Death on Credit*

When you think of vampires, you may conjure up an image of an evil spirit from Transylvania, who stalks the night sucking the blood out of its living victims. If you don’t believe in vampires, I am sure you will be familiar with the all too real leeches, although hopefully not intimately familiar! These vampiric worms suck blood and even eat flesh.

But what do vampires and leeches have to do with debt?

I came across a couple of debt forums recently which made reference to the aforementioned blood sucking fiends (Debt Questions and Parents Centre).

You see, while we know leeches definitely exist, vampires may not just be a figment of an overactive imagination. The term can be used to describe a very real, predatory person, somebody who preys on other people for financial or emotional gain. Parents Centre goes a step further comparing debt collection agencies to vampires in that you have to invite them in first before they can get their claws into you.

As for preying on others for financial gain, you will no doubt be familiar with the complaints against banks in respect of unfair bank charges. The courts and the Financial Ombudsman Service have received tens of thousands of complaints that unauthorised overdraft charges and returned item fees on current accounts are unfair. If you are already teetering on the edge of the abyss that is debt, the addition of bank charges onto your already overdrawn bank account makes it more and more difficult for you to get yourself out of debt.

Fear not, there is light at the end of the tunnel and no, it is not the burning torches of an angry mob seeking out your bank manager’s crypt.

If you are having difficulties as a result of bank charges, a good place to start is the Office of Fair Trading.

If it is not just bank charges that are giving you nightmares and the spectre of debt is constantly looming over your shoulder, then you may wish to talk to an experienced debt advisor such as the experts at The Debt Helpline.

An experienced debt advisor will take all your circumstances into consideration before explaining the various debt solutions available to you to help you rid yourself of what can seem like the scourge of your every waking moment.

There is more than one way to skin a cat and a good advisor should provide you with information about the following:

Individual voluntary arrangement or “IVA”
Debt management plan or “DMP”
Bankruptcy
Consolidation loan
Remortgage
Informal agreement

Beware of allowing yourself to become spellbound by a particularly persuasive practitioner in the art of debt management and don’t make your decision until you have weighed the advantages and disadvantages of all the options appropriate to your circumstances.

While it may seem like banks, credit card companies and other financial institutions are unfeeling, soulless entities, bleeding you dry of your funds and your resolve, you are not alone and there is a support network out there to help you move out of the shadow of your debt and into the light.

*(Mort à Crédit, French novel by the author, Céline).

TEACHERS IN DEBT

We are all feeling the effects of the UK credit crunch, prompting us to change where we do our grocery, to buy supermarkets’ own products instead of branded products, and we are shopping around even more for the best deals on mortgages and insurance, too.

Last month the charity, Teacher Support, which provides support to teachers on a variety of issues, reported an increase in the number of enquiries relating to debt or money worries. According to an article in Wales online, the Welsh branch of the charity reported that 17% of enquiries received between April and June 2008 related to money, grants and loans.

There are a number of options which allow a person to deal with their debts, and the choice of solution should be given careful consideration in light of your circumstances. The principle options are discussed below.

Bankruptcy is a formal procedure used to deal with the affairs of individuals whose liabilities exceed their assets or who are unable to pay their debts as they fall due. The bankruptcy order is made by the courts and can be obtained by any creditor owed an amount in excess of £750 or by the individual concerned. Once adjudged bankrupt, the individual’s affairs will be dealt by the Official Receiver or a trustee in bankruptcy, who will endeavour to realise any assets for the benefit of creditors. Assets may include a person’s home, cash at bank and motor vehicles. Unless they have previously been adjudged bankrupt, the individual’s bankruptcy will usually last no more than 12 months, but the bankrupt will be subject to a number of restrictions during this time. The trustee will also advertise details of the bankruptcy in a local paper and inform a variety of interested parties, such as the person’s bank, mortgage lender, other parties with an interest in the home.

While bankruptcy may offer the opportunity of a fresh start, as the bankruptcy is publicly advertised in the local press, teachers need to be prepared for the possibility of colleagues and pupils finding out.

There is also some concern as to whether or not bankruptcy will affect your employment as a teacher. There are a number of professions which will not allow you to continue to practice while you are bankrupt, for example:

• Lawyer
• Chartered accountant
• Insolvency practitioner
• Other positions within the Financial Services Industry
• Member of parliament
• Local Authority member

Your employment as a teacher does not appear to be affected if you are adjudged bankrupt. However, you may have to surrender any position you hold as a school governor.

