How UK Debt Repayment Plans Work: A Complete Guide to the Available Systems

When someone in the UK falls behind on unsecured debts, there are several formally recognised systems designed to structure repayment or, in some cases, discharge debts entirely. These range from informal arrangements managed by third-party providers to statutory insolvency procedures governed by primary legislation.

This guide explains what each system is, how it operates, who it applies to, and what rules and thresholds govern eligibility. It covers Debt Management Plans (DMPs), Debt Relief Orders (DROs), Individual Voluntary Arrangements (IVAs), the Debt Respite Scheme (Breathing Space), and bankruptcy. It also addresses the important differences between England and Wales, Northern Ireland, and Scotland, where separate rules apply.

This guide does not provide financial advice, recommend any particular course of action, or suggest which option may be suitable for any individual's circumstances. Debt advice and debt management activities in the UK are regulated by the Financial Conduct Authority (FCA) under the Consumer Credit sourcebook (CONC), specifically CONC 8, which applies to firms carrying on debt counselling and debt adjusting and includes rules on fee transparency and fair treatment.

There is no single "debt repayment plan" in the UK. Instead, the system offers several distinct mechanisms, each with different legal standing, eligibility criteria, costs, and consequences.

• A Debt Management Plan (DMP) is an informal, non-legally-binding arrangement where affordable monthly payments are shared among unsecured creditors. It has no fixed duration and no application fee, but creditors are not obligated to cooperate.
• A Debt Relief Order (DRO) is a formal insolvency procedure providing a 12-month moratorium, after which qualifying debts are discharged if the debtor's circumstances have not improved. It is free to apply for and is available in England, Wales, and Northern Ireland, but has strict eligibility thresholds.
• An Individual Voluntary Arrangement (IVA) is a legally binding agreement supervised by an insolvency practitioner, typically involving monthly payments over five to six years. It applies in England, Wales, and Northern Ireland.
• Breathing Space is a legal protection scheme that pauses enforcement action and freezes interest and charges for up to 60 days (standard) or longer (mental health crisis). It applies in England and Wales only.
• Bankruptcy is a formal insolvency procedure where assets are administered by a trustee for distribution to creditors. Automatic discharge typically occurs after 12 months. It costs £680 to apply in England and Wales.
• Scotland operates entirely separate statutory debt solutions, including Protected Trust Deeds, the Debt Arrangement Scheme, and sequestration (bankruptcy), each with different thresholds and rules.

Debt Management Plans (DMPs)

A DMP is a non-statutory agreement between a debtor and their creditors. Under a DMP, the debtor makes affordable monthly payments that are shared among unsecured debts. These plans are usually administered by a third-party provider, which may be either a fee-charging commercial entity or a free charity such as StepChange or similar organisations. Because a DMP is not legally binding, creditors are not obligated to freeze interest or charges, and they are not compelled to accept the proposed payment terms. A DMP has no fixed duration; it continues until debts are repaid in full or the arrangement is ended by either party. Free DMP providers apply all payments directly to debts, whereas fee-charging providers may allocate a portion of the monthly payment to their own fees, which can extend the overall duration. FCA rules under CONC 8.7 expect fees charged by DMP providers to represent fair value and to be spread appropriately, with providers expected not to front-load fees. Many debt advice bodies use a benchmark that at least 50% of each monthly payment should go to creditors, and that this proportion should improve after the first six months.

Debt Relief Orders (DROs)

A DRO is a formal insolvency procedure introduced under the Tribunals, Courts and Enforcement Act 2007 and governed by Part 7A of the Insolvency Act 1986. It provides a 12-month moratorium on qualifying debts. At the end of that moratorium, debts are discharged if the debtor's circumstances have not materially improved. DROs are administered by the Official Receiver, acting for the Insolvency Service. Applications cannot be made directly by individuals; they must be submitted through an approved intermediary working under a competent authority — typically a major debt-advice organisation or local advice body authorised for DRO work. The list of designated competent authorities is maintained by the Insolvency Service and may change over time. Since 6 April 2024, the DRO application fee has been abolished in England and Wales (previously £90). Northern Ireland abolished the fee from 17 June 2024.

Individual Voluntary Arrangements (IVAs)

An IVA is a legally binding agreement between a debtor and creditors, made under Part VIII of the Insolvency Act 1986 (sections 252–263). It must be supervised by a licensed insolvency practitioner who acts as nominee before approval and supervisor afterwards. The nominee must be qualified to act as an insolvency practitioner or authorised to act as nominee under Section 253(2) of the Insolvency Act 1986. Once approved, an IVA binds all creditors who were entitled to vote at the creditors' meeting, including those who did not vote or who voted against the arrangement (Section 260). This binding effect extends to contingent and future creditors at the date of approval, though certain debts such as maintenance, student loans, and fines are excluded from the binding effect. In most cases, IVAs involve monthly payments over a period of five to six years, though the duration is set in the proposal and approved by creditors. Some IVAs may involve lump sum payments or combinations of payment types.

