Different ways we can help you to sort out your personal debt
There are various ways of dealing with personal debt – and we can advise you on taking either the formal or the informal route.
We are FCA regulated and can offer a portfolio of non-statutory solutions and regulated debt advice to clients as well as advising on statutory insolvency issues. There are many Insolvency Practitioners who are limited to the advice role related specifically to their duties as IP’s however, they don’t always advise clients of this fact ! Of course, any FCA advisor who isn’t an Insolvency Practitioner has a similar problem. And then there are those individuals who act outside any regulation at all! We can provide the full range of consumer credit regulated activities to our clients which will be discussed later.
We know that all methods of dealing with debt have an impact on a person’s ability to obtain credit, either now or in the future. And, we don’t forget that debt is a social issue as well as a financial issue and impacts on health as well as family life.
We are here to provide practical solutions to help you manage your debt and offer advice on the best way to deal with your financial circumstances.
One area where we don’t tread is debt management plans; We advise our clients to contact Step Change if this is the most suitable option based on their financial circumstances. Step Change provide a free debt management service and we feel there is no benefit in referring clients to debt management firms who usually take the first monthly payment for start up costs and ongoing costs which are normally 15% of the monthly contribution. Similarly we struggle to see why any Debt Management Plan could be written for more than five years, there are other more sensible ways of dealing with this level of Debt.
INFORMAL DEBT SOLUTIONS
We can deal with creditors (the holders of the debt) on behalf of client’s thus removing some of the burden and stress. Our lowest service levels involves provide a letter for a client to write to creditors independently. However, most client’s preference is for us to write to creditors and request a deferral of interest and reduced payments on their behalf.
This is called ‘informal’ because you are asking them to agree, there is no formal agreement or court decision to make your creditors accept your offer. Although most creditors will accept your offer they could change their mind later.
Sometimes we find that debts have been sold to another company or a debt collection agency. This means that the person you are paying will be different and the original Creditor has taken a payment significantly less than the face value of the Debt to cease their relationship with you. In these circumstances a full and final settlement offer may become an option. Certainly the purchaser of the Debt will have a very different mind set to the original lender.
Full and final settlement
If a creditor agrees to accept less than the whole debt amount to clear it and agree that no action will be taken to recover the rest of a debt – this is called ‘full and final settlement’. It is a great place to be in especially if you have a house to sell, a PPI reclaim or third party funds which can be used. We will negotiate on your behalf with your creditors using these funds to achieve the best outcome for you.
If you are a homeowner, equity release can be used to unlock money from your property. This could be a tax free cash lump sum and can be used for debt consolidation purposes. We always recommend you speak to a regulated advisor if you are considering this option. Always check with the FCA for confirmation of a firm’s registration by telephoning the FCA on 0800 111 6768.
FORMAL DEBT SOLUTIONS
There are three:-
Individual Voluntary Arrangement
Debt Relief Order
This is suitable for those who own assets which could be sold, perhaps a property, or an income which would allow regular contribution. It can also be used where a family member, friend or Partner etc. wishes to provide funds to allow a full and final settlement which will bind the creditors. There should be more than £15,000 of unsecured creditors i.e. credit cards, loans and overdrafts. Secured debts, i.e. Mortgages or finance agreements are not bound by Individual Voluntary Arrangements. Where 75% of independent creditors by value agree then the other 25% are similarly bound.
An IVA can provide the following:-
Suitable for professionals, where bankruptcy might result in the end of a career.
It will include HMRC debt, but HMRC have stringent requirements before they will accept one.
Can include a one off contributions i.e. the sale of a property or third party contribution
Monthly contributions require regular income and clients can be either employed or self employed
They tend not to pay back creditors in full but this is not a pre-requisite
There is no come back if completely successfully
Costs tend to be higher than informal debt restructuring, but are materially less than Bankruptcy.
It is a formal legal agreement usually lasting five years.
This is the most formal and ancient of insolvency procedure which used to attract a stay in Debtors prison. It lasts for one year, but some of the restrictions can last up to three years.
All assets are included within a client’s bankruptcy estate. Briefly Bankruptcy provides the following:-
It is a Court process instigated by either the Debtor or a Creditor. Creditors do not have to agree to this.
The Official Receiver and/or Trustee in Bankruptcy deals with the individual and has investigative powers.
Income is included and payments could be required to be made to the Trustee for up to three years
Bankruptcy should hold few fears for those who do not have property or whose properties are in negative equity and debt that cannot be paid off. It can act as a release of historic stresses and allow a fresh start.
For most (unless you have a professional qualification or you job requires you to handle cash) there is little impact on a person’s ability to earn a living.
It attracts a number of special taxes and is very tax inefficient. The levels of compliance required of the Trustee are also substantially higher than would be experienced in other forms of Personal Debt restructuring. Generally of the first £20,000 of realisations received, £10,000 will go on costs and taxes.
Debt Relief Order (“DRO”)
If you owe less than £20,000 and have a low income and very few assets, then a DRO may be the correct debt solution for you. In these circumstances, we would advise you to contact Step Change Debt Charity.
Briefly the key DRO facts are as follows:-
You don’t pay anything towards your debts for 12 months, after which your debts will be written off
You pay a one off fee to the Insolvency Service
Step Change can help and support you through the application process.
All our advice is provided by professionals and you can be assured you will be treated respectfully. All initial advice is of course free and confidential and can be either a telephone call or a meeting at one of our offices.