The Complete Guide
to
Debt Management
By Jon Murray
Copyright 1996
Jon Murray, Information Services,
114 Duke Street, Edinburgh, EH6 8HR.
Important Notice
This guide is intended as a source of help for people with problem
debts. It has been written mainly from direct experience and the
techniques and methods suggested have worked for the author.
It is not intended as an accurate record of any legal matters
concerned with credit and debt. If you need assistance with exact
legal rulings and procedures it is suggested that you consult a
professional adviser.
No part of this guide may be reproduced without
the written consent of the author and publisher.
The Complete Guide to Debt Management
Contents :
Section One : Introduction : How Easy Credit Nearly Ruined Me 5
Section Two : Just How Bad Is The Problem? 6
Section Three : Don't Panic! 7
Section Four : You're In Good Company 8
Section Five : The Need To Plan 9
Section Six : Don't Make Enemies Of Your Creditors 11
Section Seven : Are You Entitled To Help From The State? 16
Section Eight : What's The Worst That Can Happen? 17
Section Nine : What About The Future? 20
Section Ten : Can You Increase Your Income? 21
Section Eleven : Always Make Savings Where You Can 22
Section Twelve : Professional Help 23
Section Thirteen : Bankruptcy, The Very Last Resort 24
(And How To Avoid It)
Section Fourteen : Improve Your Credit Rating 27
Section Fifteen : Useful Addresses & Other Helpful Information 30
Section One : Introduction :
How Easy Credit Nearly Ruined Me!
In the late eighties I enjoyed great success in business. I had a property development
company which employed four full-time workers and I had a part-time mail order and
export-import business.
I was making a very good income, and enjoying the fruits of my activities. I owned
two houses, one which I let out for further income, a good car, a shop, a workshop
and office for my property business, two vans and thousands of pounds worth of
equipment.
It was towards the end of 1989 that things started to go wrong. With the sudden drop
in property prices my property development company got into financial difficulties. I
made the mistake of borrowing large amounts of money to try and meet my financial
obligations. When things got totally out of control I had to wind up the property
business, putting four people onto the dole and selling what assets I could to try and
keep creditors at bay.
By mid 1990 I sold one of my houses and re-mortgaged the other (which, until then I
had owned outright). When the money I had raised from selling everything ran out I
still had debts of over £100,000. A very sorry condition for anyone, but for someone
who had been enjoying the high-life less than a year earlier it was devastating.
For a long time I was very depressed about the state I was in and, naturally, had to
seriously consider bankruptcy. Eventually I managed to avoid becoming bankrupt - by
the skin of my teeth, and against the recommendation of debt advisers.
Bankruptcy would have been a relatively easy option and would have meant that I
could have had my existing debts written off and, after having all my assets stripped, I
could have started with a clean slate.
The trouble, for me, with the bankruptcy option was that it seemed like an admittance
of defeat. I was not prepared to admit defeat - at least not until I had absolutely no
choice.
This guide is written from my own experience. Herein you will find, described in detail,
techniques and methods you can use to stay afloat financially and to plan for a brighter
future.
There is no doubt about it, being in chronic debt is a very harrowing situation.
However, it is not the end of the world and it can be managed so as to keep the
pressure to a minimum and get the most out of the seemingly most hopeless of
situations.
Section Two : Just How Bad Is The Problem?
The conditions where a large number of people could easily get themselves into
serious problems with debt were largely created in the 'boom' years of the 1980s.
During this decade the availability of credit was greatly increased, with the sustained
pressure to consume fuelling the fires.
The concept of the "evils of debt" which our predecessors held dear, seemed to
evaporate...."Never a borrower or a lender be" was a phrase which had gone out of
fashion. Suddenly it was freely available credit all round. For most people this
seemed, initially at least, to be a great boon. To be able to afford all the luxuries of life
which our parents never were able to even dream about, what progress!
The owning rather than the renting of houses, cars, washing machines, televisions,
central heating, holidays abroad, hi-fi equipment, and a myriad of other consumer
goodies stopped being something which the famous "Joneses" were able to afford.
Now it was possible for everyone to "keep up with the Joneses".....or so it seemed!
However, the problem with obtaining goods on credit is that the sense of well being
that accompanies their acquisition soon disappears when you find that you are in the
position of not being able to keep up the payments on them.
Section Three : Don't Panic!
Being in a situation where the repayments on the money you owe amount to more than
the money you have coming in is a situation which no one wants to find themselves in.
However, even in cases where a debtor has been very prudent to not borrow beyond
his or her means, there can be unforeseen changes in circumstances which can
suddenly change the situation from one of manageable proportions to exactly the
opposite.
If you find yourself in a situation of having more debt than you can meet the original
repayments on - don't panic! There is much that can be done to considerably reduce
the severity of the problem, and indeed, to take it from a seemingly totally
unmanageable situation to one which can be dealt with with much less pain and worry
than you may at first have thought.
Section Four : You're In Good Company
In 1992, for the first time, the Citizens Advice Bureaux reported that people seeking
help with debt problems was the single largest category of advice sought, pushing
advice sought about state benefits into second place. Overall, between 1979 and
1988 enquiries regarding problems with debt more than doubled.
Although the overall situation in the UK concerning the level of bad debts is appalling,
the one silver lining to this big black cloud is that most banks and other lending
institutions are now very used to dealing with people who end up with serious
repayment problems.
So, whatever reason or reasons you have for ending up in the unpleasant and
harrowing situation of being unable to make ends meet, there are literally millions like
you in the UK today.
The sad irony of our system of credit is that people who most need to borrow money
are offered the least attractive terms for borrowing. If you have little or no collateral,
or if your income is very low, then the terms of any loans you will have access to are
considerably less attractive than those available to people with higher incomes and an
abundance of collateral.