If you are worried about the impact of declaring yourself bankrupt, you should review the terms of your contract and have a confidential discussion with your employer or union representative.

An alternative to bankruptcy and widely used by individuals seeking to avoid the stigma associated with bankruptcy is the Individual Voluntary Arrangement or IVA. An IVA is a formal agreement between a person owing money ("debtor") and his or her creditors, under which the debtor undertakes to make certain affordable monthly payments from his/her surplus income each month or realise certain assets, or both, in full and final settlement of their debts. The terms of an IVA are tailored to the individual’s circumstances and, while there is no requirement to repay creditors in full over the period of the IVA, creditors will expect to receive at least as much as they would in the event of bankruptcy.

An IVA requires the involvement of a licensed insolvency practitioner ("IP"), who will help put the proposal together and arrange the meeting of creditors to consider it. The IVA contract currently requires the approval of more than 75% by value of those creditors voting.

After deducting fees, the IP will make periodic payments to the various creditors, the size of which depends on the contributions made by the individual and the relative size of each creditor's debt.

Provided the individual carries out what they promised to do in the proposal, in a typical IVA they could be debt free in approximately 60 months.

An important difference between bankruptcy and an IVA is that an IVA is a private agreement between the debtor and their creditors and as such it is not advertised or communicated to any person not a party to the agreement. As a teacher, this may be an important point when considering which option is best for you.

Other, informal, solutions to your debt problems are outlined below.

Debt management plan (“DMP”) - a procedure under which a third party, usually a specialist debt management company, will seek to broker an agreement between a person owing money ("a debtor") and his or her creditors, for which they may charge a fee. The debtor will make affordable monthly payments to the debt management company out of any surplus income, after deducting living expenses, in a similar manner to an IVA. After deducting any fees, the debt management company will then offer a proportion of this monthly payment to each of the creditors, the actual amount being dependent on the relative size of each creditor's debt.

It is important to note that whilst creditors may be prepared to accept a reduced monthly payment, they might not be prepared to stop any interest or charges accruing on the outstanding amount. Under a DMP, you will typically be required to pay your creditors in full over an extended period of time.

As a DMP is an informal arrangement, creditors cannot be forced to accept the agreement and may commence or continue any legal action against you at any time. The acceptance of the DMP is dependent on your personal circumstances and the attitudes of the creditors concerned.

Where an individual has a small number of creditors and there is no immediate threat of legal action, it may be possible to agree an informal agreement direct with creditors. This could be of particular interest to individuals who do not wish a third party to be involved in their financial affairs on an ongoing basis, as in a DMP. An informal agreement is not legally binding and creditors concerned cannot be forced to accept it. They may, therefore, continue with any legal action against you.

In many cases the solution to your financial problems may be simple, allowing you to avoid the ongoing involvement of a third party:

• Are there family or friends that you could approach for a gift or interest free loan?
• Do you have any savings which could be used to reduce your debts?
• Could you save money by changing utility suppliers?
• If you believe that your financial problems are of a short term nature, you might wish to consider transferring the balances on your credit card(s) to those institutions offering 0% interest on balance transfers for an introductory period - this will not, however, be a solution for those individuals with long term financial problems due to the temporary nature of these low or nil rates of interest
• Is it possible to take on some additional part-time work in the evenings or weekends to help pay off your debts?
• If more than one member of the household owns a car, is it possible to raise some money by selling one of the cars? Are there non-essential items that you can do without, such as satellite television, mobile phones, etc.

Statute Barred Debts and the Limitation Act 1980

The Limitation Act 1980 applies to various classes of actions mentioned in Part I of the Act. Some rights of action never expire but generally a claimant must act within a given time, known as the limitation period. Otherwise, the right of action is lost and the claim is said to be barred or statute barred.

As a general rule the limitation period is 6 years for simple contracts, such as a credit card debt or unsecured personal loan. However, an action to recover land for example is generally subject to a limitation period of 12 years. Furthermore, the limitation period is suspended following legal action begun by an application to court. Once the limitation period stops running, any delay to progress the matter is immaterial but the proceedings may be struck out on account of the claimant’s failure to get on with the case, which causes the defendant to suffer prejudice from the delay or causes a fair trial to become impossible. The claimant could then lose the right of action forever.

