In the current recession many of us are faced with the dilemma of what bills to pay when we have insufficient income to pay everything. We tend to pay the creditors who send us the most threatening letters or phone us most frequently or aggressively or who call to our home or who shout the loudest. We make pressurised decisions but are they the right ones?
The answer is to prioritise debts under the banner of food and shelter. Everybody must eat and drink, have somewhere to live and have clothing, heat and light. Everything else should have a lower priority. It follows then that payment of the mortgage or rent, payment of utilities such as heat, light and water and payment for food and clothing for our family must rank ahead of all other bills. These are the ‘must-pay’ bills because they are for the ‘must-do or ‘must-get’ items. We don’t want to lose our home and be put out on the street. We don’t want to have our utilities cut off. We cannot live without food, drink and clothing.
What about the bills that we cannot pay? The first thing to do is to look at the household budget. Write down the items with a ‘must-pay’ tag and the monthly cost of those. Write down the household income. This provides the bones of an Income and Expenditure Statement. Now we complete our Income and Expenditure Statement by filling in the cost of the less essential living expenses. We also list any additional benefits we receive on the income side – such as tax credits, child benefit, housing benefit and rental income from a lodger and so on.
It may seem simple but this is how we work out how much money is ‘left over’ to pay off our loans, credit cards, overdrafts and other unsecured debts. We call this ‘money left over’ our family disposable income (DI). If our DI is big enough to service our unsecured debts (paying the contractual monthly amounts of course), we have no problem. If it is insufficient, the tricky bit is firstly to split it up fairly between all the creditors and secondly to reach agreement with these creditors on the amount of our monthly payments.
If we cannot do this then the next best step is to obtain professional advice. A reputable Insolvency Practitioner (IP) will determine if we are insolvent or not and assist us in compiling or verifying our family Income and Expenditure Statement. This will help to determine what our family DI is. The IP can then outline all the available courses of action that are open to us and explain our options. Such options could include Bankruptcy, Individual Voluntary Arrangement, Debt Management Plan, Debt Relief Order, Administration Order, Debt Consolidation or some other financial solution. We can decide at this point if we want to proceed further and we do not have to commit to anything. We can without obligation walk away and ‘sort out’ our own finances or seek a second opinion from another firm offering insolvency services. Most reputable insolvency firms provide advice without charge in their initial consultation and make it quite clear and transparent when they might seek to charge for their ongoing services.