So you have people who can freely borrow money at very attractive rates of interest
who really could manage without the borrowing, and you have a much larger number
of people who would dearly love to be able to borrow at such low rates of interest as
these richer folks enjoy, but who are severely penalised in this area when they feel the
need to borrow.
The golden rule is, as many of you will have learnt to your cost is to never borrow that
which you cannot realistically afford to repay. This of course doesn't really cover
people who have suddenly lost employment after having taken out credit in the belief
that their job was secure.
Section Five : The Need To Plan
The most important thing in any situation where things become unmanageable is to get
a clear picture of the situation and do everything in your power to set things straight.
Never ignore the problems....they won't go away!
If you are in the unfortunate position of having more credit than you can repay at the
original agreed rates then you must make arrangements to have these rates
substantially reduced, so as to turn the situation from one of apparent hopelessness
into one which you can handle.
As you will be told in any publication that offers advice to people with debt problems,
you must first get a wholly clear picture of your situation and then formulate a strategy
for dealing with it.
The first step you should take is to make a list of all the money you owe. This should
include everything, even money owed on a casual basis. This will give you a realistic
overall picture of the extent of the problem.
When you have listed all your debts, including your mortgage if you have one, you
should then make a list of the repayment instalments which were originally agreed.
Once you've made such a list you should add all the amounts together to arrive at a
figure for your monthly outgoings.
Also, calculate the amount you need to spend each month on the necessities of life;
food, clothing, etc. Add this to the monthly outgoings figure from all your credit. If this
figure exceeds your total monthly income, then you don't need to be a genius to work
out that you are in a financial situation which is most definitely problematical.
By writing down all your incomings and outgoings as suggested above, you should
immediately feel some sense of relief that at least you are beginning to address the
problem. As the old saying goes - "A problem recognised is a problem halved".
Of course the "half" of the problem which is "solved" by arriving at the stage of it being
properly recognised in the first place is, obviously, the easy half. The other "half" of the
problem is the part which is going to take some effort to overcome.
When you explain your reasons to creditors for the difficulties you are having in
keeping up payments they will much more often than not handle your case in a
reasonable and sympathetic fashion. Believe me, they are used to hearing from people
with repayment problems.
After having explained your circumstances to creditors they will usually agree to
considerably reduced instalments. Before finalising a temporary repayment contract
with you, many of these creditors will send you an income and expenditure form.
These forms are tedious to fill in and ask you for a detailed listing of what money you
have coming in and what you owe to others and the payments you need to make.
However, rather than fill in a separate income and expenditure form for all creditors,
since these forms are much the same for each creditor, you could fill in only one form
and photocopy it to send to all of them.
An alternative to filling in an income and expenditure form (or forms) would be to
make up your own personal statement which includes all the information requested in
these forms. There will be parts of the forms to fill in where you are asked for details
of what you owe to whom. You don't need to be specific about the debts you owe to
other creditors if you don't want to. Who you tell about what you owe, and to whom
you owe it is for you to decide. Creditors only have these forms because they want a
reasonably detailed explanation of your reasons for requesting a substantial reduction
in repayment instalments.
Section Six : Don't Make Enemies Of Your Creditors
You must do all you can to keep your creditors on your side. The best course of
action is to contact any creditor you have as soon as you know you are going to have
a problem keeping to the schedule of repayments originally agreed.
You can telephone them, and most will be very helpful. Because of the large number
of people who have got themselves into a problem with credit and end up having to
make reductions in instalments, they will certainly not be surprised when you contact
them to discuss your situation.
I have often found though, that the telephone is best avoided as a means of
communication with creditors unless you need to avert an impending prosecution or
stop one of the utility companies from cutting off your gas or electricity. The trouble
with trying to make arrangements over the phone is that you can often be told that
revised repayments will be accepted, only to find that the verbal arrangement you
made has never been noted - and is then forgotten about. You are then back at stage
one, or even worse.
The best course of action is to write to your creditors. Explain your situation. Tell
them why you can't keep up the original level of instalments and offer them
considerably reduced amounts, explaining that as soon as your circumstances improve
you will return to the original level of repayments.
The amounts you can realistically afford will be worked out from your listings as
advised in Section Five. Always offer considerably less than you can realistically
afford, that way you will at least have some leeway when, as will inevitably happen
with some creditors, your offer is refused and the creditor insists on a higher amount.
You may be pleasantly surprised to find just how little some creditors will accept. One
bank agreed to accept payments of only £8 per month on a debt of mine which was
£3,000. This works out at only 0.2667% of the balance owing. The original minimum
instalment was supposed to be £150 per month - quite a reduction!
Don't go into too much detail when you write to creditors. They are not particularly
interested in your life history. If you have become unemployed then, of course, you
would mention this. This is one of the most common reasons for people getting into
serious arrears.
If you have simply overstretched yourself and have taken on much more credit than
you can afford to pay, but are in employment, then simply confess to having seriously
miscalculated your ability to keep to the commitments you have created for yourself.
Whatever reasons you have for ending up in the situation of having repayment
difficulties, you must show your creditors that you got into the situation by misfortune,
or mismanagement and not because you have a blatant contempt concerning any
financial obligations. You must also impress upon them that you sincerely wish to get
the difficulties resolved.
Never give them the impression that you don't care about the fact that you can no
longer keep to your original contract. And never admit to getting into difficulties
because you have been foolhardy about borrowing in the first place.
Provided that you communicate, at the earliest possible opportunity when difficulties
become apparent, and provided that you are seen to be making every effort to sort
things out, then your creditors, or at least the majority of them, will take a sympathetic
view.
Always remember too, that all your communications with creditors should be in polite
language - there is nothing to be gained by being rude or offensive. Your attempts to
have your case sympathetically considered will only be enhanced by being polite and
respectful. By this I don't mean to suggest that you should grovel, simply that you
should project a reasonable and decent image of yourself.
