A Day In The Life Of The Debt Wizard 3

Here Mike reflects on one of the cases that he recently advised on.

The Facts:
A probationer Police Officer owed £28,500 on credit cards and loans, and had basically lost control of her monthly budget, often borrowing on credit cards just to meet other loan payments, she was worried that she has just started a new relationship and did not want her partner to know how much debt she was in, another concern for her was that at sometime in the future she would want to purchase her home but could not do so with her burdening debt problem.

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 £370. The normal contractual payments to her creditors were around £980 per month.

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 the creditors would still add interest and late payment charges thus making the overall debt increase. The Police Officer did not wish to go bankrupt, even though the payment term to creditors through the bankruptcy would be for only 3 years, instead the officer chose the IVA option.

The debtor decided to propose an Individual Voluntary Arrangement, "IVA", to her creditors as she was clearly insolvent and had very little assets. The proposal would entail monthly payments equivalent to her disposable income, £370 over a period of 5 years. 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 creditors.

The Outcome:
Approximately 8 weeks after the initial consultation a meeting of creditors was held, at which the individual's proposal for an IVA was accepted, subject to one modification. Creditors asked that the debtor inject into the IVA 50% of any income above her normal take home pay as detailed in the proposal. This would be the net overtime, so in essence if the debtor received £200 in overtime payment after tax that month then creditors asked for £100 to be paid into the IVA as well as the £370 monthly payment. 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. In the IVA creditors will receive a return of circa 48% 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. Only when she is back in control of her finances can she begin to plan for the future, once the IVA has concluded satisfactorily will she then be able to apply for a mortgage. 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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