The Office of Fair Trading Debt Collection Guidance is a useful source of information concerning statute barred debts as is the Insolvency Service. With regard to insolvency proceedings, if a debt becomes statute barred at the time of the presentation of a petition, then the petitioner is not at that date a creditor and therefore has no standing to present a petition in that capacity. Debts incurred more than six years before the winding-up or bankruptcy order (or more than 12 years in the case of a debt resulting from a charge made under a deed, such as a mortgage) are also not provable.

Creditors are permitted to chase the debt indefinitely, even after the debt has become statute barred, but they only have access to legal recourse to recover the monies during the limitation period.

Creditors may therefore legally pursue an unsecured debt in the following circumstances:

- The action commences within the limitation period
- The creditor has previously obtained a judgement, such as a CCJ although the creditor may need to apply to court to enforce the judgement after 6 years
- You, or anyone else named on the credit agreement, have made a payment to the account within the last 6 years
- You have established any contact with the creditor to enquire after the balance of the account or update personal details.

It is important to note that if you acknowledge the debt in writing or make a payment within the original limitation period, the time limit starts running again and the debt will not become statute barred for another 6 years from the date of your communication with the creditor.

HM Revenue & Customs are at liberty to pursue you indefinitely for debts owed to them. However, overpayments of benefits must be recovered within 6 years otherwise the Department of Work & Pensions will need to apply to court.

Even if a claim becomes statute barred, a debtor may decide to pay the debt after the expiry of the time limits. However, you should not feel pressured into doing so. It is considered to be unfair if a creditor or debt collector misleads you into believing the debt is still legally recoverable and demands payment after you have confirmed that you will not be paying the money owed. Such action by a creditor or debt collector, once the debt becomes statute barred, could be considered harassment contrary to the provisions of Section 40(1) of the Administration of Justice Act 1970.

Below is an example letter you may wish to use as a template if you have been contacted about the recovery of a debt and you believe such recovery action may be statute barred under the Limitation Act 1980.

Your Name and Address

Date

Creditor’s name &
Address

WITHOUT PREJUDICE

Dear Sirs

Account Number:

Thank you for your letter dated [insert date] in respect of the above account, which you claim is owed by [me/us].

[I/we] should advise you that, pursuant to the provisions of Section 5 of the Limitation Act 1980, "an action founded on simple contract shall not be brought after the expiration of six years from the date on which the cause of action accrued".

[I/we] should further advise you that in the Debt Collection Guidance published by the OFT in July 2003 (updated December 2006), with regard to statute barred debt "it is unfair to pursue the debt if the debtor has heard nothing from the creditor during the relevant limitation period" (page 13).

The last [correspondence/payment/acknowledgement of payment] of this debt was made over six years ago and no further acknowledgement or payment has been made since that time.

Therefore, unless you are able to provide documentary evidence of payment or receipt of written contact from [me/us] in the relevant period described under Section 5 of the Limitation Act, [I/we] suggest that you are no longer able to take any court action against [me/us] to recover the alleged amount claimed, that action being “statute barred”.

On page 13 of the aforementioned OFT guidance, you will note that "continuing to press for payment after a debtor has stated that they will not be paying a debt because it is statue barred could amount to harassment contrary to section 40 (1) of the Administration of Justice Act 1970".

[I/we] should therefore be grateful to receive your written confirmation that no further action will be taken concerning the above account as well as your written confirmation that the matter is now closed.

[I/we] look forward to hearing from you.

Yours faithfully

[Your signature]

A GRAND DAY OUT

As a parent, it is becoming increasingly difficult to fund childcare costs and entertain the children during the long summer holidays. The credit crunch will not have eased the financial burden faced by many parents as “household” items of expenditure have increased, such as groceries, utility bills and petrol prices.

In addition, the number of personal insolvencies recorded by The Insolvency Service in the first quarter of 2008 has increased by 1.7% in comparison to those figures recorded in the final quarter of 2007.

A bankrupt may be required to make monthly income contributions from their surplus income under an Income Payments Order. However, such contributions usually constitute only 70% of a bankrupt’s surplus income after allowing for all essential monthly payments, such as mortgage repayments, food and groceries, utilities, TV licence, for example. Individuals, who have entered into an Individual Voluntary Arrangement, or IVA, are more commonly required to make monthly income contributions for the benefit of their creditors, based on the full amount of their surplus income. There is usually little room for manoeuvre with regards to how much you can spend on each item of expenditure listed in your income and expenditure schedule and it can be frustrating to justify expenditure on unplanned items or expenditure on children, who many feel should not be made to suffer as a result of the insolvency proceedings against the parents.

