Help with Debt – You are not alone!

Help with debt

I’ve finally taken the bull by the horns and started to tackle my debt problem head on.

I’ve written to all my creditors, told them where I am and explained my situation. I should have done this months ago but I really just wasn’t feeling strong enough.

Having looked at all the options, it looks like that bankruptcy is the only route open to me but that doesn’t worry me, it would be a relief now just to get it out of the way so that I can move on.

I’ve just published an article on Hub Pages with info on the process that I have been through and have included an extract of that below.

I hope it is of some use to anyone else who is in the same predicament:

When creditors start to bombard you with letters, phone calls and text messages it’s easy to start thinking that you are all alone in the world and everyone’s out to get you but remember that you are far from alone with this issue and there is help and debt advice out there.

In 2012, Citizens Advice Bureau reported that total personal debt in the UK stood at £1.46 trillion. The average household debt in the UK was £7,975 (excluding mortgages) and In 2010/11, 550,000 people sought advice from Citizens Advice on 2.3 million debt issues.

Often the very reason that you can’t make the repayments on your debts is because you have other problems as well; loss of job, illness, divorce etc. So dealing with the issue all by yourself can be extremely difficult but there are companies, charities and other agencies that can remove the need to even to communicate directly with your creditors if that’s what you need.

Organisations able to help fall into three broad categories: Citizen Advice Bureaux, debt management companies and debt charities.

You can also buy some very good self-help books which guide you through the process of dealing with your creditors yourself but the advice would still be, take some advice first.

The three organisations that I have tried myself our; Citizens Advice, a debt management company Think Money and a debt charity, Step Change. My own experience of each is described below and links to their sites re included at the end of this article.

Citizens Advice Bureaux.
CAB offers a full debt advice service and their website has some very useful advice and info. I have to be honest and say that my own experience of their service was not very good but I suspect that what level of service you get depends on your geographical region.

When I called my own local CAB, I was pretty much told ‘it’s all on the website’, go there. Not really the help I needed at that time but on talking to other people, I think that my experience was unusual.

Think Money
Think Money are a for profit company offering debt solutions and managed bank accounts. I approached them when I was still earning some money and they set up a debt management scheme for me.

They approached my creditors for me and, based upon what I could afford to pay, agreed repayment plans with each. They also opened a managed bank account for me which is a bank account which, as soon as your income is paid in, they reserve an amount for both your repayments to your creditors and your regular standing orders and bills.

This actually worked very well and, if you are earning a steady income, I would recommend them. They were very helpful throughout the process and the only reason that it didn’t work for me was that I became ill again and my earnings dried up completely.

Think Money is the banking arm of the organisation and their debt management arm and are known as Gregory Pennington. Both are commercial organisations so fees will be charged.

Step Change
Step Change are a not for profit organisation offering similar to debt management and advice services. They are funded by the credit industry itself i.e. banks etc.

I am currently getting their advice in respect of my impending bankruptcy and, to date they have been very helpful.

The big advantage of Step change over company’s like Think Money is that they are not for profit and therefore charge no fees.

Help with Debt – The Options (England)
If you are experiencing difficulties keeping up repayments to your creditors, there are a number of different solutions available to you but is always advisable seek independent advice before proceeding with any one of them.

The following are some options available in England and Wales. Fees and some options differ in Northern Ireland and Scotland.

Administration order
If you have less than £5,000 in unsecured debt and at least one existing court judgement you may apply to your local county court for an administration order.

An administration order is a repayment plan arranged by the court. There is no fee, your creditors can’t contact you for payment nor can they add any further interest to your debt.

You pay the court a single monthly payment, which is calculated after taking account essential living expenses, and the court distribute it to your creditors.

Debt consolidation
Some banks and financial institutions offer debt consolidation loans. This allows you to take out one larger loan to pay off all your debts.

You are left with one single, more manageable, repayment per month rather than many and you may be able to spread your repayments over a longer of period of time.

Always seek independent advice before doing this as you are borrowing to pay of borrowings which is not always the best solution and, if you secure the loan against your house, your home may be at risk if you do not make the repayments.

Debt relief order (DRO)
A debt relief order (DRO) is a low cost alternative to bankruptcy designed for people with low income and a relatively low amount of debt.

You can apply for a DRO if you owe less than £15,000 in unsecured loans, are not a homeowner. Have no more than £300 in assets and have less than £50 a month left over after living expenses.

If you are accepted for a DRO, then all your debts will be on hold for a period of twelve months during which time your creditors cannot contact you for any repayments. If after twelve months, your financial situation has not improved, all of your debts will be written off.

The fee for a DRO is £90.

Debt management plan (DMP)
A debt management plan is a means of reducing your monthly repayments to an amount that you can afford and is usually administered by a third party for you so that you don’t have to deal with your creditors directly.

The service can be obtained from debt management company’s such as Think Banking who charge a fee and also from debt charities such as Step change who do not charge a fee.

You provide a reasonable budget of what your income is, your living expenses including rent or mortgage and what is left over for your creditors. The debt management organisation will then contact all of your creditors with an offer of an affordable repayment amount. If your creditors accept the offer, which if given your circumstances is reasonable they will, you will then pay the debt management organisation one single amount and they will distribute amongst your creditors.

Individual voluntary arrangement (IVA)
(England, Wales and Northern Ireland)
The legally binding alternative to a debt management plan is an Individual Voluntary Arrangement (IVA).

An IVA, has to be administered by a qualified Insolvency Practitioner (IP), a specialist type of accountant.  Like a debt management plan, a reasonable budget will be drawn up and agreed and a monthly, affordable payment made to the IP who will distribute it amongst your creditors.

Interest will be frozen and your creditors cannot contact you for money or take any further action.

The IP will charge you a fee for the service and the other potential downside is that there will be a creditors meeting which you will have to attend. However, most creditors will not turn up.

The main difference between an IVA and a DMP is that the IVA is legally binding whereas the DMP is a more informal agreement between your creditors and yourself.

(England, Northern Ireland, Wales)
If your unsecured debts significantly outweigh your assets and you have no reasonable expectation of being able to pay off your debts in a reasonable amount of time, you can apply for bankruptcy.

Your bankruptcy will be administered by an official receiver who will assess your assets and debts. Any valuable assets, excluding what you need for day to day living will be sold and any excess funds that you may have will be used to pay your creditors but bankruptcy only lasts for one year after which all of your unsecured debts will be written off.

The irony is that there is a fee to go bankrupt. At the time of writing this fee is a total of £700 or if you are on benefits or a low income this fee may be reduced to £525.

Bankruptcy, whilst not the big deal that it perhaps used to be, is still a very big step and advice should always be sought first. If you own your own home, this may be sold as well as any other significant assets.

Regional Variations
Debt solutions and the fees applicable vary between England and Wales, Scotland and Northern Ireland. Solutions and fees quoted here are based upon those available in England and Wales. For full details of available solutions can be found on the web site of the debt Charity, Step Change: