When confronted with serious debt problems it’s easy for the individual debtor to forget the effect of non-payment or late payment on creditors. The creditor is often seen as the big bad wolf and unworthy of any sympathy from the beleaguered debtor. The truth is that creditors have a vested interest in the critical decisions that the debtor takes to resolve debt issues. Creditors can be helpful and amenable particularly when the debtor identifies and confronts financial problems at an early stage with a view to resolving them to everybody’s satisfaction. What are the choices for the debtor?
Talk to Creditors.
Explain the problems. Ask for help. Ask for advice. Ask what options are available. Seek to freeze interest. Seek to have penalties reduced or dropped. What will creditors take in a one-off final settlement offer? In a nutshell, seek to negotiate with creditors!
Third Party Advice
OK – so you can’t talk to creditors because you have little confidence in your own ability to do so or you think that they will be unwilling to deal with you fairly or there are too many of them and trying to reach agreement with all of them will be too difficult. Fair enough! Why then not seek advice from a third party. You could try talking with Citizens Advice (CAB) the Consumer Credit Counselling Service (CCCS), Pay Plan or one of the many commercial firms specialising in debt advice and insolvency services who will charge a fee for their services. Such a third party should be able to explain all of your options to you and negotiate with your creditors on your behalf. You may be able to enter a Debt Management Plan (DMP) with your creditors where they will agree to accept reduced payments over an extended period of time and they may even agree to drop penalties and charges.
Debt Relief Order
Obtain a Debt Relief Order (DRO) if your debts are less than £15,000 and you have little disposable income (less than £50 per month) and assets of no more than £300 – although you may be able to retain a car with a somewhat higher value. If you are eligible for a DRO and can pay the £90 fee, your debts will be written off after one year and it is much preferable to bankruptcy.
Do an IVA
Enter an Individual Voluntary Arrangement (IVA). If you don’t want to go bankrupt and if you are not eligible for a DRO and you cannot enter a DMP because you are insolvent then perhaps an IVA is the best remaining solution for you. Your debts need to total over £15,000 and you have to be insolvent. If you can offer your creditors regular payments over a five years period from your disposable income then you can be debt free and begin repairing your credit file after about six years. While it may seem a long time, consider that creditors may agree to accept repayment of as little as 20% of what you owe them (sometimes less) and that you are getting off relatively lightly.
Go Bankrupt
If all else fails there is Bankruptcy. People simply hate the stigma which still attaches to this process even though the law has been changed to make it a much more benign and friendly process. You will usually be discharged from the process within twelve months although you may have to make payments under an Income Payments Order (IPO) or under an Income Payments Agreement (IPA) for three years. On the other hand, you may not ‘lose’ your home if a relative, spouse or partner can buy out your interest in it. Just as in an IVA, your credit file will be impaired for six years.
So, there are choices for debtors and for creditors when financial matters deteriorate seriously. The trick is to make the right decision (for you) when you seek a solution. Creditors are not all bad so the best solution for you may also be the best available solution for them.