It's likely that either an informal debt management plan or bankruptcy would be the best options for you.
INFORMAL DEBT MANAGEMENT PLAN
What is an Debt Management Plan?
An Informal Debt Repayment Plan is simply an agreement with your creditors to reduce the amount you pay to them each month so that the payments fit within an affordable monthly budget. The plan is known as “informal” because it is not legally binding on your creditors. It is simply a “Gentleman’s Agreement” made between them and you to reduce your debt repayments.
The amount you can afford to pay to your creditors each month is known as “Disposable Income”. This is calculated by taking your total monthly household income and deducting all reasonable living expenses. The money left over is called Disposable Income. This is the amount which is paid to your creditors each month.
An informal Debt Repayment Plan can normally be managed for you so that you are able to make a single affordable monthly payment which will cover all of your creditors. Using this solution will enable you to start repaying your creditors without having to borrow more and constantly “Rob Peter to pay Paul”.
Advantages of an Informal Debt Repayment Programme:
Reduce monthly payments to a single affordable amount.
Repay Creditors within a budget you can afford without having to
borrow more.
Stop robbing Peter to pay Paul.
Disadvantages of an Informal Debt Repayment Programme:
You will normally have to repay 100% of all your debt which may take
many years.
Your debt repayment period may be significantly increased as you are
paying less off your debt each month.
Default notices will be recorded on your credit file. This will mean that you will find it difficult to get further credit until your debts are repaid or settled in full.
Creditors are not under any legal obligation to suspend interest or late payment charges.
Secured debts (ie mortgages and car HP) and Crown Debts such as Council Tax can not be included in an Informal Debt Repayment programme.
What will it cost?
You may be able to get help with an informal debt management programme for free. However, most companies who provide these services will make a charge. This is normally the first payment that you make and also an ongoing monthly management fee of between 10-15%.
Is this solution right for me?
Informal Debt Repayment Programmes are normally suitable if your total unsecured debt is £15,000 or less.
BANKRUPTCY
What is Bankruptcy?
It is a common misunderstanding that Bankruptcy is only for companies and businesses. It is not. Bankruptcy is the way that an individual person can deal with personal debts, which they have no hope of repaying.
If you have debts which you just can not afford to repay, either through an IVA or an informal debt management programme, then Bankruptcy might be a sensible option for you.
Bankruptcy is normally seen as a last resort after all other options for repaying debt have been exhausted. If you are declared bankrupt, you will no longer have to repay your creditors yourself and the court will protect you from any further actions that your creditors threaten against you. However, where you can afford to make any payment towards your creditors, then you will be made to do so by the Court for up to 3 years.
Facts about Bankruptcy:
- The responsibility for paying your debts is taken away from you by the Court.
- You will normally be Bankrupt for 12 months.
- You may have to make monthly payments towards your debt for 3 years.
- After 3 years, any outstanding debt is written off.
- The record of your bankruptcy remains on your credit file for 6 years.
- You will have to give up your share of any equity in property you own.
- You will be allowed to keep reasonable household goods.
- You will be allowed to keep your car as you have a reasonable requirement for it and it is not unreasonably valuable.
What happens to my property and belongings?
You will normally be able to keep reasonable personal items and household goods such as furniture and electrical goods as long as their value is not greater than the cost of their reasonable replacement. However, you will be expected to sell valuable assets such as antiques and expensive vehicles.
As a bankrupt, your title to any house you own or are paying a mortgage on will be passed to the Court. As such, ownership of any equity that you have personally in the property will pass to the Court. The Court will want to realise such equity for the benefit of your creditors.
This means that either you will need a third party to make an offer to the Court to buy out your equity or the Court will force the sale of the property to release the equity. If your husband, wife or children are living with you, it may be possible to put off a sale until the end of the first year of your bankruptcy to give time for other housing arrangements to be made. Your spouse or any other interested party would be encouraged to take legal advice about the home as soon as possible.
What will Bankruptcy cost?
In order to declare your self bankrupt, you will need to pay Court Fees. These normally total a one off charge of £490. If you require additional advice and help to complete your application forms, you must also expect an additional charge for this service.
Is Bankruptcy right for me?
There has been a lot of publicity surrounding changes in the law regarding bankruptcy – the Enterprise Act introduced in April 2004. The question is whether or not bankruptcy is now an easier way of dealing with debt? Certainly, for some individuals, the new rules may be of benefit. However, it is arguable that for the majority of people, the law has not made bankruptcy any easier, and in some aspects, it has become more onerous.
Best Regards
Oliver
Thomas Charles and Co Ltd.
Experts in personal debt solutions.
Read customer feedback at:
www.thomascharles.com/about_us.asp
