If you’re facing redundancy and worried about rising debts, what can you do? Here are some practical steps to help make redundancy a little less of a shock to the system.
What is redundancy?
Redundancy is a form of dismissal from your job. But unlike being sacked (which is dismissal because of something you have done or failed to do that breaches your employer’s rules) redundancy happens because the business needs to reduce staff numbers to help ensure it can keep trading.
Can my employer make me redundant?
Yes, but they have to do it in a fair and legal way. If they don’t you may be able to claim compensation for being unfairly dismissed.
If you’ve been employed for two years (the point at which you gain additional employment rights) you’ll want to check:
You haven’t been discriminated against: You can’t be made redundant because you’re pregnant, older (or younger) than many of those around you, or because of your gender, race, sexuality, faith or disability. Note, this doesn’t give you immunity from redundancy – but it does mean your age/race/gender/sexuality etc can’t be a factor in the redundancy.
Your redundancy is fair: You can’t be made redundant because you work part time or because you are a whistle blower. And without measurable data (e.g. lateness, sick leave etc) you can’t be unreasonably singled out from a pool of people who do the same job as you.
Your employer has consulted: If 20 or more people are being made redundant, your employer has a duty to consult you or your union about the redundancies.
What am I entitled to if I’m made redundant?
If you are told that you are going to be made redundant you will be entitled to:
- A notice period: This varies depending on how long you’ve been with the company –
- Between 1 month and 2 years: At least one week’s notice
- Between 2 and 12 years: One week’s notice per year worked
- 12 years or more: 12 weeks’ notice
If your employer doesn’t want you to work your notice, they can pay you for it instead.
- Time off to look for work: If you’ve worked with your employer for more than 2 years you will be entitled to some paid time off to look for work or to retrain.
- Redundancy pay: Not every job attracts redundancy pay, but if you are employed (as opposed to self-employed) and have worked with your employer for two years or more you will probably be entitled to a redundancy payment. Your contract may specify the terms of your redundancy pay. If it doesn’t you’ll get statutory redundancy pay.
How much redundancy pay will I get?
- Half a week’s pay for each full year you were under 22 and working with your current employer
- One week’s pay for each full year you were 22 or older, but under 41 and working with your current employer
- One and half week’s pay for each full year you were 41 or older and working with your current employer
- Wages: You’ll still be entitled to your regular wage up to the point your redundancy begins. This should include any bonuses or commission you are owed.
- Holiday pay: If you’re still owed holiday time and won’t be able to take the time off before you leave, you should be paid for this instead.
I’ve been furloughed. Will I be made redundant?
Not necessarily. Furloughing effectively puts your job ‘on hold’. During the pandemic, employers placed staff on furlough because lockdown removed many business’ customers. You can’t run a gym, restaurant or clothes shop, for example, if customers aren’t allowed to enter the building.
So the government launched the Coronavirus Job Retention Scheme (later replaced by the Job Support Scheme) to give businesses financial support to help them stay in business. Part of that support was paying part of their employees’ wages.
If your employer is able to resume trading at something like pre-Covid levels, you may well find your job is safe. If your employer cannot trade because, for example, the pandemic has meant that your sector may be out of action for a long time (e.g. events, theatre, cinema), or because you face repeated local lockdowns, being put on furlough may lead to being made redundant.
How do I prepare for redundancy?
If you’ve been made redundant – or you believe redundancy is likely – don’t put your head in the sand. The quicker you act, the better your situation will be. Follow these steps:
Reduce your spending
Cutting back on spending will lower your outgoings, which means any redundancy payment will stretch further, giving you more breathing space to find a new job.
Make a list of all your outgoings:
- Some you’ll need to keep (e.g. mortgage, gas, electric)
- Some you may face penalties for stopping (e.g. mobile phone, Sky TV etc). Don’t stop these for now.
- Some you may be able to stop without penalty (e.g. Netflix, Amazon Prime, after school clubs, holiday saving fund). Stop these for now.
- Some you may be able to reduce without penalty (e.g. if you’ve been paying more than the minimum payment off your credit card each month, reduce this for the time being).
Press pause on payments
There’s never a good time to be made redundant, but the pandemic has at least meant that more organisations are better geared up to offer some valuable help right now.
So for all those monthly payments you can’t simply cancel, call the lenders and explain your situation. Many are likely to be able to offer some help, which will probably fall into one of three arrangements:
- Payment holiday: The lender will offer to pause payments for a period of months, spreading the missed payments over the remaining term of the loan, or simply extending the term by the length of the payment holiday. We’ve seen both arrangements from mortgage lenders, loan and credit card companies.
- A short break: Here, the lender will offer to briefly pause payments, but may need you to catch up the missed payments quickly. Some local authorities have offered this sort of arrangement for Council Tax arrears.
- Renegotiation: The lender will offer to renegotiate your arrangement, extending the term of your loan to reduce your monthly payments.
In the face of redundancy, the first of these is likely to be the simplest and most effective for you. Before you agree to any of the above, however, check whether your credit rating will be affected by pausing payment.
Initially, agree to the payment holidays that won’t affect your credit rating. You can always accept the others later (if you really need to) although you’ll also have to accept that your rating will be damaged for a few months.
Up your income
Once you’ve driven down your outgoings it’s time to try and drive up the money coming in.
If you (or you and your partner) have less than £16,000 in savings and you are out of work or on a low income, you may be entitled to Universal Credit (UC). Bear in mind that your redundancy pay will be included in the assessment.
