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Old 09-02-2012, 04:02 PM
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Default Debt & Debt Management

Introduction

This is going to be quite a detailed thread. It might also be a somewhat sensitive thread to some members.

There are many, many people in debt these days and for many, many different reasons. With the cost of living rising all the time, many more people might find themselves in the position of owing money and being unable to repay it.

The advice that will be given below is good advice. More importantly it is the correct advice - as set down by the law and by debt management advice centres.

This thread will always stay locked, but anyone who has a question or has a problem can e-mail or pm me.
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Old 09-02-2012, 04:03 PM
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If you do have problems paying creditors or suppliers, it is important to know which are Priority Debts and which are not.
If you do not act relatively quickly then some creditors could take you to court, seek repossession of your home, seek eviction, seek possession of goods or disconnect your supply. The law has changed so that water companies can no longer disconnect you.

The following is the Priority list.

TV Licensing
Mortgage
Second Mortgage or Secured loan
Rent arrears
Council tax
Gas or Electricity
Magistrates' court fines
Maintenance
Hire purchace or conditional sale
Income tax, National Insurance and VAT.

If you owe any of the above money or are having difficulty paying them, it is vitally important that you get in touch with them as soon as you can to explain the situation.
It's best not to ignore any of these types of debts.
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Old 09-02-2012, 04:04 PM
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Non-Priority Debts

These are the debts that get paid only after the priority debts have been dealt with. Depending on how much money is left will depend on how much you can pay.

Credit card debts
Loans with finance companies
Loans with banks or building societies
Charge cards
Catalogues
Debts to friends or family
Door-step collection loans
Credit sale agreements

Non-priorty debts that are not so straight forward are:

rent, phone, gas or electric from a previous supplier or property - these are someway in the middle - because the company concerned can ask your current supplier to disconnect you.
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Old 09-02-2012, 04:04 PM
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Statement of Affairs/Income & Expenditure

The next thing to do is to write down your income in one column and your expenditure in another column. You have to be totally honest with yourself here. Its sometimes best to keep your shopping/drink/cigarretes receipts for a couple of weeks to enable you to get a really good idea of your expenditure. Keeping shopping reciepts for future reference will also help you to see where future savings may be made.

Here is an example:

Income Weekly or monthly

Wages or salary .....................................
Wages or salary (Partner) .....................................
Any/all benefits .....................................
Tax credits .....................................
Child benefit .....................................
Maintenance .....................................
Non-dependent contributions .....................................
Any other income (not DLA) .....................................

Total income ..................................... Box A

Disability Living Allowance need not be counted as income because it is a payment from the government to totally cover extra costs of having a disability. However you should tell creditors if you recieve it.


Expenditure

Rent ......................................
Council Tax .....................................
Water rates ....................................
Service charges ....................................
Gas & electricity ....................................
Other fuel ....................................
Building/contents insurance .....................................
Life insurance/pension plans .....................................
Housekeeping .....................................
Tv rental & licence ......................................
Telephone .....................................
Childminding ....................................
Prescriptions/health costs ....................................
Hire purchase payments 1 ...................................
Hire purchase payments 2 ...................................
Car tax & insurance ...................................
Petrol ..................................
Travelling expenses ...................................
Clothing ....................................
School meals and/or meals at work ..................................
Other 1 (e.g Xmas saving club) ...................................
Other 2 (e.g emergency money) ..................................
Other 3 ..................................


Total Expenditure ................................. Box B

Now take away the total in Box B from the total in Box A.
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Old 09-02-2012, 04:05 PM
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Income & Expenditure

If your outgoings (Box b) are more than your incomings (Box a) try doing the following:

Check whether you are entitled to extra benefits such as Income Support, Pension Credit, Working Tax Credit, Child Tax Credit, Housing and Council Tax benefit. Go to your local Dept. for Work and Pensions Office, Housing Office or Advice Centre.

Check that you are spreading out payments on your household bills so you don't end up paying them all at once. Gas, Electricity and Water companies do have budget payment schemes in operation to help you.

If you have prescription costs, dental and eyesight costs you need to check to see if you can pay reduced amounts or get them free. Telephone "Help with Health Costs" enquiry line on 0845 850 1166 to ask for an application form.

Look very closely at your out goings to see if you can cut down anywhere.

As a rule of thumb the following usually applies with regard to outgoings:

Clothing ...... 3 - 5 per week per person
Housekeeping ...... 35 - 45 per week for a single person
..... 60 - 75 per week for a couple
..... 20 - 35 per week for each child

You may find your bill is less than this if you are in a position to bulk buy.