Breathing Space (Debt Respite Scheme)

The Debt Respite Scheme, commonly known as Breathing Space, came into force on 4 May 2021 under the Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 (SI 2020/1311). It applies in England and Wales only. There are two types. Standard breathing space lasts up to 60 days and is limited to once per 12-month period per individual. A midway review is conducted at approximately day 25 to 35, and the breathing space can be cancelled early by a debt adviser or in certain creditor challenge circumstances. Mental health crisis breathing space lasts for the duration of the crisis treatment plus 30 days. It requires certification by an Approved Mental Health Professional (AMHP) that the individual is receiving mental health crisis treatment. A nominated point of contact confirms continuing treatment at 20- to 30-day intervals. There is no 12-month restriction on mental health crisis breathing space. "Receiving mental health crisis treatment" is defined as being detained in hospital for assessment or treatment under the Mental Health Act 1983, being removed to a place of safety by police, or receiving crisis, emergency, or acute care from a specialist mental health service.

Bankruptcy

Bankruptcy is a formal insolvency procedure governed by the Insolvency Act 1986. An individual's assets are administered by a trustee (usually the Official Receiver) for distribution to creditors. Automatic discharge typically occurs 12 months after the date of the bankruptcy order (Section 279), though discharge may be delayed if the debtor fails to cooperate with the Official Receiver or trustee. Discharge releases the debtor from most debts incurred before bankruptcy (Section 281), but some debts survive bankruptcy, including court fines, student loans, child maintenance obligations, and debts arising from fraud. The total cost to apply for bankruptcy in England and Wales is £680, comprising a £130 adjudicator fee and a £550 deposit. This fee can be paid in instalments, but the application cannot be submitted until the full amount has been paid. If bankruptcy is annulled, the £550 deposit may be refunded, but the £130 fee is retained.

DRO Eligibility Thresholds (England and Wales, from 28 June 2024)

The following thresholds apply to DRO applications made on or after 28 June 2024 in England and Wales.

• Maximum qualifying debts: £50,000 (increased from £30,000).
• Maximum total assets (excluding vehicle): £2,000.
• Maximum vehicle value (single domestic vehicle, disregarded from asset calculation): £4,000 (increased from £2,000). The vehicle must be for personal or family use.
• Maximum monthly disposable income (surplus): £75.
• Previous DRO restriction: The applicant must not have been subject to a DRO in the last six years.
• Residency requirement: The applicant must be domiciled in England or Wales on the application date, or have been ordinarily resident or had a place of business in England or Wales within the last three years.
• Additional disqualifications: An applicant is ineligible if currently bankrupt, subject to an interim order, or in an IVA.
• Application fee: £0 (abolished 6 April 2024).

Northern Ireland DRO Thresholds (from 8 July 2024)

Northern Ireland has separate but largely harmonised insolvency rules. The following thresholds took effect on 8 July 2024.

• Maximum qualifying debts: £50,000 (increased from £20,000).
• Maximum total assets (excluding vehicle): £2,000 (increased from £1,000).
• Maximum monthly disposable income: £75 (increased from £50).
• Application fee: £0 (abolished 17 June 2024).

The vehicle disregard limit in Northern Ireland was also increased to £4,000, aligning with England and Wales.

IVA Requirements

The debtor must be unable to pay their debts or have a reasonable prospect of being unable to pay (that is, be insolvent) under Section 253 of the Insolvency Act 1986. A licensed insolvency practitioner must act as nominee and subsequently as supervisor. The proposal must provide for the nominee to act as trustee or supervisor.

Breathing Space Requirements

The applicant must be domiciled or ordinarily resident in England or Wales (Regulation 6). Standard breathing space is limited to once per 12-month period. Mental health crisis breathing space requires AMHP certification.

Key Timelines

• DMPs are not legally binding. Unlike an IVA or DRO, a DMP is an informal arrangement. Creditors are not compelled to accept the payment terms, freeze interest, or halt collection activity. This is a frequent source of misunderstanding.
• DROs are not the same as bankruptcy. Although both are formal insolvency procedures with a 12-month timeline, they operate under different parts of the Insolvency Act 1986 and have very different eligibility criteria and costs. Bankruptcy costs £680 to apply for; a DRO is free.
• Breathing Space does not cover all debts equally. Universal Credit advances and third-party deductions from Universal Credit are excluded from breathing space protections. However, other benefit deductions (from Employment and Support Allowance, Jobseeker's Allowance, Income Support, and Pension Credit) must stop during the breathing space period.
• IVAs bind creditors who did not vote. Under Section 260 of the Insolvency Act 1986, an approved IVA binds all creditors who were entitled to vote, even those who did not vote or who voted against the arrangement.
• Scotland has entirely separate systems. Scottish residents do not have access to DROs, IVAs, or breathing space as described in this guide. Scotland operates Protected Trust Deeds (PTDs), the Debt Arrangement Scheme (DAS), and sequestration (its form of bankruptcy), overseen by the Accountant in Bankruptcy.
• DRO thresholds recently changed. The debt limit, vehicle allowance, asset limit, and application fee all changed in 2024. Information from before 28 June 2024 (England and Wales) or 8 July 2024 (Northern Ireland) may cite outdated figures.

