A Day In The Life Of The Debt Wizard 2

Here Mike Reflects On One Case Whereby Ill Health Was Behind Most Of The Debts.
The Facts:
A member of the support staff was referred by her Welfare unit after she sought help for her depression, she had recently separated from a relationship and as a comfort went out spending on credit cards to try and make her feel better, by the time she came to me she owed £35,000 on credit cards, loans and bank overdraft. Payments to her creditors amounted to £930 each month, this from a take home pay of £1,125. This left £195 each month for her to live on and to pay for rent, utilities and her car costs.

The Advice:
After completing an income & expenditure form it was soon established that the true amount of monthly disposable income, after accounting for the necessary household expenditure, was £320 and it was obvious
she could not meet the £930 each month to pay her debts therefore she just borrowed more on each credit card just to make the payments to other creditors, her debts were spiralling out of control.

Consideration was given to the following options; Debt Management Company, DMC, Bankruptcy or propose an Individual Voluntary Arrangement, IVA. The DMC option was dismissed due to creditors' lack of support in that in the majority of cases some creditors would still add interest and late payment charges thus making the overall debt increase, also the debt would be paid back in full, this may take between 10 and 15 years according to interest charges.. The individual did not wish to go bankrupt, even though the payment term to creditors through the bankruptcy would be for only 3 years, she resided in rent accommodation and her only asset was the car worth £6,000.

The debtor decided to propose an IVA, to her creditors as she was clearly insolvent and had very little assets other than a two year old car, paid for by an unsecured loan. The proposal would entail monthly payments equivalent to her disposable income, £320 over a period of 5 years, and she proposed to sell the car, current value £6,000 and replace it with one for around £3,000. This freed up £3,000 in additional funding and was to be pledged into the IVA to boost the overall return to creditors. This act was seen by creditors to be a positive move by the debtor and demonstrated her desire to pay back what she could. Creditors were contacted immediately, advising them that the individual was seeking professional advice in order to address her financial problem, thus alleviating the debtor from the constant pressure from telephone calls and threats of Court action to recover the debts.

The Outcome:
Approximately 11weeks after the initial consultation a meeting of creditors was held, at which the individual's proposal for an IVA was accepted. All interest and late payment charges can no longer be added to the debt.

Both the debtor and her unsecured creditors are bound by the terms of the arrangement and, providing the debtor continues to make the monthly payment to the Supervisor of her arrangement, who will then distribute the funds to her creditors, at the end of the arrangement her unsecured liabilities will be deemed to have been legally discharged. It is not projected that creditors would have received much of a return in the event of the individual's bankruptcy other than a percentage of the sale proceeds of the car as this would be seen as an asset. In the IVA creditors will receive a return of circa 37%, i.e. 37 pence for every pound of their claim providing the IVA is completed in accordance with the terms. The debtor had no further contact with the creditors.

Although the individual's credit rating is impaired, credit was, as in many cases, her downfall and it is probably helpful that she is not able to obtain further borrowing for the time being. She is now back in control of her finances and getting back in control of her health. Guidance was given as to future money management.

More information on the pros and cons of Debt Management Companies, Bankruptcy and IVA's can be found on my website www.debtwizard.com or by telephoning 0845 225 0025.

In the preparation of this article, every effort has been made to offer the most current, correct and clearly expressed information possible and it is intended to afford general guidelines on matters of interest. Accordingly, the information in this article is not intended to serve as legal advice.

Therefore, no responsibility can be accepted by debtwizard.com, for any loss occasioned by a person acting or refraining from, acting on the basis of this article. Users are encouraged to consult with professional advisors for advice concerning specific matters before making any decision.

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