According to an article on the Money section of MSN, the six-week summer holiday can cost parents an average of £600 per child, half of this sum going on childcare costs.

If you are feeling the pinch for whatever reason, below are some suggestions on how to keep your children entertained during the summer holiday without it having to cost the earth.

Emma-Lou Montgomery, reporting for MSN, suggests that forward planning is the key. In her article, she describes six ways in which parents can entertain their children on a budget or for free. (Read the full article at http://money.uk.msn.com/guides/holiday-money/article.aspx?cp-documentid=8822356).

· The local park or city farm is usually free. Emma-Lou advises taking a picnic with you as it is cheaper than eating out and you can ensure your children are eating healthily.
· Museums or art galleries may not appeal at first glance, but entry is usually free and many offer free activities for children. You will be pleasantly surprised at how interesting and entertaining museums such as the British Museum (London), Leeds Art Gallery or Glasgow Botanic Gardens are. The Botanic Gardens in Glasgow have a particularly good Cactus house.
· You should see what is on offer in your local area and your local council or library may be a good starting point. While not all advertised events will be free, the involvement of the local council may mean that they are subsidised.
· Try to schedule your holidays to fit in with your children. Working couples could take it in turns to take time off. Alternatively, if you have friends who are parents, perhaps you could all get together and look after each other’s children on different days.
· Pay a visit to Grandma and Grandad, as they might be able to look after their grandchildren for a few hours.
· Keep your eyes peeled for deals and offers such as money-off vouchers, or “kids go free”.

If you simply can’t afford to take the time off work, and you don’t have access to a network of friends and family who can look after your children, childcare costs do pose a particular challenge for some parents. Some employers have a crèche at work for employees, while others operate a flexible benefits scheme whereby employees are allocated a budget which they can spend on benefits such as subsidised gym membership, travel insurance or childcare vouchers. If your employer does not offer the above, the Government provides some assistance for working parents.

If the ideas above aren’t sufficient food for thought to help you keep your children occupied and engaged, here are a few more specific suggestions:

- Party in the park – free pop concert at Temple Newsam, Leeds (this year it takes place on 27 July 2008 so tickets may no longer be available, but they usually go on release in June each year at local libraries around Leeds, as well as at the Town Hall)
- Dig up fossils at Lyme Regis and Whitby
- National sea life centres, Birmingham, Blackpool, Bray, Brighton, Chessington, Great Yarmouth, Lock Lomond, Scarborough, Weymouth – children under 3 go free
- National Media Museum, Bradford – free entry for all
- Avebury, Wiltshire - World-famous stone circle at the heart of a prehistoric landscape
- The Manchester Museum – Science for Life, Zoology, Geology and Mineralogy, Archaeology, and Egyptology, entry is free
- ‘Kids go free’ week in London
- Cook with your children by involving them with what you are doing or by taking the time to cook something special together
- Go swimming together, or go to the park and play tennis or football together
- The Forbidden Corner children’s attraction - a unique labyrinth of tunnels, chambers, follies and surprises created in a 4-acre garden in the heart of the Yorkshire Dales.

What debts can I include in an “IVA” or Individual Voluntary Arrangement?

In order to advise you properly with regard to your debts and the options available to you to get yourself out of debt, your insolvency practitioner or other debt advisor will need information about all your creditors.

Your creditors may include the following:

Secured creditors - such as your mortgage provider or any creditor whose debt is secured on your home and/or any other assets;

Landlords - if you are tenant or rent a workshop, offices etc;

The Crown - typically tax owed to the HM Revenue & Customs;

Unsecured creditors - creditors without any security for their debts, such as credit cards, store cards, personal loans and bank overdrafts (if unsecured), amounts due to utility and phone companies, council tax. If you are in business it would also include most trade creditors;

Finance creditors - those creditors who provide assets on hire purchase or finance leases, for instance motor vehicles;

However, not all the above types of creditor are eligible for inclusion in an IVA proposal.

Which Debts Can Be Included in an IVA?

