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.