Naturally some will be more understanding than others. I have had such a mixed
response from a wide variety of creditors. I have experience of a very easy to deal
with bank who are still accepting payments of only £20 per month on a £3,000 debt
(for nearly five years they accepted only £8 per month, as mentioned above, and this
was increased only because my financial situation has improved and I offered to pay
more). The interest was frozen on this debt when I first informed them of my
difficulties, and remains frozen nearly six years later, so although it will still take some
years to pay off, I have no particular incentive to settle it at a higher rate.
On the other hand, I have had creditors who would only accept reduced payments for
a trial period of 3 months, and when I was unable to renew the original repayment
schedule, have handed my account over to debt collectors.
The one good thing about having your debt handed over for collection to a debt
collecting company is that at least the interest will stop accruing. Also, these
companies, by their very nature, are very used to people making offers of very small
instalments.
A debt collection agency can take over your account, by buying it from the original
creditor (sometimes for as little as 10% of the balance outstanding) or by managing it
on the creditor's behalf. As long as you make some kind of offer, even for a very small
percentage of the original instalments, and keep to the repayments offered, they are
unlikely to bother you again until the debt is cleared. Even if this process takes many
years.
In the stages before your account gets passed to a debt collection agency, you should
request that the interest be frozen on the account. Explain in your letter that you are
very sorry to have to make this request, but, the only way you will stand any chance
of reducing the amount owing is to be able to have every payment you make deducted
from the balance, and not being used to pay interest.
Although many creditors will be reluctant to freeze interest in the long term, most of
them will readily agree to suspending interest for a trial period, usually three months,
and occasionally six months. If you are fortunate enough to get back on your financial
feet within three months then well and good, and you can recommence payments and
cope with the interest being reinstated on your account.
However, if you have not enjoyed an improvement in your situation within three
months, you will have to write again to your creditor(s) to explain that the situation has
either not improved or become worse and you need to have interest frozen, and
repayments minimised for a further term. If your situation goes on being too poor to
re-establish the original instalments, then, after two or three times of requesting that the
interest remain frozen and the repayments remain at the considerably reduced rate,
you will usually find that the creditor troubles you no further.
Then, providing that regular payments are made, even at a tiny percentage of the
original rate, you will often find that the account is left interest free, and the reduced
payments continue to be accepted without further ado.
A lot of creditors, if the situation reaches this stage will simply pass your account onto
a debt collection agency as a matter of course. This is nothing to worry about - as
explained above, this can be quite a desirable situation, because there is then no
possibility of any further interest being added, and the agency will accept very small
instalments towards the debt.
I did once have an account which had been passed onto debt collectors who started
adding interest. I simply wrote to them and pointed out that I had never entered into
any contract to pay interest to them. Since the account was now no longer being
administered with the company to whom I had pledged to pay interest, I demanded
that they desist from adding interest to it. This they did. They deleted the interest
which they had already added and never added interest again.
One set of creditors which you must be extra sure to keep on the right side of is the
utility companies. That is, the gas, electricity, water and phone companies. The
problem with these suppliers is that, if you don't do your best to negotiate and reach a
mutually agreeable compromise, they have the power to cut off the service which they
supply.
None of the utilities want to cut you off. Not only do they want to continue supplying
you so that, ultimately, they will be making a profit from the supply of their service, but
they will naturally wish to avoid the hassle of having to issue disconnection notices and
send someone out to disconnect you.
With the electricity companies you may apply to have a Powercard meter fitted.
Indeed, if you are having difficulty in paying your bills the electricity company may
suggest to you that you have such a device fitted anyway. For all the disadvantages of
a Powercard, like getting your supply cut off when the credit from the Powercard is
spent, the main advantage of this system is that at least it will allow you to know
exactly where you are with your electricity bill because you are paying as you go
along. Existing arrears can also be incorporated into the Powercard system : the
meter is set to accommodate this by charging you slightly more for the electricity you
use. When your arrears are paid off, the meter is re-set to the ordinary level.
With the gas supply company, you can apply for an electronic payment card. This
card is taken to your Post Office and "charged" with units of credit which you pay for
over the Post Office counter. Again, the advantage of this system is that you will be
paying for your gas as you go along.
The phone company doesn't have to send someone round to disconnect you, they can
simply switch you off at the exchange. However, they naturally want to maintain a
telephone line supply to as many customers as they can - more customers means more
profit. Of course they will get upset if you don't pay your bills. But, as with all
creditors, providing that you make every effort to reach an amicable compromise and
an instalment schedule, there is no reason that you should have your service
disconnected.
If you find that your phone bills are too high you should naturally try and cut down on
phone use. If the situation gets really critical you can request that you receive incoming
calls only. This is not a very desirable situation, because it means that every time you
wish to call someone you have to go out to the nearest phone box, or to your next
door neighbour to beg to use their phone. However, having your phone reduced to
being able to receive incoming calls only can be a lot better than having the line
disconnected altogether.
In cases of rent arrears, existing or impending, you should take steps at the first sign of
trouble and contact your landlord. As with your electricity, gas and water, you should
give priority to your rent, particularly in the private sector. For all the protection that
tenants enjoy from unreasonable landlords, the one area where the courts will not take
kindly to the tenant is where there has been no reasonable effort made to have
payment difficulties resolved. If you are unemployed you should be able to get all or at
least a substantial part of your rent paid by your local authority Housing Department.
The DSS will advise you on the procedure on claiming this benefit.
Remember, a landlord can only evict you with a court order. You should be able to
avoid any case of rent arrears from ending up in the courts.
In the case of mortgage arrears you should confer with your lender as soon as you
become aware that a problem exists. Mortgage lenders have special departments set
up to deal with payment arrears, and, again, as long as you are prepared to make
every effort to get things sorted out, there is every reason that they will co-operate
fully. The last thing they want to do is re-possess your property. The majority of
people who do end up being evicted and having their properties repossessed are
those who have taken little or no action to try and avert this situation. If you are
unemployed and in receipt of state benefits, and you have an endowment mortgage
you should be able to get help with the repayments to interest from the DSS. The rules
and availability of mortgage relief payment have changed a number of times over the
past few years, consult your local DSS office for the latest information.
