SORT OUT YOUR FINANCES 4

If you are in a position where you have not been able to raise finances from private sources , you have two options open to you .

BOTH THESE OPTIONS HAVE SERIOUS REMIFICATIONS , SO THEY SHOULD BE CONSIDERED AS LAST OPTIONS .

The first thing you have to do , once you realise that your outgoings are more than your incoming and you can not meet them ; and you have DECIDED to take matters into your hand to sort this mess out – inform ALL your creditors that you are having financial difficulties and will be sending in a proposal to them to settle the debts .

You must include ALL of them – you CAN NOT  pick and choose .

Now this letter you can write your self and post them .

A lot of people in this position approach ‘ debt management consultants / companies ’ .This is understandable as the person who is in debt and is being hounded by telephone calls on an hourly basis from the credit card call centres is in a desperate state of mind and may not be thinking straight . KEEP CALM .  (practical action – once you have decided that you want to take some action , take a day off , take the family to the park with home made sandwiches , calm yourself . You must tell yourself that from now on things will improve and whatever you do , do so with a calm mind – do not panic and do anything rash ) The most important thing  is that you have taken a decision to tackle the issue .

 Above all do not feel guilty to an extent where you start to think of your self as worth less and go into depression . .Sure you have screwed up . Sure you have a moral obligation to pay your debts but if you just can’t pay them and life has become impossible , seek alternative ways . You are entitled to this .

Government has kept  provision for this in the laws of the land . And of course there will be consequences after this – like your credit rating being spoilt etc.

 As I said earlier you can write the letter yourself for the cost of a stamp . I have nothing against Debt advisors/managers , but they are professional people with offices and day to day expenses , as such you will have to pay them a fee , most likely up front which can be a problem when you do not have the money to pay them .

At this stage I would like to mention that there are quite a few government sponsored debt management offices which will advice you free of charge – it is a good idea to talk to them before you take any action as most of them will give you good advice and guidance .You can find most of them by searching on the internet .

So in my opinion this is something one can handle on his own , with a calm mind – but you do have the option to consult one of the debt consultants . Coming back to our action plan , step one is to inform the creditors by a letter . This should buy you about a week ; by which time you should decide on what action you wish to take .

Depending on your circumstances ( spare cash , assets etc ) you have the option to arrange what is known as  : INDIVIDUAL VOLUNTARY ARRANGEMENT – IVA .

Basically what this is that you make an offer to your creditors that you are not in a position to pay them the full amount and that you are willing to pay them a percentage of the full amount – usually you should be able to offer them between 40 % to 50% of what you owe them – do not make a ridiculous offer like 10% as they will never accept that .

So your offer would be that you will pay to them (say ) 40% of the principal sum  over a period of three years by monthly instalments – no interest will be paid . In the proposal you must inform them of ALL your circumstances – DO NOT HIDE ANYTHING AND BE TRUTHFUL .   The chances are that this will be acceptable .

Before you make this offer make sure that the new amount that you are offering to pay is within your means – it does not make much sense in making an offer that you can not comfortably meet as to default on these payments after agreeing to them will make the situation worse .

During this time if any of the collections agencies call you or write to you , inform them politely that you have proposed an IVA and the creditors meeting is scheduled for so and so date . Normally this will stop them harassing you further . The main criterion the creditors will look at are  :

• That you are genuine and are in problems
• Can they collect more from you if they sell your assets
• Will you be able to fulfil the new arrangement
• That they will not get more by declaring you bankrupt .

 If 75% of your creditors agreee , you have now reached an arrangement whereby you can pay your mortgage , living expenses and monthly instalments to your creditors and hopefully , you will be free from these debts in three years or so .

Although your credit history has been spoiled ( can take up to six years to improve ) thus no more borrowing – which is good .

And now you can get back to rebuilding your life .

 If this fails and your creditors are not willing to accept an IVA , you have the option of the last resort which is :

Bankruptcy – an option to be taken very seriously .

THIS OPTION SHOULD BE USED AS A LAST RESORT AND NOT AS AN EASY WAY OUT  AS THERE ARE SERIOUS CONSEQUENCES TO THIS ACTION .

But if  the IVA that you tried to arrange does not succeed , you may not have any option but to declare yourself bankrupt or the creditors may decide to declare you bankrupt  – unless you can come up with the money from somewhere – but taking out another loan to repay existing debts only prolongs the inevitable .

And if the IVA has failed , the collection calls will start again  and letters will start arriving again  and your life will be upset until you start to pay them – and if you don’t eventually ,  the creditors will apply to declare you bankrupt . Under these circumstances, the best option may be to declare yourself bankrupt .  Bankruptcy is an order issued by the Judge in a County Court either on the application of a creditor or an application by an individual himself. There are formalities to be completed ; forms to be filled , but once an order by the judge is issued , adjudging one bankrupt , the person than basically ceases to exist – financially speaking . Anything that was in that person’s name including all assets and all loans and credit cards debts  now belong to Official Receivers. You can start afresh .

After the order is issued , all your debts are gone – they now belong to the official receiver – no one will chase you for them any more .  BUT

• You lose control of all your assets – if you have any
• You may lose your house if you own it 
• There may be consequences at your place of work
• Most banks will not open an account for you and your existing account /s  may be closed
• You cannot obtain credit for over £250 without informing the lender that you are a declared bankrupt
• You can not act as a company director nor can you take part in the promotion , formation or management of a limited company without the permission of the courts
• If you were a chartered accountant or a lawyer , you can not practice
• You cannot act as a justice of peace or become a member of parliament
• Your credit will be affected for many years , even after you have been discharged
• Your bankruptcy order will be published in local papers and posted on the official web site – so chances are that people will find out .
• You will be asked to explain a lot of your financial dealings to ascertain how you got into so much debt and may even be publicly examined in court  and certain restrictive orders may be placed even after you are discharged .
• You may have to state that you were once declared bankrupt in many forms of application forms for the rest of your life

On the other hand

• All your debts are written off  – no more collection calls or letters .
• Normally you will be discharged from bankruptcy within 12 months and you can have a fresh start  ,  however , under certain circumstances you may end up making payments into the bankruptcy estate for an additional three years through a binding payment order which is issued by the courts if the official receiver so requests  – although the courts will give first consideration to your living needs .

 On most information sites , it is stated that you should seek professional advise before you decide to take this route . This is very true and there are excellent Government sponsored agencies who are capable of advising you . Most of the professional Debt managers /companies will charge upfront – anything from £1000 to £2000 to study your situation , and help in filling out the bankruptcy application forms etc.