Housekeeping should include food, toiletries, cleaning stuff, newspapers etc and should also include a small amount for entertainment and other spending.

If your outgoings are still more than your incomings after doing these basic things, it is vitally important that you seek advice from a free debt advisor.
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Old 09-02-2012, 04:08 PM
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Money left over and which debts to pay first

You've worked out your incomings and outgoings. Now you need to decide which are the most important debts - the ones you pay first.

In the income & expenditure posts above ........ Box B was deducted from Box A ........... the remainder is the money you have left to pay your debts. This is Box C.

Make a list of the Priority debts. Add up the totals but put monthly payment totals in. That total is now Box D.

Example:
Gas Debt 187.00 Monthly repayment 25
Rent Debt 75.00 Monthly repayment 10

Total 262.00 Monthly repayment 35 Box D

Depending on how you started - either working out on a weekly or monthly basis will be how you determine how much your payments will be.



Think very carefully about how much you can offer to repay. It may be that there are non-priority debts that have to be dealt with as well but in most cases if finances are seriously tight a "token" payment may be offered to non- priority creditors.

For instance, if you have a large outstanding gas bill. You phone the company, they ask you to pay 40 a month to clear the bill. Negotiate. You do not have to tell them there are other debts but it sometimes help. Negotiate the payments down to 20 or 30. Its advisable to A) leave a little to pay other creditors and B) ......... er ... you do have to live!

Take Box D away from Box C after you have negotiated payments to Priority creditors. That will leave you Box E - money left for non-priority debts.
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Old 09-02-2012, 04:08 PM
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Dealing with non-priority debts.

This is the fun bit!

A bit of advice first.

You'll need nerves of steel and the ability not to be frightened by threatening letters and aggressive phone calls. A calm but firm approach to these creditors is what is needed. Always remember - you cannot give them what you haven't got AND the creditors cannot do anything unless they have the signature of a county court judge.
Do not be frightened .................. they cannot have what you haven't got.

Ok. You've sorted out the priority debts.

First lets assume there is a neglible amount left for the non-priority debts. If you know that you will not be able to pay them when the next payment is due - get in first! Write to them. Enclose a copy of your income & expenditure sheet. Enclose a covering letter explaining your current situation and offer a token payment (this can be as little as 1 a month). You must ask them to freeze interest & other charges. Keep a copy of the letter. You may not hear back from them before the payment is due. PAY THEM the token amount anyway. This means that you are showing your intention to pay. They will eventually get around to contacting you. Stand firm. Insist that is what you are offering. The majority of creditors will accept this and will review the situation in 3 - 6 months.

Maybe there is a bit more money left. Depending on the amount you owe and how many creditors there really depends on what you can pay them. The general rule of thumb being that the higher the debt, the more you pay.
E.G. Loan 10,000 Original payment 200 per month Your Offer 30 per month
CC 2,00 " " 50 per month " " 10 per month

Don't be frightened. Don't cave in. If these companies do have your telephone number, be aware that you could recieve up to 30 calls a day from just one company chasing you for money. These calls can be aggressive, but you can tell them you have written and what arrangements you are prepared to make.If you find yourself in this situation, try and change your telephone number (most companies allow one change of number without charge), consider having the phone disconnected completely or ensure that you have caller display.

Told you this was the fun section!
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Old 09-02-2012, 04:10 PM
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Other ways to arrange payments to your creditors

Debt Management Plans

If you choose this option, Choose a free DMP. This will mean going to National Debtline, the CAB or CCCS. It basically means that you make one payment every month to one of the above, which is then divided up and sent to your creditors for you. You do not have to do any negotiating with your creditors, the above do it for you. However, you must have:

at least 3 credit debts
your available money for debts is at least 100 per month
you owe at least 5000.

There are other companies to use (Payplan, Ernst & Bains etc) BUT they will charge you.


Individual Voluntary Arrangements

This is basically an alternative to bankruptcy. This is a legal and formal arrangement made through the county court to pay an agreed amount off your debt and over a shorter period of time normally about 5 years. The IVA will be set up by an insolvency practioner and their fees are high. An IVA is usually only worth looking into if you have a fair amount of money available each month to pay your creditors.

Beware The insolvency practioner holds the money for the period set down by the court. If you default on payments the insolvency practioner will keep the money you have paid and is under no obligation to pass it on to your creditors.


Administration Orders
If you have been or are going to be taken to court by a creditor, it might be an idea to apply to the court for an administration order. The court adds up all your debts and you make one monthly payment to the court. The court then shares this money out to your creditors. The total of debts though must be no more than 5000. Your creditors cannot take any further action against you if an administration order is in place. You can also apply to the court yourself by getting form N92 from your local county court.