When I had a lot of mortgage arrears which I could not hope to clear, my mortgage
lender allowed the full amount of arrears to be added to the capital loan. This
increased my monthly payments by only a very small amount, but allowed me to
breathe much easier as I had several hundred pounds of arrears absorbed into the
mortgage. If you have substantial arrears which you feel it will be impossible for you to
catch up with, then this is something which you could suggest to your lender. Naturally
they will only allow this if they have a promise that they will get regular instalments
from then on.
Other debts which should be considered more important than the likes of credit cards
and bank loans/overdrafts are Council Tax, Income Tax and VAT. These are debts
which, if ignored, can, by virtue of who you owe, lead to imprisonment. Naturally no-
one wants to see you get into such a terrible state as to be liable to imprisonment. And
the likelihood of your getting to that stage, even if you are being obstructive is very
limited nowadays. I mention it only because these debts are owed to government
departments who have considerably more power over you than banks and other
company creditors. The same old routine applies to these debts as to all others
though, it is only in their level of priority that they should be given any preferential
treatment.
The golden rule is, as always, negotiate. Make your situation clear to these creditors
and impress upon them that you will do everything in your power to resolve matters in
the shortest possible time. You may be pleasantly surprised that the people you have
to talk to and write to will be very understanding and offer to help you get things
sorted out with the least possible fuss.
Section Seven : Are Your Entitled To Help From The State?
If you become unemployed and have no other source of income then you will be
entitled to a range of benefits from the state to help you deal with the hardship of
having no salary or wage.
Because the range of benefits available, from a variety of sources, is vast and because
legislation changes with great frequency it is pointless to attempt to give detailed
advice about what is available and what you may be entitled to.
Your best course of action is to diligently research every possible avenue when
considering which benefit or benefits you may be entitled to. Your local Jobcentre,
where you would go to register if you become unemployed, will be of some help. The
Department of Social Security, however, is the main government department to get in
touch with to find exactly what you may be entitled to from the state purse. There is a
booklet available called "Which Benefit?" which is a comprehensive listing of all DSS
benefits available. This can be picked up in larger Post Offices or can be collected
from, or posted out to you from, the DSS. If your DSS office is not conveniently near,
then look them up in the phone book and call them, requesting this booklet.
Look through this booklet and make a list of all the benefits which even remotely
apply to you. There is no harm in claiming a benefit which eventually you may not get -
it's better to have claimed and be turned down than to continue for a long period
missing out on that to which you are entitled.
Your Citizens Advice Bureau can be a ready source of help when trying to find out
the source of and entitlement to benefits.
Your local council housing department will deal with any claim for housing benefit
when you are claiming an allowance for rented property, whereas the DSS will be the
source of any help you may be entitled to with mortgage interest. However, in any
claim for housing benefit, the necessary forms for this are obtained from the DSS.
Apart from the benefits available from the DSS and the local authority housing
department there can be a number of other benefits available. For example, the local
education authority can be a source of assistance to those with children at school. To
find out about any benefits which you may be able to claim from the education
authority consult them directly or through your local Citizens Advice Bureau.
Section Eight : What's The Worst That Can Happen?
If you were to have had unmanageable debts in the Victorian era then you could have
ended up in a debtors prison. Thankfully there are no debtors prisons any more.
Unfortunately in this country there is still a great deal of stigma attached to having debt
problems.
However, as already stated earlier, there are so many millions of people with debt
problems today that it is really quite surprising that, apart from the real worry that
having debt problems can cause, this is further compounded by being embarrassed or
even ashamed of the situation. Don't be - being in debt is not a criminal offence - and
whatever problems it causes, these can always be overcome with determination and
effort.
If you don't get in touch with your creditors as soon as any payment problems
become apparent, then there is every chance you will be served with a default notice.
This is a legal notice which any creditor can issue in the event of the correct payments
not being received by them. Default notices are recorded by credit reference agencies
and are kept on record for six years. Having default notices can adversely affect any
future applications for credit.
If you write to your creditors and make arrangements for a reduced schedule of
repayments then it is unlikely that, provided that you make such arrangements early
enough, you will be served with default notices. These notices must be issued by any
creditor prior to them taking any legal action through the County Court (Sheriff Court
in Scotland).
If you receive a default notice and have not already entered into an agreement with the
creditor where they will accept reduced payments then you must contact them
immediately if you want to avoid the case going to court. They do not particularly
want to have to take legal action because of the inconvenience it will cause them.
They also know that a court will nearly always allow a debtor time to pay - often by
very small instalments over a very long period of time - so they are generally happier
to make these arrangements with you directly, especially if it means that, should your
situation improve, they can then begin to collect larger instalments and re-introduce
interest on your account.
One distinct advantage of having your case heard in court is that there will definitely be
no further interest added to the money owed and provided that you can keep up the
very small instalments which you should be able to secure, you will hear no more
about the case. You simply keep paying until the balance is cleared. This could take
several years, but your debt is accruing no interest, so, apart from any personal desire
to get the debt cleared you have little incentive to do anything other than to take the
longest time to pay it.
If you find that you cannot keep up repayments which you are making under the order
of a court, then you can apply, at any time to have these reduced. Write to the Clerk
of Court and explain why you are unable to maintain payments at the level ordered.
Providing you have a valid reason for requesting a further reduction there is every
possibility that your request will be granted.
What you must never do is to simply allow yourself to miss payments ordered by the
court. If you do this there is a strong possibility that bailiffs will be appointed to call at
your home to collect payment. If you do not have the money to pay them they will
then obtain a Distress Warrant from the court. This gives them authority to seize your
personal property for sale at auction to raise money towards payment of the debt.