It’s vitally important that you claim everything to which you are entitled. Don’t miss out on benefits because you:
- Don’t think you’ll be eligible
- Don’t want the hassle of claiming
- Feel uncomfortable claiming benefits
Now might also be the right time to sell some of the clutter you’ve been meaning to get rid of for years.
What happens if I’ve already had a payment holiday?
Mortgage lenders have been offering two payment holidays of up to 3 months each, but they can’t maintain that arrangement forever. So if you’ve used up your payment breaks and holidays, move to the next phase of asking your lenders for help. Talk to them about a token payment plan (TPP).
What is a Token Payment Plan?
A TPP is designed to be a short term arrangement for people who suffer a major change in their finances but who expect that change to be temporary.
You offer to pay each creditor £1 per month. They (usually) agree to this for what the Financial Conduct Authority describes as a “reasonable” period.
What can I use a TPP for?
You can only use this for non-priority debts. So you can’t use it to pay your mortgage, Council Tax, gas, electric etc. But you could use it to pay credit card lenders, loan providers, catalogue debts and more.
Should I use a Token Payment Plan?
Stay on a TPP for more than a few weeks and it will affect your credit rating. And, of course, £1 is never going to pay off your debts. So the best way to use a TPP is as a short break to give you breathing space. It’s especially useful if you know your situation is likely to improve.
If, for example, you have another job lined up but you’re not due to start for a couple of months, a TPP could help you over that gap, ensuring there’s enough money to pay your priority creditors.
To be sure it’s the right course for you.
How do I pay my mortgage if I’m made redundant?
- Talk to them about a repayment holiday if you haven’t already had 2 of them.
- Tell them you need some help. They may be able to extend the term of your mortgage or switch your mortgage type (for example, making it interest-only) so that you can reduce the monthly payments.
If you have some savings or have received a significant redundancy payment you may find this is enough to help manage your mortgage payments until you can get back into work. If you’ve found yourself with no income and next to no redundancy payment, you may need to explore other options (see below).
Should I pay off my debts with my redundancy money?
That depends on several factors:
- The size of the redundancy package
- The size of the debt
- The cost of the debt
- The type of debt
It’s important to ensure you have enough money to live on, but it may be wise to pay off some debts if your redundancy package is large enough to leave you with plenty of ‘wiggle room’ once you’ve made the payments. In particular, look at clearing the most expensive debt (that is, the debts with the highest interest rates). Payday loans, store cards and credit cards will often top this list.
If you’re not sure whether to save or pay off, keep your money safe in case you need it. The most expensive debts also tend to be non-priority debts, so there are other ways to deal with these (see above and below).
Should I take out more credit to pay redundancy debts?
Generally no, but there are exceptions. If you have a job lined up and are due to start soon, building a few additional debts now that you know you will be able to pay off could be enough to keep things ticking over without damaging your credit rating by missing payments.
Remember, however, that using up lots of available credit could do just as much damage to your rating.
If you are starting to look for work and don’t know when that search will end, avoid building any more debts. Look at temporarily reducing or stopping payments using the methods explored above.
If I can’t afford to pay my debts, what are my options?
If redundancy leaves you unable to pay your outgoings there are a number of ways to write off debt. By acting before charges, interest rates and demand letters mount up, you could save an awful lot of stress and worry (and money).
Which options are right for you depend on:
- Whether you live in England or Wales, or Scotland
- Whether you have a regular income
See below for your options;
Debt Management Plan
- Available in England, Scotland & Wales
- Can only be used to pay unsecured debts (that is, any debt not secured against your property, such as a mortgage)
- You’ll make one affordable monthly payment (but you do need to be able to make that payment each month)
- Creditors may reduce or stop interest and penalty charges (although they don’t have to)
- Creditors may cease taking action against you (although they don’t have to)
Debt Arrangement Scheme
- Available in Scotland
- Like a Debt Management Plan, but will stop creditors from taking further action against you or making further interest and penalty charges
Individual Voluntary Arrangement (IVA)
- Available in England and Wales
- The total debt must usually be at least £5,000 owed to at least two creditors
- Usually lasts for 5 years
- Covers most debts (personal loans, credit cards, council tax arrears overdrafts, catalogue debts and more) but not all. It doesn’t cover mortgages, court fines, student loans, child support arrears or HP agreements
- You’ll need a regular income (or assets that can be used to raise the money)
Scottish Trust Deed
- Available in Scotland
- The total debt must be at least £5,000
- Usually lasts for 4 years
- Covers most debts (personal loans, credit cards, council tax arrears overdrafts, catalogue debts and more) but not all. It doesn’t cover mortgages, court fines, student loans, HP agreements and other secured debts
- You’ll need a regular income not from benefits (or assets that can be used to raise the money)
- Available in England, Scotland & Wales (known as sequestration in Scotland)
- The total debt must be at least £5,000
- May be an option if you don’t have a regular income or savings
Some of these options are known as ‘formal routes’. That is, you can’t arrange them yourself – you’ll need to go via an Insolvency Practitioner. But you shouldn’t pick any of these routes to writing off redundancy debt without first talking to a debt adviser.
Talk to us now, and start worrying less about your debt.
Trust Deed Example
Example Unsecured Debts
|2||Credit card 1||£6,812|
Your Monthly Repayments Would Be
a Scottish Trust Deed £748
(total contractual repayments)
a Scottish Trust Deed £295
(total contractual repayments)
* Subject to creditor acceptance
* Payment subject to individual circumstances
* Credit rating may be affected
* Fees apply, subject to individual's circumstances. For more information on our fees click here