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Case Study

A severely disabled Wales man was helped to make a successful application for a Debt Relief Order. This meant that a 12-month moratorium was applied to the £13000 of debt included in the order - no payments can be made by him, or even collected by his numerous creditors, during this time. Additionally no other interest charges or fees will accrue. As his financial situation is unlikely to improve during the short term it is probable that these debts will be written-off in March of next year.

Our staff are trained in finding the very best debt solution for YOU! Our expertise extends to informal creditor arrangements such as token or pro-rata payments, and also formal arrangements such as Bankruptcy and Debt Relief Orders.

In dealing with any debt situation it is always useful to prepare a Personal Budget sheet. This should identify areas in which your income may be maximised and also areas in which household expenditures may be reduced. It will also identify what disposable income, if any, is available to help you to repay your debts.

Budget sheets are available here - http://debtsupportunit.org.uk/resources/Personal%20Budget.pdf

DEBT STRATEGIES: The following gives basic information in respect of various options which may be available to you. The right solution will often be variable… it will normally depend on disposable income which is available to service current liabilities and also – perhaps – any assets. It is important to seek advice as to the most suitable solution for YOU!

Ask creditors to write off your debts – this is normally only suitable if your Personal Budget shows that you have no money available to offer creditors and it is unlikely your financial circumstances will improve. If, for example, you are retired or have a long term disability it may be best to ask creditors to write off your debts.

Be warned though that it is unlikely that creditors will write off large debts if you own your home as they will normally regard your home as an asset from which payment could be obtained. It is also unlikely you will be able to get priority debts written off – only credit debts. Creditors do not like writing off debts so you will have to convince them that you are never going to be able to pay.

Always send a copy of your Personal Budget and explain in detail about your personal circumstances. It is always useful to enclose any relevant medical evidence which shows that your circumstances will not improve.

Negotiate affordable payments with creditors - your Personal Budget will help you to work out how much you can afford to offer creditors. You need to consider how long it will take you to repay your creditors at the rate you can afford. If it is likely to take many years it may be worth considering other options.

You first of all need to negotiate affordable payments with priority creditors. This can sometimes be done by telephone but, if the creditor won’t agree to the offer you have worked out, send them a copy of your Personal Budget to show them you can’t afford more. If your Personal Budget shows you have some money left over after essential expenses and priority debt payments, you will need to distribute this amount up between your other creditors. The way to do this is called ‘pro-rata’ - divide each credit debt by the full total of your credit debts and then multiply this figure by the monthly amount available for all of your credit debts.

Offer nominal monthly payments to creditors - if your Personal Budget shows that you have no money available to offer your creditors - but your circumstances may improve - it is often best to make a nominal, or token payment, offer to your creditors; these are normally £1 per month.

This strategy is particularly useful if you feel that your finances may improve over time. Another advantage may well be that creditor’s ‘freeze’ their account and then stop adding additional fees, interest and charges. Recovery action is normally frozen so that the regular phone calls and letters may stop… this, for some of our clients, is more important that the financial factor itself.

If you feel that this option is right for you it is important to send all creditors an up-to-date copy of your Personal Budget which demonstrates to them that you can only afford a token payment each month. Most creditors will normally require a ‘review’ after 6 months, or 12 months.

Debt management plans - There are many companies which will negotiate reduced payments on your credit debts, and also administer monthly payments on your behalf. You make one monthly payment to the service provider, which is then distributed to creditors. Be warned that these companies will normally provide very limited advice on priority debts. Also, these companies obtain income from the money they recover on behalf of your creditors… they are not independent and you should not rely on them for the best advice about dealing with debt more generally. However, if you have decided that a debt management plan is the right option for you, they can provide a very useful service.

We do not usually recommend using fee charging debt management companies as you can obtain the same kind of service from charity-type organisations free of charge. We are more than happy to make any necessary arrangements in respect of referrals.

Debt relief orders – a form of insolvency for people who have relatively low liabilities, little surplus income, and few assets. Some Debts cannot be included within the DRO - these include court fines, student loans, and child maintenance.

A DRO provides for a one year moratorium on all payments. After this time your debts will be written off unless your personal financial circumstances have improved significantly.

You may be able to apply if:-

The total of your ‘qualifying debts’ is not more than £20,000.
You do not own your home or have gross assets of more than £1000. A domestic vehicle up to the value of £1000, and essential household items don’t count towards this limit.
You do not have more than £50 per month left over after paying your normal household expenses.
There is a £90 fee to apply for a DRO and the application has to be made online by an ‘approved intermediary.’ DRO’s are growing in popularity as they can provide a simple remedy for clients with debts, and at relatively low cost. Please make contact with the centre if you feel that a DRO may be the right debt strategy for you.

Bankruptcy – this may be worth considering if you have large debts, and it would take you a very long time to pay them off.

In bankruptcy a ‘trustee’ - usually the Official Receiver - is appointed to deal with your financial affairs. Your creditors will stop chasing you for payment. They will make any further claims to the trustee who will normally interview you to see if you have any income or assets that could be used to raise money for creditors. Bankruptcy requires very careful consideration as its implementation can have very serious implications.

Always consider the following points: -

1] If you own your home there is a strong possibility that this would have to be sold. If you rent your home, there is not normally a problem although this may depend on who your landlord is and what it says in your tenancy agreement.

2] Basic household belongings and tools of the trade should not be taken. If you own a car this could be sold if it is not needed for work or certain other essential purposes. If it is worth more than the cost of a reasonable replacement the Official Receiver can sell it and leave you with enough to buy a more modest vehicle.

3] Your employer may find out that you have gone bankrupt so you need to consider whether bankruptcy might affect your employment in any way. Check your contract of employment or speak to any staff welfare officer or trade union.

4] The trustee can ask that you continue to make monthly payments from your income. They will generally do this if you have money left over after you have paid all your household bills and living expenses. If you do not reach agreement as to how much should be paid, the trustee can apply to the County Court for an order. Any income payment arrangement, or order, would normally last for three years.

5] Your bankruptcy will be registered with credit reference agencies and remain on file for six years from registration. This will make it difficult for you to get credit from most lenders.

6] Any bank accounts you have when you go bankrupt may be frozen. You may need to open a fresh basic bank account after the order has been made.

7] You will need to pay an application fee of £130 and a deposit of £550 in order to submit your application to go bankrupt. Bankruptcy can be expensive!

A Bankruptcy Order can have very serious implications, we strongly recommend that you seek advice before going ahead with any application.

Individual voluntary arrangements - if you have a significant amount of money to offer your creditors by way of installment payments and/or lump sums, you may be able to obtain an individual voluntary arrangement (IVA). This can provide release from your debts after a specified period of time – usually five years. An IVA is a useful way of making a fresh start whilst avoiding some of the drawbacks of bankruptcy.

IVA’s are supervised by licensed insolvency practitioners who make their profits by setting up and administering IVA’s. You should never rely on them to provide you with the best advice in respect of your debts. Always seek independent advice about an IVA before signing one!

We cannot recommend specific insolvency practitioners but we can make referrals to partner agencies who can act on your behalf if you feel that an IVA provides the best debt solution for you.

Whatever your circumstances, and whatever your preferences please remember that it is always important to seek advice as to what is the most suitable solution for YOU!


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