• Debts Excluded from DROs. Certain categories of debt do not count as qualifying debts for DRO purposes. These include fines for criminal offences, obligations from family proceedings or maintenance assessments, criminal confiscation orders, student loans, damages for personal injury or death, and social fund loans. These excluded debts do not count toward the £50,000 threshold, but they must still be repaid. Creditors of excluded debts may continue enforcement during the moratorium period.
• Fraud-Related Debts in DROs. Debts incurred through fraud are counted as qualifying debts and therefore count toward the £50,000 threshold. At the end of the moratorium, the debtor is discharged from all qualifying debts specified in the order as the default position. However, fraud or criminal conduct related to the debts may still have separate legal consequences.
• Secured Debts. Secured debts cannot be included in DROs or IVAs without creditor consent. Security — such as mortgages, charges, or bills of sale — remains enforceable. Under Section 258(4) of the Insolvency Act 1986, an IVA cannot affect the rights of a secured creditor without their concurrence.
• Credit Restrictions During a DRO. During the moratorium period, it is an offence for a debtor subject to a DRO to obtain credit of £500 or more without disclosing their DRO status to the creditor (Section 251S, Insolvency Act 1986). It is also an offence to act as a company director or manage a business without disclosure.
• Surviving Debts After Bankruptcy. Bankruptcy discharge releases the debtor from most pre-bankruptcy debts, but certain debts survive. These include court fines, student loans, child maintenance obligations, and debts arising from fraud (Section 281, Insolvency Act 1986).
• Northern Ireland Implementation Dates. Although Northern Ireland has largely harmonised its DRO thresholds with England and Wales, the implementation dates differ. The new £50,000 debt limit, £2,000 asset limit, and £75 surplus income threshold took effect on 8 July 2024 in Northern Ireland, not 28 June 2024 as in England and Wales.

Each of these mechanisms operates within a distinct legal and regulatory framework, and they serve different functions depending on the nature, scale, and structure of someone's debts. A DMP is an informal tool. Because it is not legally binding, it offers flexibility — payments can be adjusted if circumstances change — but it also provides the least protection, as creditors remain free to pursue enforcement or continue applying interest. Free providers such as registered charities direct all payments to creditors, while fee-charging providers regulated by the FCA are expected to ensure fees represent fair value, are spread appropriately, and are not front-loaded. A DRO is designed for individuals with relatively low levels of debt, minimal assets, and limited surplus income. The 2024 threshold changes (raising the debt ceiling to £50,000 and abolishing the application fee) broadened access. However, the eligibility criteria remain strict: an applicant who exceeds any single threshold — assets above £2,000, a vehicle worth more than £4,000, or monthly surplus income above £75 — falls outside the scope of a DRO. The requirement to apply through an approved intermediary means individuals cannot self-refer. An IVA is a legally binding compromise supervised by a qualified insolvency practitioner. It is the only non-bankruptcy option that compels all qualifying creditors to accept terms, including those who voted against the arrangement. In most cases, this involves monthly payments over approximately five to six years, though terms vary. Breathing space provides short-term statutory protection. For a standard breathing space (up to 60 days), this means creditors in England and Wales must pause enforcement and freeze interest and charges on qualifying debts. Mental health crisis breathing space extends this protection for the duration of treatment plus 30 days. It is important to note that Universal Credit deductions are excluded from these protections. Bankruptcy involves the most significant consequences, including potential loss of assets and a £680 application cost, but also results in discharge from most debts after 12 months. The 12-month discharge period mirrors the DRO moratorium, but the two procedures differ substantially in eligibility, cost, and the treatment of assets. A DRO, IVA, and bankruptcy all remain on an individual's credit reference file for six years, which is standard across insolvency solutions.

• DMP: Informal, flexible, no legal protection. Creditors can still chase you.
• DRO: Formal, debts wiped after 12 months. Strict limits (£50k debt / £2k assets / £75 surplus). Cost: £0.
• IVA: Legally binding, 5-6 year repayment plan. Binds all creditors. Fees included in payments.
• Breathing Space: 60-day pause on interest/enforcement. England/Wales only.
• Bankruptcy: Assets sold, debts wiped after 12 months. Cost: £680.
• Scotland/NI: Have their own separate legal systems (e.g., Trust Deeds, Sequestration).