Facing up to Personal Debt Issues
Although personal debt is everywhere, people tend to be secretive about their own debt problems because of the fear of embarrassment, shame or even stigma that they experience with their family, friends, neighbours or work colleagues to learn of their predicament. People have their pride and revealing their financial difficulty is like a badge of failure, regardless of whether any blame attaches to the indebted 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. People’s perceptions about the affluence or financial stability of their acquaintances would be likely to dissipate quickly. Debt is a great leveler, regardless of the size of a person’s income or the extent of their assets or their status in business, politics or society. Many people earning high incomes and owning extensive assets often have debt problems to match. Many of the hitherto mighty have fallen on hard times as the recession bites deeply.
It can assuage the pain to assign blame for our debt problems on someone or something else. Was it my own fault or that of my boss or employer that I lost my job? What was wrong in wanting to give my children a good standard of living and a good education? Who raised the credit limits on my credit cards? Why did the government not control, regulate or even call a halt to easy availability of credit? Was it my fault that my marriage broke down and that I had to undergo a painful breakup of my family and go through a costly divorce? Although we could have continued living in a small home 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 Who would have thought that my overtime would be completely withdrawn?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 anything risky that my neighbours and friends weren’t already doing.
Fear of losing the family home can cause a feeling of failure and apprehension that a spouse or even children will blame the breadwinner. Health can begin to suffer from the worry and stress of it all and loss of sleep often accompanies the anxiety. Debtors fear that if employers find out about one’s financial difficulties that opportunities for advancement and promotion could be curtailed, especially for people in positions of trust and responsibility. For debtors in certain professional categories there is a real prospect of losing employment altogether. In these circumstances, relationships suffer and often deteriorate in an atmosphere of constant bickering and arguing, mainly about money matters. The prospect of separation or even divorce becomes real. Children may have to make do with a less than adequate education. A second job, even if one were available, might make no appreciable difference. For debtors who have their own business the prospect of going to the wall looms large and they can be helpless to avoid it. To ask parents for financial help is difficult enough without having to ask them for permission to move back in with them. For single debtors the prospect of marriage and children can seem like a forlorn pipedream.
So what can be done?
In the UK there are many possible solutions available. The Insolvency Service in the UK has a publication on its website entitled ‘In Debt – Dealing with Your Creditors’. Reading this is an excellent first step. It explains in some considerable detail the various options open to people with personal debt problems. It summarises how each possible solution works and their pros and cons and tells you how to access further information.
One of the most popular and common solutions is to enter into a debt management plan with creditors. Because this is an informal process which is only superficially controlled by legislation, many debt management plans can last for a very long time – ten years or even longer. Creditors are not bound to accept a debt management plan and are under no obligation to freeze interest or penalties, although many of them do so – at least for a period of time. In successful debt management plans, creditors recover all of the monies owed to them. There are few reliable statistics on the number of debt management plans in the UK but it is estimated that perhaps one million people are in such plans. Legislation to control the debt management plan process is likely to be enacted 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 most popular solution and one which may soon overtake bankruptcy in terms of the numbers who embrace it, is an individual voluntary arrangement or IVA. This process is highly regulated with creditors often 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. Other solutions are also available which may be more appropriate to a particular debtor’s circumstances.
In the UK there are many sources of advice ranging from the free services offered by e.g. CAB or the CCCS, which are sometimes described as charity services. There is also a large commercial sector of fee charging insolvency firms which offer a full range of insolvency services often starting with free initial consultations. These consultations focus on a debtor’s financial standing. They determine whether a debtor is solvent or insolvent and usually 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. Of course debtors should shop around since to ensure that they are getting sound professional 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 they want to go for. Trawling the internet is a popular way of sourcing insolvency firms. Some sites even 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.