What is the main difference between a DMP and bankruptcy?
The main difference is that a DMP repays your debts in full over time, while bankruptcy writes most of them off. A DMP is an informal arrangement with no legal force; bankruptcy is a legal process that gives you protection from creditors but takes control of your assets and puts restrictions on you until you are discharged.
Because a DMP is informal, it is flexible: you can change the payment if your income changes, and you can stop at any time. Bankruptcy is a one-way door. Once a bankruptcy order is made you can't simply cancel it, and the consequences for your home, savings and some jobs follow automatically.
How a debt management plan works
In a DMP you make one affordable monthly payment, which is shared between your creditors in proportion to what you owe each one (pro rata). The payment is based on a budget of your income and essential spending, normally using the Standard Financial Statement, so you need some money left over each month – even a small amount.
- It covers unsecured, non-priority debts such as credit and store cards, loans, overdrafts, catalogues, buy now pay later and payday loans.
- There is no minimum debt and no minimum number of creditors.
- Creditors are asked to freeze interest and charges. Most FCA-regulated lenders usually agree, but they are not obliged to.
- It lasts until everything is repaid. There is no automatic write-off after a set number of years.
- Free providers such as StepChange, PayPlan and National Debtline can set one up, or you can run one yourself.
Priority debts – rent or mortgage arrears, council tax, energy arrears, court fines and child maintenance – need to be dealt with first because the consequences of not paying them are more serious. Read the full debt management plan guide for the detail.
How bankruptcy works
You apply for bankruptcy online to an adjudicator at the Insolvency Service. The fee is £680, which you can pay in instalments before you submit the application. There is no minimum debt if you apply yourself (a creditor needs to be owed at least £5,000 to make you bankrupt).
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Application and bankruptcy order
If the adjudicator agrees you can't pay your debts, a bankruptcy order is made. From then on, the creditors included in the bankruptcy deal with the Official Receiver rather than you.
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The Official Receiver looks at your finances
You must give full details of your income, assets and debts. The Official Receiver, or a trustee, can sell assets to pay creditors, and your bank accounts may be frozen at first.
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Income payments
If you have money left over after reasonable living costs, you may have to pay some of it to creditors under an Income Payments Agreement or Order, which can last 3 years.
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Discharge
You are usually discharged after 12 months and most of the included debts are written off. Some debts, such as student loans, court fines, child maintenance and most debts arising from fraud, are not written off.
See our full bankruptcy guide for how to apply and what restrictions apply.
What happens to your home, car and savings?
This is often the deciding factor. A DMP does not take control of anything you own. Bankruptcy does: your assets can be used to pay your creditors.
| Asset | In a DMP | In bankruptcy |
|---|---|---|
| Home you own | Not part of the plan (keep paying your mortgage – it's a priority debt) | Your share of the equity may be used to pay creditors, which can mean selling the home |
| Rented home | Not affected while you pay your rent | Not normally affected if your rent is up to date |
| Car or other vehicle | Not affected (finance agreements are separate) | May be sold if it's worth more than a reasonable amount or isn't needed |
| Savings and valuables | Not affected, though a creditor may ask you to use savings | Can be taken to pay creditors |
| Windfalls and inheritance | You can choose to use them to clear debts or offer settlements | Usually go to creditors if received before discharge |
Credit file, jobs and privacy
Credit file
Both options affect your credit file. In a DMP, accounts are usually marked as an arrangement to pay or as defaulted. A default stays on your file for six years from the default date and then drops off – even if some of the balance is still owed. Bankruptcy stays on your credit file for six years from the date of the bankruptcy order.
Public record
A DMP is private: it isn't on any public register. Bankruptcy is listed on the Individual Insolvency Register until you are discharged (longer if you are given a bankruptcy restrictions order), and may also be advertised in The Gazette.
Work and business
A DMP doesn't restrict you. While you are bankrupt you can't act as a company director without the court's permission, you must tell lenders you are bankrupt if you borrow more than £500, and some jobs and professional memberships have rules about bankruptcy. Check your employment contract or professional body's rules if this applies to you.
Which one suits your situation?
