Debt is everywhere
Given that debt is everywhere, why are people so secretive about their own personal debt? Perceived embarrassment, shame and stigma are part of the answer. People have their pride and admitting to financial difficulty is like owning up to failure as a person, regardless of whether any blame attaches to the person.
Imagine for a moment though that for one day people shed all their inhibitions regarding their personal finances and began to talk freely about their financial problems. Many perceptions about others might just be dissipated quickly. Regardless of income, assets or status in business, politics or society debt can be the great leveller. Many people earning high incomes and owning extensive assets often have debt problems to match.
Getting into Debt
It might be comforting to assign blame for our problems on someone or something else. Even partially blaming someone else for our debt problems eases the pain. Was it my fault or my boss’s or my employer’s that I lost my job? Was it so wrong to want to give my children a good standard of living and a good education? It wasn’t me that raised my credit limits on my credit cards. Why did the government not call a halt to the easy availability of credit? It wasn’t my fault that my marriage broke down and that I had to undergo a costly divorce. Perhaps we could have continued living in a small house but with a growing family, taking out a loan to build an extension seemed like a good idea at the time. Who would have thought that my overtime would be completely withdrawn? I didn’t do any thing that my neighbours and friends weren’t already doing.
Personal Feelings and Fears
I’m afraid that I will lose our family home. I feel a failure and my wife and children are beginning to blame me. My health is beginning to suffer from the worry and stress of it all. I don’t sleep properly anymore. If my employer finds out about my financial difficulties then my opportunities for advancement and promotion will be severely curtailed, given that I am in a position of trust and responsibility. I might even lose my job. My relationship with my partner is deteriorating and we argue all the time, mainly about money matters. I don’t rule out separation or divorce if things don’t improve. If my friends and neighbours find out they will probably shun me. My children are going to have to make do with an inadequate education. I will have to take a second job, if I can get one. My business is going to the wall and there is nothing I can do about it. I dread having to ask my parents for help and I may even have to ask them to let me move back to living with them. I was planning to get married and have children but now I can’ afford to do either.
Getting out of Debt
In the UK there are many possible solutions available. One of the most popular and common solutions is to enter into a debt management plan (DMP) with creditors. Because this is an informal process which is only superficially controlled by legislation, many DMPs can last for a very long time – ten years or even longer. Creditors are not bound to accept a DMP and are under no obligation to freeze interest or penalties, although many of them do so – at least for a period of time. There are few reliable statistics on the number of DMPs in the UK but it is estimated that up to one million people are in such plans. Legislation to control the DMP process is expected in the next year or so. The second most common solution is bankruptcy and for many insolvent debtors this may be an attractive and indeed the best solution, particularly for people who have no assets. Discharge in one year is now the norm although income payments may last for three years. Unfortunately one’s credit file is impaired for six years from commencement of bankruptcy. The third largest solution (the numbers today are almost equal to the bankruptcy numbers) is to enter into an individual voluntary arrangement (IVA) with creditors. This process is highly regulated with creditors getting back a substantial part of the monies owed. It usually lasts five years and at the end the debtor is left debt free with the unpaid portion of the debts being written off. In the USA there are two different bankruptcy processes available for individuals under Chapter Seven or alternatively Chapter Thirteen of the US Bankruptcy Code, although the application of these varies considerably from state to state.
Choosing a Solution
In the UK there are many sources of advice ranging from the ‘free’ services offered by e.g. CAB or the CCCS, sometimes described as ‘charity’ services. However there is also a large commercial sector of fee charging insolvency firms which offer a full range of insolvency services starting with free initial consultations. These consultations focus on a debtor’s financial standing – solvent or insolvent – and go on to consider optimum solutions. In fact they are duty bound to explore and explain all available options for dealing with the debtor’s insolvency. These firms engage the services of highly qualified insolvency practitioners (IPs) who are tightly regulated and it is recommended that debtors should shop around while getting their free advice. Debtors are advised to talk to more than one firm and not to agree to pay any fees for initial advice. Ultimately the debtor decides which option – if any – to go for. Trawling the internet is an excellent way of sourcing some of these firms. Some sites provide comparative ratings for firms so that you can make initial contact with only the most reputable firms. If you decide not to proceed with any or all such firms, you can simply walk away no worse off than before. However, at least you will know if you are insolvent or not and what the experts suggest that you do about it.