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.
Tuesday, 29 July 2008
A GRAND DAY OUT
Wednesday, 9 April 2008
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:
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
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:
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.
Tuesday, 26 February 2008
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.
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.
Thursday, 24 January 2008
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.
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.
Thursday, 13 December 2007
IVA - THE ADVANTAGES AND DISADVANTAGES
According to statistics produced by the Insolvency Service, they recorded 26,072 personal insolvencies in the 3rd quarter of 2007, of which 10,239 were IVAs. Out of 82,279 personal insolvencies recorded so far this year, 33,535 of these have been IVAs, representing 40% of the total.
It is clear from the figures above that many individuals feel that the Individual Voluntary Arrangement, or IVA, is their light at the end of the tunnel. Indeed, the IVA is both a flexible and effective method of dealing with debt which offers debtors the protection they need from further legal action in respect of their debts, flexibility with regard to what assets are used to satisfy their debts, and none of the restrictions associated with bankruptcy. Creditors also benefit from a higher return than can usually be expected in the case of bankruptcy.
However, if an IVA is your light at the end of the tunnel, you should not forget that it is a legally binding contract between you, your creditors and the Supervisor of the arrangement. Once agreed at a meeting of creditors, you must adhere to the terms of your proposal as failure to do so could lead to bankruptcy.
With the above in mind, what are the advantages and disadvantages of entering into an IVA?
IVA Advantages
a Debt Free - An IVA lasts for a fixed period of time, normally no longer than 5 years, at the and of which you could be debt free.
a Payment Demands Stopped - Once the IVA is agreed, your creditors are bound by the agreement and by law they are unable to demand payments from you either by telephone or letter.
a Interest and Charges Frozen - Upon approval of the IVA, creditors cannot add any further charges or interest to your accounts covered by the agreement by law.
a Single Monthly Payment - At the beginning of the arrangement, you agree an affordable monthly payment with your creditors. In some cases, proposals may even be based on payment of a one-off lump sum.
a Repaired Credit Rating - Once you have successfully completed your arrangement, you are issued with a Certificate of Completion. This will have a beneficial effect on your credit rating.
a Fixed, Legally Binding Agreement - The IVA is legally binding on you and all your creditors. You will know exactly where you stand and how long it will take before you are debt free.
a Protection from legal action - Once approved, creditors bound by an IVA are not allowed to take any further legal action against you as long as you meet the terms of the arrangement.
a A Private Agreement - An IVA is a private matter between yourself and your creditors so, unlike bankruptcy, there will not be public notice in the local papers.
a Professional Status Unaffected - You can continue in your current profession (e.g. doctor, solicitor or accountant with the consent of your professional body) whilst undertaking an IVA without any adverse impact to your job.
aAbility to hold public office unaffected - An Individual Voluntary Arrangement does not affect your ability to hold public office.
a Lower fees - IVA fees tend to be less in comparison to the court costs and Official Receiver fees involved in a bankruptcy.
a A Flexible solution - if your circumstances change during the course of the arrangement, its terms can be modified to take these into account, with the approval of your creditors.
IVA Features
r Possible Release of Equity in your Home - If there is any equity in your property or any other significantly valuable asset, you may be required to release some of this as part of the IVA agreement, although you are usually allowed to keep approximately 15% of your share.
r Minimum Level of Debt - An IVA is usually only suitable for people with a minimum level of unsecured debt around £15,000 or more. Additionally, you will usually need to be able to afford a monthly payment of at least £200.
r No Unsecured Borrowing while the Arrangement is in place - You will not be able to obtain and use store or credit cards. Any cards you have at the time the IVA is approved must be cut up and returned to the financial institution which issued them. However, it may be possible to change an existing mortgage or apply for a new one while you are in an IVA. Your IP can advise you on this.
r Monthly Payments must be affordable - IVAs are only suitable if you can afford the monthly income contributions to your creditors.
r Creditors must agree - Your creditors have to agree on the arrangement through a vote, and 75% by value of those voting have to agree.
r You must maintain your monthly payments - If you do not make your regular payments to the IVA it is likely that the arrangement will fail and your creditors will be at liberty to take all the usual debt recovery actions against you. Often the supervisor is required by the creditors to petition for the bankruptcy of the debtor on the failure of an IVA.
If you want to know more, why not contact The Debt Helpline free on 0800 88 18 274.
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