Normally any unsecured debts can be included within an IVA. The following are examples of unsecured debts normally included as part of an IVA agreement:

• Business loans for which you are personally liable
• Catalogues
• Credit cards
• Outstanding balances after repossession of your home or vehicle
• Bank overdrafts
• Personal loans
• Store cards
• Personal debts due to the HM Revenue & Customs can be included.

Which Debts Can’t Be Included in an IVA?

Some debts cannot be included within an IVA. These include:

• Secured debts, (vehicle hire purchase agreements, mortgage or other loans secured on your property and related arrears)
• Rent and rent arrears
• Fines such as parking offences, speeding tickets
• Magistrates Court fines
• Debts incurred through fraudulent activity
• Child maintenance/Child Support Agency payments

The above will normally have to be paid, but provision for the repayment of these debts will be taken into consideration when calculating your monthly disposable income.

The more information you can provide the insolvency practitioner or debt advisor about your creditors, the better. You should try to provide the following details:

• The name and address of the creditor
• What type of creditor they are (see above) and how the debt was incurred
• Any account or reference numbers
• The amount owed to the creditor and the rate of interest being charged, if any
• The current monthly repayment

Other information required to be able to advise you properly includes:

• Details of any legal action that has or is due to be taken, particularly, if the creditor has obtained a county court judgement or is taking steps to bankrupt you
• Details of any arrears, this is particularly important if the creditor has security or is a landlord or finance creditor

One final point …

It is important that you tell the insolvency practitioner or debt adviser about all relevant debts. Bank overdrafts are commonly overlooked. Although you may be “in the red”, your wages/salary are paid into your bank account and you use it regularly to meet your normal living expenditure, therefore many people don’t think of their overdraft as a debt. If your account is overdrawn, it still represents a debt.

On the approval of your voluntary arrangement, all unsecured debts “crystallise”, freezing the balances at their current levels and preventing further interest and charges being incurred. This means that your bank overdraft will also be frozen and your bank will probably stop you from using this account.

You should remember that an IVA proposal may contain a clause which states that “in the event that any creditor has inadvertently failed to be notified of the Arrangement owing to a honest omission or oversight, then provided the claims of any such creditor or creditors in aggregate, will not reduce the likely dividend to ordinary unsecured creditors by more than 10%, then these claims may be admitted. If such claims exceed 10%, the Supervisor must convene a general meeting of creditors to consider whether the said claims should be admitted”. If the likely dividend to creditors is adversely affected so that it reduces by more than 10% this can potentially lead to the failure of your IVA.

Student debt - practice makes perfect

According to an article in The Telegraph last summer, thousands of students run the risk of bankruptcy each year after accumulating debts whilst at University and as many as 1 in 10 university students could be declared insolvent as a result of borrowing money to pay for increasing tuition fees and living costs.

The Telegraph article quotes the uSwitch.com price comparison website which suggested that students starting university in 2007 are likely to face total debts of up to £3.2 billion, which is three times the figure for 1997 while Push.co.uk, the university guide, claims that freshers inducted during 2007 will owe up to £21,000 by the time they graduate.

More worrying is that previously some graduates have actively sought to declare themselves bankrupt in order to avoid paying back their student debts. This is certainly not an easy option. Once adjudged bankrupt, your credit record will be affected for the next 6 years, you will find it hard to get a mortgage, hire purchase or overdraft agreement, you cannot borrow more than £500 on credit during the course of the bankruptcy without informing the potential lender that you are bankrupt, your bank account will be frozen and your assets may be seized and sold for the benefit of your creditors.

You should note that since 1 September 2004, student loans are now exempt from bankruptcy laws and so they will not be “cleared” if you declare yourself bankrupt. If you were made bankrupt before 1 September 2004 you may still have to repay your student loan. (If already bankrupt, the Official Receiver dealing with your bankruptcy will be able to advise you accordingly).

In 2006, the Liberal Democrat Shadow Chancellor, Vincent Cable MP, expressed his concern at the apparent underestimation of personal debt incurred by university students. The number of young people (those aged between 18 – 29) who have been declared bankrupt has been on the increase since 2001. In 2001-02 there were 21,530 bankruptcies where the debtor's age was recorded and of these 1,681 bankrupts were aged 18 - 29. However, the figures had increased to 34,852 and 6,520 respectively in 2004-05.

Young people appear to be particularly vulnerable to debt, according to Youth Information. While unemployment and low pay are major factors, tempting offers such as 0% finance on goods purchased and discounts offered by storecards play an important role.