Bailiffs cannot force an entry into your home. If they do call, do not let them in. If you
let them in once, then, when they return, they have authority to enter your home
through unlocked windows or any way they can without forcing an entry. Once inside
your home they have authority to force internal doors. They are allowed only to seize
certain items. They cannot take fixtures and fittings. You are also entitled to keep the
minimum of "essential" furniture - a bed, a table, a chair for each member of the
household, a cooker, etc. They are also not allowed to seize your "tools of the trade",
if you have these, since you are entitled to keep them to earn your livelihood.
They cannot take property belonging to anyone other than the debtor, but sometimes
they will anyway, and then it will be up to you to try and sort the matter out with the
owner. If the owner can show proof that goods belonging to him have been seized
then he can claim them back. However, if proof is not available then it will be up to
you to make amends with them for their loss.
Bailiffs also cannot seize goods which are on a hire purchase or similar credit
agreement, unless they belong to the creditor who has made an application to get them
back. You must be able to show documentation which shows that such items are still
the property of the vendor, or the goods could be uplifted anyway.
Distress Warrants are issued only when all other methods of collection have failed.
Provided that you co-operate with the court and make every effort to pay what you
have been ordered to, there is no reason whatever to worry that a Distress Warrant
will be issued for the seizure of your property.
Residents in Scotland should note that, under the Bankruptcy Scotland (1987) Act,
bailiffs or Sheriffs Officers, once the relevant court order has been issued, can employ
the services of a locksmith to gain entry to your home. They are obliged to give notice
before taking this action, but even if you are at home when they call it can be difficult
to stop them forcing their way past you, and taking your possessions. It is therefore of
paramount importance that Scottish debtors make every possible effort to reach an
agreed schedule for repayments with the court at the earliest, and to keep to this
agreement.
Once you have cleared any debt, it is then said to be discharged. When a debt has
been fully discharged you can apply to the credit reference agencies and request that
they delete the record of it from their files. However, in the vast majority of cases the
record will not be deleted, at least until the six year period has expired, but they will
mark it as having been settled.
The first time a creditor of mine made an application to the court to try and collect
money which I owed I was really upset when I heard. However, after the hearing I
was delighted that I now had only a small monthly instalment to make and I was very
relieved to know that the debt could get no larger by the addition of interest.
Although having court judgements against you does have an adverse effect on your
credit rating, the way I see it is that, if you have had serious problems with debts, the
last thing you want is to be borrowing money again anyway.
Section Nine : What About The Future?
Once you have made arrangements to pay debts at a small fraction of the original
instalments, whether through a court or directly with your creditors or debt collection
agencies, and have made payments over a period of time, it is worth considering
making an offer for full and final settlement.
If you are paying only a tiny portion of the original instalment and your creditor knows
that the debt will take years to clear, they will often accept a small portion of the total
amount outstanding to fully discharge the debt.
The smallest amount of a debt I have managed to persuade a creditor (it was a debt
collection agency) to accept was one third of the balance outstanding. Sometimes, in
order to get the matter finalised and to obtain a cash payment far in excess of the
instalments being made, a creditor will accept as little as 10% of the balance
outstanding.
Once you have been paying greatly reduced instalments for a year or more you could
try writing to the creditor with an offer to pay a portion of the balance in full
settlement. You could try initially by offering only 10% of what you owe. This might
well not be accepted, but in some cases they will settle for this, particularly if you are
paying a debt collector who has bought the debt from the original creditor for only
10% of the balance.
If you have been paying something like one or two percent of the debt monthly for a
year or two it can be quite an attractive proposition for the collector to receive even
10%. If they refuse, then offer 20% (if you can afford it) - and increase by increments
of 10% until they do accept. Even if you end up paying half of what you owe, if you
can manage to raise the money and you want to discharge the debt completely, then
this is worth considering.
If you do wish to obtain credit in the future, then the chances of being able to do this
within six years of the latest default notice or court order are slim indeed.
However, after a six year period, your records are deleted. You can write to the
credit reference agencies at any time, enclosing a £1 statutory fee, and obtain a listing
of all the records they have. If any records are still in existence after the six year
period you can write to these agencies and insist that such records that are older than
six years be deleted.
Section Ten : Can You Increase Your Income?
When you have difficulties in making ends meet and find that you have insufficient
funds to meet the financial demands you have created for yourself, apart from taking
the action already advised, to get your outgoings reduced to a minimum, you could
also consider ways of maximising your income.
If you are unemployed and on state benefits, then you must, as mentioned earlier,
ensure that you are in receipt of all the benefits to which you are entitled.
If you are in employment can you or a member of the family get a part-time job? Do
you have the time to do a part-time job? If so, and you think that working the odd few
hours at the weekend or in the evenings, such as in a bar or a shop, then this is
certainly worthy of consideration. By getting your repayments greatly reduced such
action as taking part-time work may be unnecessary, but is it desirable? This is
something only you can decide.
An alternative to part-time employment is to work for yourself from home. There are
many opportunities for this today, but the trouble is that most of them require some
sort of financial commitment. Homework, that is, employment by a third party to do
paid work from home, is in fact extremely rare.
What other ways can you think of to raise cash? Whether in employment or not, have
you got any belongings which you no longer need and which could be sold to raise
money to help your situation? Perhaps you could collect a selection of goods together
and attend a car boot sale. I have used this method several times and have never
raised any less than £100 at any car boot sale at which I have set up a stall.
Could you write articles for the press, and get paid for it? Its surprising how much
some magazines will pay you for a short story or article or even for letters. Do you
have any particular skill which you could teach others in return for payment. Although
I don't do it anymore, I used to get paid for helping people to use their computers.
And, in addition to writing and selling information I also sometimes take on typing
work for small businessmen and local tradesmen and type up the occasional student
thesis.
There are many ways of increasing income, and, if you feel that your situation will be
overall improved by this, then think what you can do to increase yours. Then take
positive steps to make it a reality.
