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Cancel your debt management plan and go bankrupt

Cancel your debt management plan and go bankrupt

If you are facing many years of payments or you have additional debt which is not included, cancelling your debt management plan and going bankrupt may be a sensible option.

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Why go bankrupt rather than sticking with your debt management plan?

Although it may sound like something to be avoided at all costs, going bankrupt has a number of advantages over being in a debt management plan (DMP).

Most importantly, if you have no surplus income (nothing left over after your living expenses are paid) you do not have to make any further payments towards your debts.

This is a massive advantage if your are struggling financially.

If you do have a surplus income and can afford to make a small monthly payment, you would still have to do so. However these last a maximum of 3 years in bankruptcy compared to facing the prospect of paying your DMP “forever”.

You can also included a wider number of debts. If you have a CCJ, benefits arrears or even parking tickets, these are all included in bankruptcy. Debt owed to HMRC is also written off.

With bankruptcy, your credit rating is affected for 6 years. This is often shorter than a DMP where it does not fully improve until after your debt is paid.

How to go bankrupt if you are already in a Plan

It is possible to cancel a debt management plan at any time. It is not a legally binding agreement. All you need to do is stop making your monthly payments.

You can then go bankrupt whenever you like. There is no need to wait until you have missed payments, but if you are still paying, the official receiver will tell you to stop once you are bankrupt.

You may need to save up for the bankruptcy application fee. If so, you should stop paying your plan and save this money.

If your creditors contact you demanding payment, be honest. Tell them you are going bankrupt. Ask them to put your account on hold. Most if not all, will help you in this way.

You should list all your debts in your bankruptcy application. If you don’t know the outstanding balances, don’t worry. A guessed balance is fine.

What are the disadvantages of bankruptcy compared to a DMP?

Despite the benefits, going bankrupt is not sensible for everyone. There are some reasons you might want to avoid this option and stay in your debt management plan.

Windfalls received while you are bankrupt will have to be given up. Bankruptcy lasts 12 months, so if you are likely to get inheritance or a compensation payment within this time, you are probably best staying in your DMP.

Your car may be at risk. You can still have a car if you go bankrupt, but it must be worth less than £1000. If yours is worth more you might have to sell it and get a cheaper one (although there are some ways to avoid this).

Think carefully if you are a home owner. If so, bankruptcy is normally only an option if you have little or no equity. If there is a lot of equity in your home, sticking with your DMP may be a better option.

Don’t cancel your debt management plan and go bankrupt without getting expert advice. Call us on 0800 044 5407 or complete the form below and we’ll call you.

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