Life after debt

Are your finances getting out of hand? 'Debt Wizard' Mike Thomas looks at some of the options available

Some of you reading this article probably do not have any financial worries. If so, you are in the minority.

Debt can be incurred for a variety of reasons - breakdown of a relationship, injury, illness, depression, loss of employment, maternity leave, action by the Child Support Agency, transfer in duties or of course, through greed and improvidence or just basic poor budgeting. The individual concerned enters the road of debt when they take out their first loan.

Some take a detour and come off early, and others just cannot get off the motorway so to speak.

An overdraft facility soon follows, which eventually leads to a personal loan, as it is 'cheaper in the long run'. You then find that several more thousands are thrown on top. Store cards start to multiply, interest free deals, pay back in 1-2 years time are frequently obtained.

It is not unusual for an individual to be up to £400 per month worse off just by a transfer of duties or the work place. This could come about through additional travelling costs, together with loss of overtime. It is arguable that they should have been prepared for this eventuality, but we all know that this is hardly ever the case. Further credit is then taken, not for purchasing anything, but just to pay off other creditors and monthly bills. This is when things really start getting out of hand.

One memorable case my firm took on was that of an individual who worked for the emergency services and had liabilities of £104,000. He was advanced a further unsecured loan of £16,000, with £5,000 interest; his repayments to creditors were approximately £3,000 per month. This new loan enabled him to pay his creditors for nearly 6 months. It was only at this point that he sought help. So what can be done?

Licensed Insolvency Practitioners provide one source of help to people in debt. Under the 1986 Insolvency Act a debtor can propose an Individual Voluntary Arrangement, (IVA). For the proposal to be accepted by the creditors, 75 per cent or more in value of the creditors participating in the voting has to be obtained. The proposal is legally binding on all creditors who were notified and entitled to vote. The Licensed Insolvency Practitioner, known as the nominee, assists the client to submit a proposal that outlines his/her current financial position, with a brief background history. The debtor offers only what he/she can afford from current income over a term of usually three to five years or by way of a lump sum such as from a re mortgage. In the above case it was £600 per month x 60, making a total payment of £30,000 into the IVA.

If the debtor has County Court Judgements, then these will remain on record only. The payments made against them would cease and all available monies would go towards the one-off monthly payment incorporated in the IVA. Attachment of earnings would also be stopped, as the creditor would be bound by the arrangement. If the individual was already bankrupt this can be annulled, with the consent of other creditors, thus reversing the order.

Once the debtor has completed his/her part of the contract, the creditors have no recourse in respect of that debt, and the debt is deemed to have been paid in full, even if the final dividend was a percentage of the total liability. Creditors usually look for a minimum dividend of 25p in the pound and will ask for more if feasible.

Do I qualify for an IVA?
Creditors usually look for a higher level of unsecured borrowing typically £20,000 and upwards and with several creditors. For liabilities below that figure, there may well be other more suitable options for both the debtor (borrower) and lender. You will need to be able to fund the IVA by one of three ways, monthly contributions, monthly contributions and a lump sum (your share of the equity of your house) or a lump sum only such as a re mortgage or secured loan on your house or by borrowing from a friend or family member. In any event, the IVA will need to offer more to creditors than what they would expect to receive in a bankruptcy scenario.

Nominee's fees are usually payable in advance before any work is undertaken to cover the preparation of the proposal, the calling and holding of the creditors meeting and are charged according to the complexity of a particular case.
Supervisor's fees are usually based on work undertaken; time spent and includes the supervision of the arrangement over the period together with the production and circulation of annual reports to all creditors on the efficacy of the arrangement. They also cover for correspondence and telephone calls with the debtor and creditors on related queries.

Mike Thomas recognises that individuals with financial difficulty are not always in a position to meet the Nominee's costs. Therefore, he has secured a special arrangement whereby Police Officers and support staff will not have to pay fees up front; instead they will be taken from the contributions paid into the IVA, so in effect the fees are paid by the creditors. The firm helping individuals propose an IVA will bear the initial costs and will only be paid if the IVA is approved. IVA's are only suggested as a way forward where it is considered as the most suitable option.
For more specialist advice on all aspects of money problems including pros and cons of bankruptcy, IVA's, Debt Management Companies, or simply how to deal with harassment from creditors then visit or call 01376 563 365.

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