The Debt Advice Trust recently reviewed a new Alliance & Leicester account aimed at people aged between 16 – 21 years old and suggests that banks may take advantage of the compulsive nature of young people, who are less likely to read the fine print on the terms and conditions.
Debt is increasingly a problem affecting young people and those starting out in their careers following a university education, although it should be noted that until you reach the age of 18 you are not legally responsible for your debts. It is therefore unlikely that you will be offered credit from banks and other financial institutions until you turn 18.

While credit has its uses it is important to stay in control. North Lanarkshire pupils are receiving advice concerning money management at school through a new debt awareness pack unveiled by North Lanarkshire Council at Dalziel High in Motherwell on 13 December 2007. It is designed to raise young people’s awareness about debt and help them make informed decisions about their finances in both the long and short term.

During a House of Commons debate on 27 February 2008, Sandra Gidley, Liberal Democrat MP, moved “that leave be given to bring in a Bill to require schools to provide education on personal money management; to make provision about advice centres on personal finance; to impose conditions on the activities of money-lending companies; and for connected purposes”. Sandra Gidley is concerned that our increasingly materialistic society is fuelling a growing debt crisis and is even impacting on our children’s behaviour. A survey of 14 – 18 year olds revealed that more than half are in debt by the age of 17 and 26% of those surveyed perceive credit cards and overdrafts as a way of increasing their spending power.

In Sandra Gidley’s view we need to tackle the problem at an early age and introduce budgeting and money management lessons in schools. After all, a school education should be about more than just subject knowledge. It should equip you with the skills to help you make a start in life once your formal education has stopped.

If you need to talk to someone about your debt, many Citizens Advice Bureaux employ debt counsellors or you could contact a free debt help line for advice on the various options to help you manage your debt.

Alternatively, the following sites have some useful information to help you manage your debt:

The Debt Helpline
Isle of Man Government – Golden rules of debt
YouthInformation.com
National Debt Line

Till debt do us part

In January this year, the BBC reported that five million people, which equates to 1 in 10 adults, spend more than they earn each month, according to figures compiled by the financial comparison website uSwitch.com. Overdrafts and credit cards generally provide the funds to enable these individuals to spend beyond their means. The number of credit cards issued has increased to 71 million from 36 million over the past 10 years.

In a separate BBC article, more and more families are relying on 2 or more salaries to make ends meet. In fact, 51% of working families with more than one child feel that they are struggling to cope with increasing household bills and spiralling debt.

In addition to higher mortgage costs and increases in household bills such as council tax and utilities, the uSwitch.com analysis uncovered that spending on non-essential items has risen by 65% over the past decade. Their conclusion is that we are in a “spendemic”.

More worrying than our level of debt is the millions of people feel compelled to hide it from their loved ones. The Sun newspaper, Easier Finance and the Debt Advice Trust have all recently reported that significant numbers of people have secret bank accounts and take on secret debt without confiding in their partners. Apparently 1.35 million British people have secret debts, the total sum of which is approximately £7.7 billion. The reasons for this secret debt vary but may include:

• Clothes, shoes and accessories, (generally women)
• Secret hobbies (typically men)
• Gambling
• To pay off other debt

Debt can seem like the other person in a relationship, driving a wedge between the couple. According to Bankrate.com, debt has the power to wreck a marriage but it is often a silent killer which goes unnoticed by the couple. Frustrations can certainly escalate when the couple is faced with mounting debt and financial hardship. If the couple is forced into taking out a consolidation loan, or entering into a debt management plan or an individual voluntary arrangement, or “IVA”, the more shrewd minded individual of the couple may feel that they are paying for the financial mistakes of their partner.

USwitch.com explains that differences of opinion about spending and saving can put a strain on a relationship and that couples need to reach a consensus about money by discussing their financial situation and trying to reach a compromise. However, many people find that debt is a difficult and embarrassing topic to broach with their loved one, but it is much better to talk about it than let your debts mount up to the point where you need to consider formal insolvency, such as an IVA or bankruptcy.

It may be beneficial to talk to a professional debt advisor, such as The Debt Helpline, who can give free, impartial advice. For advice of a more personal nature, you may wish to contact the Samaritans or Relate.

