Do you have any suggestions?

[joanne.l]

Hi, Between myself and my husband we owe £36,000 on 5 Credit cards,a small loan and an overdraft. We are home owners and are to unable to produce proof of income as my husband has his own business. We have a self cert mortgage and are unable to remortgage to get any equity out of the house as we borrowed the maximum they would lend to us. We have 1 child and another on the way due in Novemeber and really want to try get on top of these debts. We have a family member who is willing to loan us the money to clear the debts and for us to pay them back over 10 years, they have asked us to seek advice on an IVA or debt management programme first. So to tackle the debts ourselves if we can. Our main problem is the interest that is being charged is basically making our payments not really reducing the balances on the credit cards. I've checked our credit rating and it shows good still as payments are made on time. We have had a couple of instances where the payment has reached them a day late but the credit report is up to date as of 3/4/07 and shows that it is good. We have thought about selling our home and getting a smaller mortgage on another home which will make our outgoings less monthly and therefore the equity in this house can be used to pay off the debts. However i dont think we will get another mortgage as we have this debt.

Do you have any suggestions?

Do you think we should consider the short term loan from our family to pay all off then sell up and get a smaller mortgage? The other thing we thought was to sell up live with my mum for 6 months then buy a house that will give us a smaller mortgage this way our debts are clear and we have time to save too. Thanks in advance - Joanne

[gimmewine]

Hiya Joanne

I am sure an expert will be along to advise you properly shortly, but meanwhile just a few questions and suggestions.

How much equity is in your house at present. Reason I am asking is that if you can sell, clear the debts and still have enough for a deposit on a cheaper house that may be a good option for you. Personally, I would try and avoid moving in with mum because property prices may well rise faster than you are able to save so you might find it difficult to get back on the property ladder. As your credit is still good, getting a mortgage should not present any problem.

Secondly, have you thought about approaching CCCS with a view to starting a DMP? I don't know what your disposable income is but they will advise you for free and negotiate with your creditors with a view to getting the interest on debts frozen. That way you may be able to pay the debts in full over a longer period.

Third alternative, you can do what I am currently doing, take the offer from the family member, let them lend you the money, but they charge you .5% more than they would get if the money was in a bank account (or if they are taking a loan, .5% above their loan percentage). You can then clear it off as fast as you can, knowing they will not harrass you the same as creditors will. I have this arrangement with two friends and so far it is working brilliantly. They are happy because they get a better interest on their savings and I can pay whatever I can afford and negotiate payment hols for xmas etc as necessary.

Whatever you do, you seem to be tackling it before it gets out of hand. Good luck

[MelanieGiles]

Hi Joanne and welcome to the forum

With regard to the offer of a loan from your relative, why not consider offering a sum of money via an IVA in full and final settlement. As a guide, the sum of £15,000 would be the minimum acceptable, however this will be dependent upon your individual circumstances, your level of current disposable income and the equity in your property. Also if you owe any money to HSBC or Northern Rock you will have to offer more as they have relatively high minimum dividend criteria.

You are also suggesting taking a loan from your relatives to pay the debts in full which will be repayable over 10 years. This is a better option for your creditors, as they get all of their money repaid, but is a 10 year repayment period realistic with a young family? Have you considered how much the loan repayments will be and are they affordable?

Your other suggestion about selling your house and using some of the money released to repay your debts, and then purchasing a smaller, cheaper property is also a good one depending upon the level of equity you have in your property. If you can post some more case specific information, we can advise you further.

Regards, Melanie Giles, Insolvency Practitioner for over 20 years.

For further details contact me at http://www.melaniegiles.com and view my IVA blog at: http://melaniegiles.blogs.iva.co.uk

[Adam Davies]

Hi
I would think that you would have no problem getting another mortgage as long as you leave yourself a 10-15% deposit.
Regards

Andy Davie
IVA.co.uk Spokesperson and site manager
(aka Neverending)

Please check out my blog: http://andydavie.blogs.iva.co.uk

View my profile here:
http://www.iva.co.uk/andy_davie_profile.asp

[joanne.l]

Hi - Thankyou all for your advice.
To go into more detail - we owe Credit cards with HSBC £8k-Natwest-£5k bank of scotland £4k - Halifax - £10800k - and Barclay £3k - My husbands loan is with northern rock and only owes £2800 on that now if it was to be settled. We also have an overdraft with natwest of 2k.

Our family member offering to help by clearing the debts in full and taking a payment from us of about £450 a month which will save us 400 a month in what we are already paying out. This includes interest what they would earn on this. Then when we re mortgage at a later date take some equity from the house to pay a sum off to shorten the pay back time. Our house has approx £30 k in it difference from the mortgage to the value of the house but the mortgage we have is the maximum we can borrow with the lender as they woud only lend us 85% of the house value due to the self cert. if we were to sell depending on what we get we would get between 30k and 60k back. The same houses in the area are selling at different prices so it depends on what it is valued for - but working on the minimum we would get 30k. this would pay nearly everything off but not leave us anything to have a deposit. The house we are thinking or downsizing to is my mums she rents off a friend and he has offered it to her for 40k less than it is on the market for we would need a min deposit of 15k for it and our bills would reduce dramatically.

If we were to consider an IVA with the borrowed money from family to settle in a sum and final settlement - would we still have the IVA on our credit rating? which may then affect us getting good rates in the future?

The DMP is what we really wanted to avoid as alot of comments say they still get hassle from the creditors - which with the position i'm in expecting again i really dont think the stress will help.

Another option we've discussed is take the family loan - clear the debts - still sell up and when we sell pay them a lump back - keep a lump for the deposit and reduce the payment time back ???

Thanks again

[Andy2]

At the end of the day an IVA is a form of bankruptcy and whilst I can see that you have difficulties meeting the statutory payments on your debts, this should not be taken to mean you are totally insolvent given the equity in your home even at the lower end of the scale. Certainly keep all the options that you have mentioned open.

[MelanieGiles]

Hi Joanne

You are barely insolvent with that equity figure, so I would not recommend either an IVA or bankruptcy proceedings. I think the suggestion of the family loan, is a good one and you will benefit from lower repayments. By selling your property on top of that, you may be able to repay the loan but will be living in a smaller property. This is therefore a balancing act which only you, yourself, can consider.

Good luck!

Regards, Melanie Giles, Insolvency Practitioner for over 20 years.

For further details contact me at http://www.melaniegiles.com and view my IVA blog at: http://melaniegiles.blogs.iva.co.uk

[joanne.l]

Thankyou all for your advice - it has helped us.

I think the next step is to sit down with my mum and discuss us buying her house and selling this one to get the equity.She has offered that to us so it would i think be the ideal solution. Also lending from the family to pay everything off now and paying them back a lump now and reduce the payment time. the house my mum is in is a 4 bed old terrace with huge back garden. We have a 4 bed now but it is a new build so rooms are small. Although the house has the same amount of rooms the mortgage would be less and the bills also are less. my mum would contribute also which would help when paying back the other family member plus we may actually be able to save this way for future expenses eg college fee's and the unexpected.

Thank you all so much for yuor advice
regards