Section Eleven : Always Make Savings Where You Can
Naturally, it is pure common sense when in financial difficulties to reduce your
expenditure as and how you can. By this I am not trying to suggest that you start living
like a pauper, and deny yourself the basic comforts and a few luxuries of life. I simply
wish to suggest that there are a great many areas where realistic and very helpful
savings can be made.
If you have a mortgage you can contact your lender and ask them if it is possible to
extend the repayment period. If you have only 15 years left to pay on a mortgage,
would it be helpful to your situation if you extended this to 20 years or even right back
up to the normal maximum of 25 years? This could seriously reduce the monthly
instalments. This course of action, however, is not one to rush blindly into, but should
be very carefully considered. Only if, after careful consideration, you decide that your
overall situation will be improved by this should you go ahead.
What savings can you make around the home? If you have central heating, consider
turning the thermostat down a degree or two. The saving this will produce will be
small, but even a few pounds a month can make a noticeable difference when there's
bills to pay and funds are in short supply. If you have conventional heating then try and
leave it turned off for longer periods. If you have a choice between a bath and a
shower, take more showers and less baths. Did you know that a bath can use up to
20 times as much hot water as a shower?
If you have a car, consider whether it is really necessary to keep it. Could you trade it
in for a cheaper one, or even do without it altogether. From the age of 17 until March
of this year I always had my own car. However, although I could actually afford to run
one now, I decided that I could use the money much more usefully elsewhere. If you
feel that a car is essential and you've considered running the cheapest one acceptable
to you, then you can give thought to making savings by using it only when its
absolutely essential. You could look around for cheaper insurance and find the most
reasonably priced garage for repairs and maintenance.
There are so many ways that you can make savings. Buy cheaper foods, the
supermarkets own brand instead of the famous names. Eat less meat and more
vegetables, this way you'll save even more money and be healthier too.
Even simple things like thawing frozen food before cooking it can save you electricity -
again only a small amount, but every little bit helps.
If you change your attitudes to how money should be spent, and keep the
wastefulness down to an absolute minimum in every area of your life, you may be
pleasantly surprised by how much more disposable income you have!
Section Twelve : Professional Help
When you're in serious debt and worried about it, this guide should help a great deal.
Possibly you will find enough information in this guide to help you to solve all your
debt problems.
However, in some cases you may need further information, particularly regarding your
legal position if things really have been left so late that the situation seems totally
unmanageable. In this case you might want to contact a debt councillor, a solicitor or
even, if you are being forced into bankruptcy, an insolvency practitioner.
Advice about how to manage debts is available from all Citizens Advice Bureaux. The
advice they give is free. You can find the closest one to you by looking in your
telephone directory. The name and address of their head office is given in Section
Fifteen.
If you need to consult a solicitor you should try and find one who offers legal aid and
ask if you are entitled to this free service. Your entitlement will depend on your
circumstances.
If you are being forced into bankruptcy then you may wish to consult an insolvency
practitioner. The fees for this will be relatively high, but they will not expect you to pay
them directly. They will be paid from the liquidation of your assets.
You can telephone the National Debtline on 0121 359 8501 for free confidential
information and advice. Their telephone lines are staffed on Monday and Thursday
between 10a.m. and 4p.m. and on Tuesday and Wednesday between 2p.m. and
7p.m. If you call outwith these times your call will be answered by an answering
machine.
There are a few Money Advice Centres around the country - if you have one near
you your Citizens Advice Bureau will advise, or you can find them in the phone book.
The advice offered by these centres is free of charge and, because they specialise in
advising people about money matters, if there is one which you can visit it is a better
bet than your CAB.
Section Thirteen : Bankruptcy, The Very Last Resort
(And How To Avoid It)
Depending in which country of the United Kingdom you live in the procedures and
implications of bankruptcy vary. In Scotland it is a fairly straightforward process
whereas in England and Wales the procedure is much more complicated. In Northern
Ireland the process is different again.
Although personal bankruptcy is possible in England in Wales it is seldom used
because of its complex nature. If you have debts arising from running a business,
rather than personal debts, it is quite possible that you will be forced into bankruptcy,
but that is a whole different situation and is beyond the scope of this guide where only
personal debts are considered.
In England and Wales instead of bankruptcy, it is more usual to enter into an
Individual Voluntary Agreement. This is a process where the debtor agrees to allow
the court to appoint a supervisor who will take charge of the case and see that
creditors are dealt with equitably. If it becomes necessary for goods to be seized and
sold, the supervisor will divide the proceeds between creditors, after court fees have
been paid.
If it is possible to avoid going as far as an IVA you can have the court issue an
Administration Order. Here an administrator will take a monthly payment from you
and distribute it to your creditors. This process will save you from having any of your
property seized provided that you can keep up the monthly payments to the court. If
you are being taken to court by one or more creditors, you may wish to consider this
option.
The Bankruptcy (Scotland) act (1985) has as its main provision that once debt
exceeds £750, either the creditor or debtor (or both) can petition the control and
distribution of the debtor's assets by a trustee. This will involve no new actions against
the debtor and liabilities will be discharged after three years.
Debt recovery in Northern Ireland is regulated by the Payments for Debts Act (1971)
and the Judgements Enforcement Act (1969). The former allows deductions from any
statutory benefit for any statutory debt. You can have money deducted at source from
wages or state benefits to pay your creditors.
The Judgements Enforcement Act provides for an enforcements office (EJO) to which
creditors apply once they have a judgement from the courts. Once the debtor's case is
accepted the EJO interacts with the debtor and decides the appropriate methods of
recovery. Where the debtor has insufficient means, a certificate of unenforceability can
be issued. This is technically the same as bankruptcy.
If you are forced into, or decide voluntarily to apply for, bankruptcy, all your
disposable assets, with the exception of some basic necessities such as a bed,
clothing, tools of your trade, cutlery, crockery, etc., will be seized and sold at auction
to raise funds towards payment of your debts.
