP has no debt limit and works for any amount. The downside: if your debts are large and your affordable payment is small, it can take years.

Debt Relief Order (DRO) — designed for low income and low assets

Best for: People with under £50,000 of debt, under £2,000 in general assets, and under £75/month disposable income after essential expenses.

A DRO freezes your debts for 12 months. If your situation hasn’t improved after those 12 months — the debts are written off completely.

The eligibility criteria are strict. Total qualifying debts must be under £50,000 — this was raised from £30,000 in June 2024, so it’s worth checking again if you were told you didn’t qualify before then. General assets (savings, valuables, shares) must be under £2,000. A single vehicle is treated separately and doesn’t count toward that limit as long as it’s worth £4,000 or less. Disposable income after essential expenses must be under £75 per month. You also cannot have had a DRO in the last 6 years.

A DRO is free to apply for — the £90 application fee was scrapped in April 2024. One of the only formal debt solutions accessible to people on very low incomes, and now genuinely free at the point of use. You apply through an authorised intermediary — not directly to the Insolvency Service.

Check whether you qualify using our Bankruptcy & DRO Eligibility Checker.

Individual Voluntary Arrangement (IVA) — legally binding with your creditors

Best for: People with a regular income, over £10,000 of debt across multiple creditors, and who can afford a fixed monthly payment.

An IVA is a legally binding agreement between you and your creditors, managed by a licensed Insolvency Practitioner. You pay a fixed monthly amount for typically 5 years. Any remaining debt at the end is written off.

Here’s the detail most guides get slightly wrong: creditors holding 75% of the debt by value of those who actually vote must approve the IVA — not 75% of your total debt overall. If a creditor doesn’t respond, they’re simply left out of the calculation entirely. This has a real practical consequence: if you have one creditor holding more than 25% of your total debt, they effectively have veto power on their own, provided they’re the one who shows up to vote against it. Once approved, all creditors are legally bound — even those who voted against it or never voted at all.

Important: IVA fees come out of your monthly payments, not on top. But they are significant — typically £3,000–£5,000 over the life of the arrangement, paid to the Insolvency Practitioner before creditors receive anything. This is why free debt advisers sometimes recommend DMPs or DROs where someone qualifies — the outcome can be similar without the fees.

Bankruptcy — not the catastrophe it’s made out to be

Best for: Large debts with no realistic prospect of repayment, or where assets need to be formally dealt with.

Bankruptcy in England and Wales is not the life-ending event most people fear. You apply online through the Government’s Insolvency Service for £680. Once approved, most unsecured debts are written off. The process typically lasts 12 months, after which you are discharged and the debts are gone.

The consequences are real: your credit file shows the bankruptcy for 6 years, you may lose non-essential assets, and some professions restrict bankrupts from practising. But for people with no assets and no realistic path to repayment — bankruptcy can be the fastest, cleanest route to a fresh start.

What bankruptcy cannot clear: student loans, child maintenance, court fines, and debts arising from fraud.

For a full breakdown of how each option compares, visit our debt payoff planning guide.

Frequently asked questions