Debt is a concern for people who have money worries and it’s sometimes important to get ft from a free charity. We provide information about debt, however we don’t offer debt advice. Similarly, if you need to get financial advice you should speak to a qualified expert.
Why Has My Debt Got Out Of Control?
How many people ask this question, the correct answer is too many, why has the debt got out of control, well the truth is that it is for all different reason, for some it is due to ill health, redundancy, divorce or spending out with your budget. The reality is if you debt is out of control and you are unable to reach you monthly contractual payments then it is time to seek debt advice. The reason you are in that position you should address, if for no other reason than to learn from and to make sure you don’t find yourself in this position at a later date.
How can I get the debt written off?
So many people ask this question; though the truth is it all depends on your situation as to wither any debt can be written off. Yes many people are talking about bankruptcy when they ask this question. However there are different things to consider if this is your only option, which we will discuss later on. Depending on your individual circumstance it may be possible to write off your debt but you must be aware off all debt solutions that are available to you and which one would suit your specific circumstances.
I don’t want to affect my credit rating
Many people calling for debt advice don’t want to affect their credit rating, however the reality is for many that there credit rating is already affected before they make the initial call. If you don’t make your monthly contractual payment then your credit rating can be affected if you negotiate with your creditors then it will still affect your credit rating, so the harsh reality is that the only way not to affect your credit is to pay back the debt when due, otherwise your credit rating will have a default added to it and this will mean getting any future credit will be difficult.
What is an IVA Individual Voluntary Arrangement?
An IVA is a formal debt solution; it guarantees to freeze interest and charges and allows you to make one monthly payment towards all your creditors. All unsecured debt is added into the solution and at the end of a fixed period of time five – six years then any remaining debt is written off. It will affect your credit rating for six years
I own my own home would this be affected?
You would never be asked to sell your property however they will look at the equity in your property at the four and a half year stage, if they believe there is releasable equity then they can ask you to release the equity they would expect you to do this either by remortgaging or getting a third party buy out. If this was not obtainable then they would extend your solution from five years to six years.
When my elderly parent’s pass I will inherit from them would this affect my IVA?
Yes if you inherited money or won the lottery when you were in an IVA then you would have to use that money to pay off the debt solution.
How do I go about entering one?
The first thing you have to do is make sure you are suitable, what is your level of debt? What is your income? And how much expenditure do you have each month just to cover your living costs. It is only once all these questions have been answered that a debt advisor can advise you. If you are unable to contribute towards your debt on a monthly basis you will not be suitable, if your disposable money is high each month and you are able to clear all the debt in a shorter period of time than the IVA (or a Trust Deed Scotland) then you will be advised on a different solution. It always wise that you seek independent, confidential advice at this stage from a registered charity. The reason we feel so strongly about this is that so many companies are trying to push one item, rather than making sure the debtor is getting the best overall advice. Once you know that it is the correct advice for you, that you are aware of all the pros and cons then you will need an insolvency practitioner to set up and arrange the solution for you. Most companies will recommend someone to do this for you.
What If I enter an Iva and can’t keep up with repayments?
Your payments will fluctuate in your IVA if your income increases then they will look for your payments to increase, likewise if your expenditure increases then they can look for your payments to decrease. If you lose your income then you should speak to your insolvency company immediately many will offer a ‘holiday’ period until you get back on your feet. If you are unable to make any repayments then the creditors will start actively chasing you and bankruptcy could be your only option.
If I work overtime will they know about it?
Yes your situation is reviewed annually and they will ask for bank statements they will be able to tell from this your income and they are entitled to ask for 50% of the overtime to go towards the creditors.
Changing bank account
If you currently owe the bank that you bank with then you will have to switch bank prior to entering an IVA.
Debt Management Plan
A debt management plan (DMP) is an informal arrangement; it is when a company takes one monthly payment and distributes it amongst your creditors on a pro rata basis. They will ask for interest and charges to be frozen though this is not guaranteed; you will repay all the debt only over a longer period of time. The length of time it lasts for will depend on how much debt you have, how much you are able to pay each month and wither or not the interest rates are frozen.
Can I stop my DMP if my circumstances change?
Yes a DMP is an informal arrangement and either party can stop it with one months notice.
I have been told my DMP will last 16years is this normal?
The length of time it last will vary however if it last for over ten years then you should seek independent debt advice from a registered charity, to confirm it is the best debt advice for you.
Debt Relief Order what is it?
Debt relief order (DRO) is a form of bankruptcy, to be suitable for a DRO your debts have to be below £15,000 and you should have less than £50.00 disposable income left over each month, which is the money left over once you have paid all your necessary living expense. You must not own a property and the value of your vehicle must be less than £3,000.
Bankruptcy how to enter
To enter bankruptcy cost £700 if you are working and £525 if you are on benefits you get the necessary paperwork from your local court.
Will I have to pay anything towards my bankruptcy?
This very much depends on your circumstances and ultimately it will be down to the official receiver to decide on an income payment order. They will look at your income and outgoings and decide what payments you should make towards your creditors if any. If they do decide on a income payment order then they will ask for these payments to be made for three years. Though bankruptcy itself last for one year.
Once I have entered bankruptcy can they force the sale of my assets?
If you own a property and have equity then they will ask for this to be sold, if you have a vehicle worth over £3,000 then they can ask for that to be sold and that you buy a cheaper one. The job of the official receiver is to get as much money as possible back to the creditors. You should be careful to ensure your will has any potential assets written into trust, so you should make a will which covers this off.
I live in Scotland are the rules different?
Yes the debt solutions are different in Scotland they have a Protected Trust Deed (PTD) which is similar to an IVA though has slightly different rules to it. The main one being that it lasts 4 years instead of 5 years. Though that can vary depending on your debt level.
Sequestration is the Scottish equivalent to bankruptcy; there are different routes into sequestration.
Low Income Low Asset (L.I.L.A)
If your income is less than £235.50 a week and you have no assets, no property and your vehicle is worth less than £3,000, then you would be suitable. Your debt level can be any amount.
Certificate of sequestration
If you are unsuitable for LILA as you earn to much then this may be the best route, you may have to contribute towards your certificate of sequestration. If you do have to make contributions then you will be asked for these contributions for 3 years.
Debt Arrangement Scheme (DAS)
This is a Scottish debt solution which is similar to the DMP, though it guarantees to freeze interest and charges and your property will be protected. To be suitable the debt must be repaid within a reasonable period of time. This is normally looked upon as within ten years.