If you are forced into bankruptcy anywhere in the UK, your debts are automatically
discharged after 3 years and you can start with a 'clean slate'. The exceptions to this
are :
Secured creditors, where, if your home has been sold you are liable for any shortfall
between the selling price and the amount you owe. You are also liable for interest until
the debt has been discharged.
Fines, maintenance orders and family court orders.
Claims made against you for causing personal injury.
Debts incurred through fraud.
Any matter upon which the trustee is still working.
If you own your own home it is possible that you can keep this. Largely this will
depend on the equity of the property. If the home is valued at much more than you
owe to the mortgage company, you may be forced to sell to release the equity. If
there is little or no equity, or indeed negative equity, on the home then, providing that
you continue to make mortgage payments, there is every chance that you will not be
forced to sell. It is only the case where there is equity tied up in your property that
anyone other than your mortgage lender can force a sale anyway.
If you are unemployed and have your mortgage interest payments made directly by
the DSS, and your house value is around the same as the outstanding mortgage it is
unlikely that you will be forced to sell. One problem which you may have in this
situation is that the endowment policy for your home (interest only endowment
mortgages) will still need to be paid and the DSS will not offer assistance with it.
If you are in rented accommodation you may have a lease which states that a
bankrupt is not allowed to be a tenant and your landlord could force an eviction if this
were the case. Also, even if there is no mention in the lease of bankrupt tenants being
disallowed, your landlord may force you out because he feels it will be impossible to
recover rent arrears from a bankrupt. In this case you will have to apply for specialist
housing advice. See your local council housing department about this.
Anyone who is bankrupt will not be allowed (until after discharge) to have credit of
more than £250 - you will find it almost impossible to get any credit at all though.
You should try and keep a bank account because as a bankrupt you will be unlikely
to even be able to open one of these.
Although the debts are discharged after three years you may well find it almost
impossible to get any kind of credit for a period of six years after the issue of the
bankruptcy order, because this is the period of time that the credit reference agencies
will keep your details on file.
So, all in all, particularly in England & Wales, bankruptcy is best avoided if at all
possible. If you closely follow the advice given in this guide then you should be able to
avoid bankruptcy. Even your creditors will not want to force you into bankruptcy in all
but the most unusual of cases. They are fully aware that if you become bankrupt they
are unlikely to get anything but a very small percentage of what is owed to them and
are much more inclined to accept reduced payments, particularly in the hope that your
situation will improve.
Section Fourteen : Improve Your Credit Rating
These days it is virtually impossible to survive and prosper financially without a good
credit rating. The problem is, if you have been in debt which got out of hand and you
have had to employ some to the techniques and principles in the earlier sections of this
guide, then you will have a very poor credit rating.
It was unfortunate for me that I had to learn the hard way about the importance of
maintaining an excellent credit rating. After having access to easy credit, I lost
hundreds of thousands of pounds on property deals and other business ventures. Only
after this experience did I realise how fortunate I had been to have had the kind of
credit I was using in the first place.
I have now re-established my credit rating to a first-class level and I intend never to
create a situation again where my credit rating is put in jeopardy.
The method detailed below is the one I used to rebuild my credit rating back to a level
where I will never need to worry about access to money for any purpose.
When you have no money at all and your assets are all frozen because of debt, and no
bank or other lending institution will lend you a penny, you may think that creating a
credit rating where you can eventually borrow money quite easily would be virtually
impossible.
In fact, with absolutely no cash at all, it is virtually impossible. Some amount of cash is
essential. To get this plan operational within the couple of months that it takes to
become productive an ideal sum of money would be in the region of £1,000.
However, if you cannot get access to this amount, a far lesser sum will suffice initially.
The principles of the plan are the same for any starting 'bank'.
To get some money to start my credit building plan I took every one of my personal
possessions which I thought I could sell. I attended car boot sales, at which I
managed to raise just over £350. I put together another £300 by selling furniture and
other personal effects through adverts in the local paper.
Keeping £150 as an emergency fund I took £500 to the nearest bank and opened the
highest interest savings account that I could get. After a week I applied for a personal
loan from the same bank and offered my £500 deposit as security. Because the sum I
wished to borrow was already held by the bank, they were only too glad to lend me
the £500.
So I then had £500 cash in hand and £500 in the bank. Naturally I had to make
monthly repayments to the loan. These were kept to a minimum by taking the loan out
for the maximum period allowed, which was 2 years. This left me with repayments of
less than £1 a day.
I then took the £500 I had borrowed to another bank and opened another high
interest savings account with it. Following the same procedure I opened savings
accounts at six banks and used the final £500 to cover the repayments.
After a couple of months repayments had been made to each loan I took the £150
emergency fund and added it to the capital I still had. I used this to repay the last loan
I had taken out. This allowed me access to the savings I had with that bank. Then,
after each subsequent month I paid of each of the loans in turn.
Having done this it was easy to go to the first bank and apply for a loan of £500
secured on my home. They were happy to lend me this money because I had shown
them that I could borrow and repay a previous loan. So, in spite of my terrible credit
history, after having lost a great deal of money in business ventures which went wrong,
I had rebuilt my credit rating to a first-class level within six months.
If you have no previous bad debts there is no reason why you could not establish this
level of credit rating within two months.
And once you have established your credit rating with a few banks you can apply for
their credit cards. Initially you may have to settle for a fairly low account limit, this can
be increased rapidly by using the credit cards to borrow money up to the limit of each
card every month, and then repaying the full sum at the end of the month.
Within a few months you can request and normally would be granted an increase in
credit limit. I used this method with two store-cards as well, and now have a £5,000
limit on most credit and store-cards I use.
One thing to always keep in mind : once you have established an excellent credit
rating, don't lose it! I became too careless with borrowed money in the early days
because I had easy access to credit. Now that I have rebuilt my credit rating to a top-
notch level I will never let it be ruined again.
