Alternative Solutions

Debt Management

Important issues

Debt management works because, under the terms of the Consumer Credit Act, lenders are obliged to deal with any intermediary who you appoint to represent you. As that intermediary should be experienced in debt resolution it is likely that they will be able to negotiate better repayment terms than you would be able to achieve on your own.

Debt management is an important option to consider for people who are heavily indebted but the following issues should be borne in mind;

In a debt management plan you remain liable for the whole debt and the plan will last for as long as it takes you to pay your debts off in full.

Because you are committed to paying off the debt in full, any fees that you incur will extend the time that it will take you to complete a debt management plan.

Certain large debt management companies that do not charge fees are funded by the lending industry and are largely unregulated. In the circumstances the advice that you receive may not necessarily be the right advice for you.

Although most lenders are receptive to debt management plans at first, a good number will consider recommencing interest charges at some stage in the plan, particularly if payments in to the plan are missed.

A debt management plan will buy you time and could be useful particularly if you are seeking to restructure your finances. On the other hand, a debt management plan is unlikely to be a permanent debt solution particularly when a debt management plan would exceed seven years.

Bankruptcy

Important issues

Bankruptcy is certainly a debt solution. Many insolvency web sites and bankruptcy assistance companies state that, if you do not own your home and you are not in employment that you could lose if you were to be made bankrupt, it is the correct procedure to chose. In our view that is over simplistic. Two people with identical problems can chose different options and neither would necessarily be right or wrong. The key is to make an informed decision, ensuring that you understand the key differences between the procedures and that you chose the one that meets your aspirations, both now and in the future. If you think that bankruptcy may be an option for you, the following are important issues that you should consider.

Your affairs will be handled by a Trustee in Bankruptcy who will mostly be an Official Receiver. Official Receivers work within the Insolvency Service and are government officials.

Your Trustee in Bankruptcy will consider whether you have surplus monthly income. If you do, you will be required to pay a proportion of this in to your bankruptcy for a period of three years.

If you own your own home your Trustee in Bankruptcy will want to value your share of the equity in your property. If your equity has a value you will have to arrange for a third party to buy the equity from the Trustee, if you still wish to live in the property.

If you own a car at the date of your bankruptcy you will need to demonstrate a need to keep it for travel to work and other essential journeys. If the car is valued in excess of £2,500 it is likely that you will be asked to sell it and buy a cheaper model.

Until 1st April 2009 notice of bankruptcy had to be advertised in a local newspaper. From that date the need to advertise is at the discretion of the Official Receiver.

Substantial gifts to family members, prior to bankruptcy, or the repayment of large debts may have to be repaid to the Trustee in Bankruptcy by the family member concerned.

You should receive your discharge from bankruptcy within 12 months. Discharge releases you from bankruptcy restrictions such as limitations on the amount that you can borrow without revealing your bankruptcy and limitations on the ability to hold public office. Discharge from bankruptcy does not affect the three year period to pay over surplus income which carries on after you have received your discharge from bankruptcy.

If you intend to petition for your own bankruptcy it will currently cost £510 which must be paid in to court at the time that you file your petition. With effect from 1st April 2009 a cheaper procedure called a Debt Relief Order "DRO" was introduced. A DRO is available to an individual with debts of less than £15,000, a monthly disposable income of less than £50 and assets (excluding reasonable household goods) of less than £300. You may also own a car but this must have a value of less than £1000. The effect of a DRO should be identical to normal bankruptcy with the same restrictions being removed after 12 months. Furthermore, unless there has been a material improvement to finances during the period of the DRO there will be no requirement to pay over. surplus income