A simple test: could you repay all your debts in a reasonable time if interest were frozen? If yes, a DMP is usually the better route. If the honest answer is no – or you have nothing left to pay with each month – a formal solution such as bankruptcy or a debt relief order may be more realistic.
A DMP may suit you if:
- You have some spare income each month after essential bills
- You could clear the debts within a timescale you can live with
- You own a home or other assets you want to protect
- Your job or business could be affected by bankruptcy
- You want to keep the arrangement private
- Your income may go up, or you expect to be able to pay more later
Bankruptcy may suit you if:
- Your debts are far more than you could ever repay
- You have few assets and no equity in a home
- You don't qualify for a debt relief order (for example, debts over £50,000)
- Creditors are taking court action and you need it to stop
- Your job wouldn't be affected
- You can find the £680 fee, in instalments if needed
Example: how long would a DMP take?
If you owe £15,000 and can afford £250 a month, a DMP with interest frozen would take about 60 months (5 years). If you owe £40,000 and can only afford £100 a month, it would take more than 33 years – which is when a formal solution is usually worth discussing. You can check your own numbers with our debt repayment calculator.
Other options to consider
DMP and bankruptcy are not the only choices. Depending on your situation, one of these may be a better fit:
Debt relief order (DRO)
For debts up to £50,000, spare income of £75 a month or less and assets up to £2,000. No fee, and debts are written off after 12 months. See DMP vs DRO.
Individual voluntary arrangement (IVA)
A legally binding plan, usually lasting 5–6 years, after which the unpaid balance is written off. Often considered by homeowners. See IVA vs DMP.
Breathing Space
Up to 60 days' protection from most creditor action and most interest and charges while you get advice and decide.
Frequently asked questions
Is a DMP the same as going bankrupt?
No. A debt management plan is an informal agreement to repay your debts at a lower, affordable rate. It is not a form of insolvency, it does not go on the Individual Insolvency Register and no court or Official Receiver is involved. Bankruptcy is a formal legal process that writes off most debts but can affect your home, assets and some jobs.
Is a DMP better than bankruptcy?
Neither is better for everyone. A DMP usually suits you if you can repay everything in a reasonable time and want to protect your home and keep things private. Bankruptcy may suit you if you have no realistic prospect of repaying, few assets and no home equity. A free debt adviser can compare both with your actual budget.
Which is worse for my credit file, a DMP or bankruptcy?
Both affect your credit file. In a DMP your accounts are usually marked as an arrangement to pay or defaulted, and defaults drop off six years after the default date. Bankruptcy stays on your credit file for six years from the bankruptcy date and is also on the public Insolvency Register until you are discharged, so lenders tend to treat it more seriously.
How much does bankruptcy cost compared with a DMP?
Bankruptcy costs £680 to apply online, which you can pay in instalments before you submit the application. A DMP from a free provider such as StepChange, PayPlan or National Debtline costs nothing to set up or run. Fee-charging DMP companies exist, but their fees come out of your payments, so you would be in debt for longer.
Can I go bankrupt while I am on a DMP?
Yes. A DMP is informal, so you can stop it at any time and apply for bankruptcy, a debt relief order or an IVA instead if your situation changes. Many people start with a DMP and later switch when repayment becomes unrealistic. Speak to your DMP provider or a free debt adviser first so you understand what you might lose.
Will I lose my home if I go bankrupt?
You might. Your share of any equity in your home becomes part of the bankruptcy and may be used to pay creditors, which can mean the home is sold or a partner or relative buys out your share. If you rent and pay your rent, bankruptcy does not normally affect your tenancy. A DMP does not put your home at risk in the same way.
How much do creditors get back in bankruptcy?
It varies widely and there is no typical figure you can rely on. Creditors share whatever the trustee raises from your assets and any income payments, after the costs of the bankruptcy are paid. If you have no assets and no spare income, creditors may receive little or nothing. In a DMP, creditors are repaid in full over time.
Talk it through with a free debt adviser
Choosing between a DMP and bankruptcy is a big decision. Free, regulated advisers can look at your budget and explain every option – at no cost.