Northern Rock, Repo shortfall, what happens next?

[itshouldhavebeenme]

Hi everyone,

Been reading through the forum over the past few days now and I must say that its comforting to know that there are plenty of people out there suffering the same as we are.

We have spoken to a number of IP experts over the past 2 weeks or so as we were not sure whether to consider BR or IVA, I have to say everyone seems to be compassionate, friendly and really helpful, which makes such a difference in a sensitive situation and felt that we should share our experience as our situation is not straight forward.

After much deliberation now we have decided that IVA is the best way to go as myself and wife own a very small, young limited company in which we have put our life and soul in to, we are in the automotive finance market, as im sure you will appreciate, its been hard enough to keep things going as it is, let alone with the added frustration that the credit crunch has to offer, we have seen our personal income tumble as the situation worsens.

Our mortgage is currently with Northern Rock and we have been with them for over 10 years now and been very happy, renewing our deal every 2 years with them like clockwork.

I must mention at this point BTW, that we have NEVER missed a payment for ANYTHING, not ever a credit card, but our situation is that serious now that we have to take action NOW and not be concerned in protecting our A1 credit history, its got that bad!.

The problem is that we are completly trapped, as we cannot transfer our mortgage to another lender as lenders will take us on, not because of our credit history, which as mentioned is excellent, but down to the loan to value [LTV] our house now represents which is 95% - 100% in todays market.

Our deal with NR has now come to an end [Sept 1st] and our payments have jumped form £1400 per month to a massive £2100 per month and this is just for interest only, this coupled with the downturn of business our company is now producing and its "double whammy" as we feel it from both sides!

We currently owe NR approx £338K and also have an additional £40k secured loan which has only recently been taken out this year to consolidate some other debts [car HP and other loan] we never thought that we wouldn't [a] get another deal or that lenders would not offer enough to settle existing mortgage.

We realize now that we are just fighting a loosing battle, Northern Rock just don't want to know! [what happened to appreciation for customer loyalty] they just say that they will start legal proceedings once we go 2 months in arrears, hang on a minute we haven't even missed a payment yet and I only called for advice, talk about "crack a peanut with a sledgehammer"!!!

I just get the feeling that they just want to "cash out" they are desperate to get money in to the pot to feed their hungry and demanding investors and also keep the government happy, even if it means loading potential neg equity shortfalls on to desperate people like ourselves, effectively compounding our problems!

Anyway, to complete our financial picture, our total unsecured debts are currently approx £60K [4 credit cards and 3 personal loans] if we do end up handing the keys back to NR, voluntary or not, what would happen to both the £40K Secured loan [the house probably wouldn't even pay back NR never mind the secured loan company] and the neg equity shortfall with NR, could and would this be added to our IVA?

Also, do we just not pay NR, the Direct Debit has now been cancelled or do we part pay them to keep them sweet for the time being?

Also, at what point do we commit to rented accommodation?, we have identified a couple of potential properties today, but is it too early?

Really sorry to waffle on here, but I wanted to share a more complete picture of our situation with you all, in order to make it a little easier for anyone to give advice or their opinion.

I would also be really interested to hear from anyone else experiencing a similar situation to ourselves, either at the moment or historically and if so what was their outcome??

Your help, advice and direction, would really be appreciated.

Thanks so Much in advance

M

[kallis3]

If you are going to be losing your house, either voluntarily or otherwise, I would look into rented accommodation now, whilst your credit rating is still good.

As far as I am aware, once your house is gone, any secured debts (loans and mortgage shortfall) become unsecured and can be included in an IVA.

I can't help you with whether or not you should carry on with your mortgage or other payments.

I'm bumping this back up so that one of the technical experts will see it, and hopefully give you a fuller answer.

[ianmillington]

I think it is fair to say firstly that if your mortgage payments are going to be as high as £2100 per month then it will be very difficult to get the creditors to accept an IVA with that obligation still ongoing. The house will either have to have gone, or be part of the game-plan, I suspect.

As Kallis mentions absolutely correctly, it will be better for you, if you are going to rent, to investigate this before you enter the IVA, as you will have more options.

The nature of your income, ie you are in business rather than in employment, means that your IVAs will not be straightforward and will be different from the typical consumer IVA in a number of respects. For a start, it will be necessary for Profit and Loss projections to be done for the limited company so as to demonstrate that it can support your income requirements - it won't be sufficient for example for you to simply produce payslips. Additionally, the proposal itself will be more complex as it will need to take account of the company's obligations under the Tax and VAT legislation etc. For this reason the company's accountants will need to be on board as they will be the ones who are best placed to help with the projections. The fact that the company is young makes these issues all the more crucial.

Bankruptcy will make it an offence for you to be a director or involved in the management of a limited company unless you get a Court Order allowing the present one as an exception to that rule. Needless to say, that requires exceptional circumstances. Given that Bankruptcy will almost certainly destroy your fledgling business, you will need to fully consider the IVA first.

Because you are in business the regulatory bodies will require the IP you select to meet with you face to fully discuss these issues. Run a mile if the IP firm says they can't offer you a free meeting or claim to be able to deal with you over the phone. They can't and it simply means that they are not equipped to deal with a case like yours. If it means you taking half a day off work to make that meeting (as it's likely to take a couple of hours)then you need to do it and you will find it to be well worth your while.

Ian

[jane.l]

Its a tough call because of your business, but we were in a similar
postion, we decided that if we were going to lose our house anyway, we may as well go bankrupt, it was better for us financially, we had no job or house to protect.

Our old house has now been sold, it has not even realised enough to pay the mortgage, (NR) never mind the secured loan and there is also selling costs, legal fees, interest, etc.