Finally, you may wish to consider the following measures which may help you regain control of your finances and avoid a formal insolvency:

• Are there family or friends that you could approach for a gift or interest free loan?
• Do you have any savings which could be used to reduce your debts? The interest you receive on savings is often much less than the interest which is charged on a credit card debt so your money could be put to better use by settling some of your debts.
• Could you save money by changing utility suppliers? Organisations such as Which may be able to point you in the right direction.
• If you believe that your financial problems are of a short term nature, you might wish to consider transferring the balances on your credit card(s) to those institutions offering 0% interest on balance transfers for an introductory period - this is not a solution for those with long term financial problems due to the temporary nature of these low or nil rates of interest
• Is it possible to take on some additional part-time work in the evenings or weekends to help pay off your debts? However, you should proceed with caution as working extra hours may affect your health and your relationships with others.
• If more than one member of the household owns a car, is it possible to raise some money by selling one of the cars?
• Are there non-essential items that you can do without, such as satellite television, mobile phones, etc?
• Try focusing on clearing one credit card debt at a time whilst maintaining the minimum payments on the others. Once you have reduced a credit card balance to nil, then you can cut up the card, return it to the issuing financial institution and request that the account be cancelled. Bogof! This is not meant as a term of abuse. When shopping you might want to consider taking advantage of items which are on offers such as “buy one get one free” or “bogof”. It takes a certain amount of resolve not to buy everything that is bogof purely because it is a good offer, but strategic purchasing of items on bogof can save you a lot of money.

HELP! – DEBTS, REPOSSESSIONS, IVAs & BANKRUPTCY

A debt is a sum of money owed from one person or institution to another person or institution and can be split into unsecured and secured debt.

Typically “unsecured” debts involve smaller amounts of money and consist of credit card debts, bank overdrafts and small loans for which you have not been asked to put up any security. The lender (bank, credit card company or other financial institution) cannot seize any of the borrower’s possessions if the balance remains unpaid. However, they may engage the services of a collection agency or even a lawyer to recover the debt through the Courts.

Secured debt is money loaned against “collateral”, which is usually a tangible asset such as your home or car. A legal charge is created over the asset. Examples of secured loans include mortgages or a car finance agreement. If the borrower doesn’t keep up to date with the loan repayments, thus breaching the terms of the loan agreement, the lender can take possession of the asset and sell it in order to recover the loan amount outstanding.

Since September 2007, Subprime Lenders and the subprime market (also known as the “adverse market”) have been in the news. A subprime lender charges a finance rate that is higher than the "prime" rate offered by conventional lenders. This is typically because they are approving secured loans for individuals who may have a poor credit history or no credit history, or who have other characteristics (e.g. high loan to value, property type, job) that justify a higher rate to counter the perceived risk to the lender.

You may have heard of consolidation loans whereby several debts are combined into one loan with a view to reducing the annual percentage rate or the amount you have to pay back each month, usually by extending the repayment period. As well as reduced monthly payments, it is easier to make one payment each month than try to keep track of several payments to various lenders. However, as the period over which you repay the loan is longer, you are likely to repay more over the term of the loan as a result of the interest charges.

Consolidation loans can be unsecured or secured, depending on the sum borrowed. Remember that if your consolidation loan is secured, you risk the loss of property used as security if you cannot keep up repayments.

A little over a year ago, the Guardian newspaper reported on the growing trend of those in financial difficulty taking out consolidation loans. There were concerns that borrowers struggling with personal loans and credit card debts were being pressured to take out consolidation loans, even when it was clear that they would not be able to meet the repayments and this would result in the loss of the borrowers’ homes.

Before taking out a consolidation loan, it may therefore be sensible to think about how you got into debt in the first place and see if you can change your spending habits. It may not be wise to take on more debt to repay existing debts.

You could draw up a monthly budget and check whether or not you have the funds to meet the monthly repayments due under the terms of the consolidation loan.

You may wish to concentrate on clearing one credit card balance at a time whilst maintaining the minimum payments to any other unsecured debts if your finances are tight. When a particular credit card is clear, don’t cut it up. Return the card to the issuing financial institution and ask them to cancel your account.

If you really start to struggle to meet the repayments of your unsecured borrowing, the lender may agree to you paying a reduced amount each month. If they are unwilling to accept a reduced amount each month, you may wish to talk to a debt counseling service, such as the CCCS or Citizens Advice, or a private firm specialising in debt management and insolvency such as The Debt Helpline. Such organisations can offer advice about rescheduling your debts, arranging a debt management plan or proposing an individual voluntary arrangement or “IVA”. An IVA is a formal agreement between a person owing money ("debtor") and his or her creditors, under which the debtor undertakes to make certain payments or realise certain assets, or both, in full and final settlement of their debts.