Lump sums
If you have resources that you can access, you could offer your creditors a "lump sum" which is classed a 'full & final installment'. If your circumstances are unlikely to change, a creditor may agree to your offer.


Consolidation
Think very carefully before deciding to add all the debts together and aquiring a loan to pay them off.


Writing off debts
Very rarely will a creditor agree to write off the debt. However, if your circumstances are extremely difficult or distressing due to illness, age or the death of a close relative, its always worth asking. Some have been known to agree.


Don't worry if your offer of payment is small. A creditor would much rather receive something than nothing at all!
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Old 09-02-2012, 04:16 PM
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Bankruptcy

This is really the last resort. Very few creditors will actually petition the court for a debtor to be made bankrupt - the creditor will usually not get any money at all after a bankruptcy order has been made.

If, you work out that the payments you are currently making will not clear your debts in the next 5 - 7 years, the filing for bankruptcy may be way out of a financial mess. Bankruptcy is a solution if you owe a lot of money, have no assets and can see no way of ever paying the debts off.

At the present time, if you choose to petition your own bankruptcy it will cost 700. However, if you are on Income Support or can prove that your income is below a certain level, the court fees (175) are waived leaving you 525 to actually pay the judge. However, you must be able to show the judge that you have taken advice from the CAB, NDL, CCCS or another debt management company. So make an appointment to see a debt advisor.

Unless you have been a little bit naughty (I.E. getting another loan when you knew you couldn't pay it off etc), you will usually be discharged from bankruptcy after one year - sometimes even earlier. Each bankruptcy will have different terms.

If you choose bankruptcy, there are some companies that have trust funds to help with the court fees.

To apply for bankruptcy, phone or visit your local county court for the bankruptcy forms. When you have the money to pay the court, phone them up or pop in to make your initial appointment. This initial appointment will normally take between 1 - 2 hours. The clerk will check all the forms and take your payment. You then wait for the judge. Couple of questions and he will stamp the bankruptcy notice. You are now bankrupt!
That was the easy bit!
Within 6 weeks you will receive a Statement of Affairs (Income & Expenditure form) and an exact time and date that you will be in contact with the Official Receiver (OR). The OR is the person that delves into you personal finances. The OR is the person that you will either see in person or who will telephone you. The OR is the person who ultimately decides what (if any) restrictions are placed on your Bankruptcy order.

The only bit of advice I can give on this interview is ............. don't speak unless spoken to (there will be long periods of silence whilst they write everything down), don't offer information but BE HONEST. Whether the interview with the OR is face to face or over the telephone be prepared for a timescale of up to 2 - 3 hours.

If you choose bankruptcy, it is best to open a Barclays Cash card account or a Co - Op cashminder card account either the day before you go to the court or as soon as you leave court.
As soon as a bank finds out you are a bankrupt, usually some "button happy" idiot will freeze your bank account. The above two accounts are used to having bankrupts apply and there shouldn't be any problem - but again tell them. Both of these accounts can be used for DD's but the Barclays one is not a debit card so cannot be used to pay for goods in the shops.
Also remember, that if you become officially bankrupt you are legally not allowed to apply for credit over 500 for a certain amount of time.
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Old 09-02-2012, 04:17 PM
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Debt Collection Agencies

A creditor may well pass a debt on to a collection agency.

Soooooooooo what!? A debt Collection has NO MORE POWER to get the money from you than the original creditor.

Do not worry. The only difference being is that a debt collection agency is far more intimidating and threatening than the creditor. They do not have their own bailiffs, unless they use what is called a "distraint" - a private bailiff 9and they still have to apply to the courts).
If you feel you are being unfairly harrassed or intimidated then contact the office of fair trading and report the company. All correspondance from a debt collection agency should cease if you register a query or make arrangements to pay.


Bailiffs

If you owe rent or council tax, the local council can apply to the court for a bailiff to take your belongings and sell them on to pay for the debt that is owed.

Bailiffs sent by other creditors only have the power to enter your property if you open the door to them. Once you have opened the door to a bailiff sent by the court, they have the right to enter at any time - including literally breaking in. They can take your car though, if it is parked outside.
If you have had a letter from a bailiff, contact their office and your creditor straight away to make some sort of payment arrangement. Other than that just don't open the door to anyone until you can confirm who it is or you have written confirmation from the creditor that you have made an arrangement to pay. For each visit a bailiff makes a further (very high) charge will be added to your debt.
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