Keep your credit rating healthy by always ensuring that you are able to make any
repayments that are due, and make these repayments on time. Even if you have to
borrow from one source to make a payment to another, this can be worth your while
as the maintenance of your credit rating can be very important to your financial health
in the future.
One other method of improving your credit rating is to have County Court Judgements
removed from the records. You can obtain details of any such judgements from the
credit reference agencies listed in the following section. Always include the standard
£1 statutory fee.
Apart from being recorded by credit reference agencies CCJs are also held in a
central Register. This Register is kept by the Registry Trust Ltd, 173-175 Cleveland
Street, London, W1P 5PE. (Telephone : 0171 380 0133). This is the source from
which the credit reference agencies obtain their information. You can apply directly to
the Registry Trust and ask them to conduct a search. Fees for this are £4.50 for a
search conducted by post or £4.00 for a search when requested in person. This fee is
payable for each name and address on which you require a search to be made.
If you have fully settled any debt on which a judgement was made you can apply to
the credit reference agency to have the record deleted. As mentioned earlier, they are
unlikely to actually delete the record, but they are under a legal obligation to mark it
"satisfied".
Naturally it would be best if CCJs were removed from records as soon as possible.
They are automatically removed after a period of six years. The credit reference
agencies and the Register itself should remove all CCJs as soon as this six year period
has passed.
In order to have CCJs legally removed you must be able to prove that at least one of
the following conditions apply :
1) The six year period has expired and the record should be removed as being out of
date.
2) The record should not have been lodged in the first place, as the CCJ does not
exist, and the record is a mistake.
3) The debt to which the CCJ applies has been paid off in full. Here you can request,
but not insist, that the CCJ be removed because you have cleared all of your financial
indebtedness. As stated previously, if the record is not removed, at least it will be
marked as having been satisfied. This will look better to any potential lender than a
CCJ which is not shown to have been satisfied.
To apply to have judgements overturned you should obtain form N244 from your
County Court (Sheriff Court in Scotland).
During the period in which your application is being considered all records of
judgements against you are removed from the records of credit reference agencies.
Then several more weeks usually pass before the agencies can re-instate these details,
so even if your application is unsuccessful you have a period of around 8 weeks
where you have no CCJs on record.
In order that any judgements against you be set aside you must have a valid reason,
such as not receiving the original summons, being unwell or out of the country at the
time the summons was issued, or having discharged the debt within a period of 28
days from the original issue of the summons, in which case no record should have
been registered.
Section Fifteen : Useful Addresses & Other Helpful Information
The Four Main Credit Reference Agencies :
CDMS, Dove Mill, Dean Church Lane, Bolton, Lancashire, BL3 4ET.
CNN, PO Box 40, Nottingham, NG7 2SS.
Equifax, Spectrum House, 1a North Avenue, Clydebank, Glasgow, G81 2DR.
Infolink, Regency House, 38 Whitworth Street, Manchester, M60 1QH.
National Debtline : 0121 359 8501
(10am-4pm Mon & Thurs, 2-7pm Tues & Wed)
National Association of Citizens Advice Bureaux,
115-123 Pentonville Road, London, N1 9LZ.
Telephone : 0171 833 2181.
Money Advice Centre, ask local authority, your Citizens Advice Bureau or find them
in the phone book.
Child Poverty Action Group, 1-5 Bath Street, London, EC1 9PY.
Supply help and advise to people in debt.
Consumer Credit Counselling Service, Wade House, Merrion Centre, Leeds, LS2
8NG.
Telephone : 0113 234 2202.
Help and advice, free of charge about any credit related matters. Particularly useful for
information concerning legal aspects of credit agreements.
The Bankruptcy Association of Great Britain and Ireland
4 Johnson Close, Abraham Heights, Leicester, LA1 5EU.
Telephone : 01482 658701.
Will help with debt problems and the process of bankruptcy. Annual membership fee
variable, but minimum £15. Also offer a negotiating service for a one off donation of
£50, where they will negotiate with creditors on your behalf. Free information
available on request.
Useful Publications :
Which? Be Your Own Financial Adviser
By Jonquil Lowe
Published by Which? Ltd, 2 Marleybone Road, London, NW1 4DF.
Living With Mortgage Arrears
By Richard Davies & Yvonne Dhooge
London Research Centre, 81 Black Prince Road, London, SE1 7SZ.
An HMSO publication, can be obtained from any HMSO office or bookshop.
The Consumer Credit Act Manual
By F. A. R. Benson
Oyez Publishing Ltd, Norwich House,
11/13 Norwich Street, London, EC4A 1AB.
Credit Cards
By Tony Drury & Charles W. Ferrier
Butterworth & Co (Publishers) Ltd., 88 Kingsway, London, WC2 6AB.
The Private Tenants Handbook
By Andrew Arden
Allison & Busby Ltd, 6a Noel Street, London, W1V 3RB.
The Public Tenants Handbook
By Andrew Arden
Allison & Busby Ltd, 6a Noel Street, London, W1V 3RB.
Council Tax Handbook
By Martin Ward
Child Poverty Action Group, 1-5 Bath Street, London, EC1V 9PY.
Debt Advice Handbook
By Mike Wolfe & Jill Ivison (Edited by John Seargeant)
Child Poverty Action Group, 1-5 Bath Street, London, EC1V 9PY.
This is a particularly useful publication if you want to have to hand all the information
you are ever likely to need concerning bad debts. Although "The Complete Guide to
Debt Management" tells you everything you need to know to come to terms with your
debt problems and manage them in such a fashion as to get yourself back on your
feet, the "Debt Advice Handbook" goes into considerably greater detail concerning
the legal aspects of being in debt. It is the handbook most used by debt advisers as a
comprehensive reference. It can be obtained through any good bookshop, or directly
from the CPAG at the address given above. At the time of writing the retail price is
£9.95.