However, if the borrower falls into arrears and has not been able to negotiate an agreement with the lender, the lender may seek a county court judgment (CCJ) against the borrower to get repayment. If the borrower fails to respond to the CCJ, the lender may then endeavour to secure a charge over his/her property. This means that even if the borrower cannot meet the monthly repayments now, the lender has some assurance that it can reclaim the value of the loan when the property is sold, provided the property is sold for a sufficiently high sum to cover all charges secured against it.

As a last resort, an unsecured lender may petition for the borrower’s bankruptcy - a formal insolvency procedure used to deal with the affairs of individuals whose liabilities exceed their assets and are unable to pay the debts as they fall due. However, petitioning for a borrower’s bankruptcy will not guarantee that the lender recovers the outstanding loan. Settlement of outstanding liabilities is dependent on the realisation of the borrower’s assets, if they have any.

With regard to mortgage charges and loans secured against the borrower’s property, Yahoo has recently reported that home repossessions have hit an 8-year high.

Yahoo reported that during 2007 more than 27,000 homes were repossessed and that figure was expected to rise to 45,000 in 2008. However, we are a long way off the all time high of 75,000 repossessions in 1991.

Home owners are under increasing financial pressure as a result of interest rate increases, the credit crunch making it more difficult to remortgage, ever increasing council tax and utilities bills, not to mention the growing trend of the “buy now pay later” culture.

In cases of persistent arrears, mortgage lenders may instruct solicitors to apply to court for an order for possession and sale of the property against which their loan is secured. If the borrower is not able to settle the arrears or find an alternative resolution, the lender will enforce the possession and sale order leading to the borrower’s eviction from the property. The lender will then place the property on the market for sale. Once the charges and legal expenses have been settled, any surplus sale proceeds are returned to the borrower.

Secured borrowing, such as mortgage charges, cannot be included among the liabilities in an individual voluntary arrangement. However, that is not to say that a good debt advisor cannot offer you advice to help you find a resolution to your financial difficulty and initial advice is often free. Negotiations with your existing mortgage lender or a remortgage could provide the solution you need.

The most depressing day of the year

I was sat in front the TV on Monday this week, eating my cereal whilst getting my dose of BBC Breakfast news as normal, when low and behold the news reader announced that Monday 21 January 2008 was officially the most depressing day of the year.

Mondays are probably quite challenging for most of us as we drag ourselves out of bed to begin the new working week, couple that with some financial upheaval this week and severe flooding, all on Monday, and I can see where they are coming from.
However, this “most depressing day of the year” is not a new claim.

A couple of years ago, a scientist at Cardiff University, Cliff Arnall, developed a formula for calculating the most depressing day of the year. His formula expresses the relationship between poor weather, post-Christmas debt, time passed since the yuletide indulgence, failed new year resolutions, motivation levels, and the need to have something to look forward to. It looks something like this:

1/8W+(D-d) 3/8xTQ MxNA. Where:
W: Weather
D: Debt
d: Money due in January pay
T: Time since Christmas
Q: Time since failed quit attempt
M: General motivational levels
NA: The need to take action

(care of BBC News)

In fact, as well as having its own scientific formula, the most depressing day of the year appears to have a name – “Blue Monday”. There is even a website where you can find a list of 10 things you can do to beat Blue Monday.

The suggestions appear to be a pretty good way to counter that Blue Monday feeling. However, while creating a little bit of the beach in your home or office may take your mind off the weather, talking to a friend or sharing your thoughts with others will prove that you are not alone when it comes to over indulging at Christmas but may help you find the will power to stick to your resolutions, what do you do about that post-Christmas debt?

It is about now that credit card bills start dropping through the letter box and pay day is still a few days away for many of us. Do you know that many people will still be trying to recover financially from Christmas 2006 let alone take stock of what they have spent over Christmas 2007?

If you are worried at all about your financial circumstances, there are plenty of organisations who offer free, impartial advice, such as The Debt Helpline.
Whoever you decide to contact, make sure that you talk to an expert who understands that no set of circumstances are exactly the same and is prepared to tailor a solution that is right for you. Don’t feel you have to agree to what they propose. Shop around and do what is best for you.