You have to really research whatever you decide to do and what is best for you

[MelanieGiles]

I completely endorse the comments of Ian above - and from my own experience of dealing with creditors can confirm that a fresh start away from that burdensome mortgage is probably the best way forward. If this leaves a residual sum payable to Northern Rock, this will need to be taken into consideration as well as your other creditors.

Choose an IP firm which specialises in self-employed cases, and has recent experience of dealing with Northern Rock as they do have various criteria that they look for within IVA proposals.

As you are running a limited company, do check to see whether you have personally guaranteed any of the company's debts which would be quite normal if the company has only been trading for a short time. These would need to be included within your IVA proposal as contingent liabilities.

Good luck in your search, and do not hesitate to ask away on the forum and benefit from the experts own experiences.

[itshouldhavebeenme]

Hi again,

Thanks so much for the comments from all of you.

I have to say that if I was apprehensive before about going ahead with an IVA, I am even more apprehensive now.

I think the problem is that I really want to protect my company so much, not just in the interests of continuing to trade, but its the embarassment of having to tell my company bank and accountant firm whats going on in my personal life [we have known them persoanlly for a long time].

I know it may sound strange, but the company is the most important thing in this really, as it is this that gives us our income, albeit that its a little depleated at this moment due to the market, but nevertheless its all I know so we have to strive to keep it going through these difficult times and get through them.

BR is not an option for us [although I obviously wouldnt tell my creditors this!] as its far to damaging for my business, we just cannot go there.

Assuming that I did hand the keys back to NR and my application for an IVA was rejected, what then? surely the creditors have to agree some sort of arrangement, dont they?

Cheers for your continued advice
M

[kallis3]

If an IVA was rejected, you could try a Debt Management Plan, but the creditors don't have to agree to it, and there is no guarantee that they will stop interest and charges from going onto the accounts.

It will also take much longer to clear.

[MelanieGiles]

Your creditors will choose whichever route they feel gives them the best return - and if an IVA is presented for you properly there should be no reason why it would not be accepted.

You clearly have a lot of issues to deal with, and to consider, and a number of options available to you which will have their own advantages, disadvantages and implications - but what will not change is the fact that you have unaffordable debts which need to be dealt with in some shape or format.

I would recommend a chat directly with an insolvency practitioner at an early stage to find out more about the options and how they will fit into your circumstances and importantly how each one can set you on the right road for the future.

[ianmillington]

Basically the prospects of an IVA working, particularly in a case such as yours, are directly proportionate to the amount of time, planning and thought given by all parties that has gone into it.

Circumstances such as yours are precisely what the IVA mechanism was originally intended for- business rescue.

Make sure you get the face to face meeting with the IP and thrash out all your concerns on a confidential basis first - before you tell anyone of the situation or do anything that cannot be undone. Once you have a proper game-plan everything will be much clearer and you will be surprised at how supportive people can be.

[itshouldhavebeenme]

Thanks so much to you all for your comments,

I think having a game plan and being organised to project manage this thing right through to the end is such good advice, if we don’t, we will end up being put off from doing anything as it would all seem too much trouble.

First things first, we have decided that the route of all our problems is the house, we simply cannot afford to keep paying the huge monthly payments that NR have put upon us, as a matter of interest, why are they 1% higher than any other lender out there anyway? We would have been more than happy to have signed another deal with them, but they just didn’t want to know!

Hopefully, this will just help our case even more as it is NR that have in effectively forced this situation upon us [yes I am bitter!]

We could of course wait for a buyer, but how long will that take in the current climate and even then we would not have enough to settle all the other debts anyway.

So we have decided to tell NR and the secured loan company of our situation and arrange a voluntary hand back of our house, in other words give them back the keys, this is the first stage of our journey.

I understand an appreciate that you cannot advise us on whether or not to continue to make payments to our unsecured creditors, but we do need to build up some sort of contingency fund to pay for our house rental etc.. its just a case of whether we stop paying them completely or drip feed them something until the IVA has been put in place, maybe some cryptic advice is perhaps needed here...

Thanks again as always.

M

[kallis3]

A very positive post.

I hope it all works out for you. Keep posting and let us know how things are going.

[Viki.W]

Hey M, sounds like a plan.[;)] I can't advise you what to do but I stopped paying the creditor completely. Lots of people have also just offered a small token payment worked out pro-rata. There are actually template letters on this site (on the left) to send to creditors. Good luck and I hope it all works out for you. X

[Adam Davies]

Hi M
Before you take the first step please take advice from an Insolvency Practitioner,both Melanie and Ian will be able to give you free advice.
Regards

[MelanieGiles]

I'm happy to just give you advice, without the cryptic bit!, if you need to build up some form of contingency fund to move, then do so. Most creditors would expect this, and to be frank you may not be able to move without it. The best thing to do would be to work out how much you are likely to need, and then work out how long it would take you to scrape that together.

So long as you can justify that your actions were taken with the interests of creditors asa priority - and if you are going to reduce your household costs by renting instead of paying an unaffordable mortgage, there should be no problem - but as I said in my earlier post, you would be very wise to take specific advice at an early stage to ensure you are on the right track.

[ianmillington]

My view is that you should take advice before you talk to anyone else in any form of detail. By all means tell them you have financial difficulty and are taking advice on it, even drip feed them a few bob if you can afford too, as that might just give you that little extra breathing space. Just don't commit yourself to anything until you know how everything fits together i.e what you want to achieve and how you propose to go about it.

Make the call and fix up the meeting soonest. The sooner you have someone batting for you and advising you on more than a general basis the better. None of the IPs who post here will, so far as I am aware, ask you to pay for this meeting.