Can we put wheels in motion for a DMP or IVA without an income at present ?

[Stevedn85]

Hi there, please help. My name is Steve, married with 2 children aged 5 and 6. I'm self employed working in the legal profession (not a lawyer though). Due to government cuts over the past 3 years my income has been substantially reduced, my main client fell into arrears with me for £20k inc vat. I received a call recently informing me that I NO longer work for that firm (I doubt whether that debt will ever be paid) My situation was bad, now it is dire ( We presently have a few hundred pounds and that's it. We are private tenants with no assets, save for a car. We have unsecured debts with credit cards, personal loan and o/d of about £45k, I have a vat bill to pay by 7th October for about £3k. Other than that we are up to date with all payments. I have been waking early as usual for the last few days researching our options. Bankruptcy, is not an option for us. So it will be an IVA or DMP, preferably the latter. Our immediate problem is that we have no money to pay any of our commitments right now and for the next few months, we are going to have to borrow money from family and friends to survive, until my wife commences her new role and I find new clients. All being well, later this or early next year we will both be working on a self employed basis with a realistic combined net income of between £4k and £5k per month. Our total unsecured debt will be in the region of £55k inc HMRC. I have worked out that we would be able to repay between £750 and £1,000 er month when both working. I have read favorable comments within this forum and will no doubt use one of your companies given your expertise in these fields. Can you answer this please, if we borrow money now from friends and relatives to survive, in order to keep up payments on rent, utilities, food etc (essentials), can we include that in a DMP or IVA? Can we put the wheels in motion for the DMP or IVA without an income at present? Thanks Steve

[Foggy]

Hi Steve. You can certainly get started with talks and, all important, advice right away. As you have no doubt seen on the forum -- the advice is to chat to a few companies to see who you are comfortable with. Also make sure that they are well versed in the vagiaries of self employment.

As for repaying friends and relatives ... yes, they can be included as creditors, but will, like all other creditors, only get pennies in the pound. In all likelyhood the main creditors will ask that they be deferred and not get a dividend anyway. They should be prepared to wait until the arrangement is over to get money back.

For the level of debt you have a DMP will potentially take forever, as you cannot guarantee interest and charges being stopped. But, as you know, an IVA can be more damaging in the long run.

For the purposes of a DMP a company like Payplan or Stepchange will be a good bet, as the banks pay them, not you (although this, in itself, is a bone of contention regarding WHO they are working for). For an IVA I would advise a smaller, more personal ( and, dare I say it, caring)firm.

[Stevedn85]

Hi Foggy, thank you for your response. We will be able to repay somewhere between £750 and £1k each month for the next 5/6 years, repaying the entire debt, provided interest is frozen. We would prefer a DMP rather than an IVA. We're hoping the creditors will also...If for whatever reason we can't manage that amount each month, we could reduce the payments, taking a bit longer to repay. I'm hoping the companies concerned will prefer to get all of their money back rather than a partial payment?

[Michael Peoples]

A DMP could be dangerous if you have debts to HMRC as they would be inclined to issue bankruptcy proceedings rather than accept a DMP.

An IVA would at least give you protection from creditors and would include all debts owing to HMRC. You could also propose an IVA whereby your payments do not start for a certain length of time due to your current circumstances but you have protection from the date of approval. We have many clients who have serious mortgage arrears or are on sick pay for example who cannot pay anything to unsecured creditors but can make payments a few months down the line. You get the IVA in place now which gives you protection and the sixty payments then start in the New Year.

An IVA would include any HMRC liabilities up to and including the current financial year 2014/15 so from April 2015 it is like you are starting self employment for the first time. This allows you to restart and you do not have to fear demands coming through for previous years for which you do not have the funds to pay.

Get some free advice from an insolvency firm as well as speaking to the charity sector as often the charity sector do not know how to deal with the self employed and find it easier to recommend a DMP.

[Stevedn85]

Just got off the phone to Michael who returned my call, really grateful for you clarifying the pros and cons of IVA and DMP's! No hard sell, just good advice. Very much appreciated. Cheers Steve

[Michael Peoples]

No problem Steve and I hope it works out. Let me know how you get on.