Taking Control of a Debt Problem

Debt Solutions

Debt Information

Before you can tackle a debt problem, you need to collect together information about your money affairs. Start off by making a list of all your creditors and collect the following information on each of them:

Step One – List your creditors

the name and address of the creditor
the account or reference number
the amount you owe
a copy of the original loan agreement you signed.

A good starting point for all of this is your last statement, a good practice to get into is to keep all your last statements together and then each time you get a new statement to transfer the last old statement to a file with all old statements.

When you have completed your list of your creditors, it will be necessary to prioritise who is to be paid and what. You Some debts demand payment before others because the consequences of not paying these debts can be more serious than for other debts. The debts you deal with first are called 'priority debts'. The debts you deal with after your priority debts are called 'non-priority debts'.

Priority debts

Priority debts include:

mortgage or rent arrears. If you don't pay these, you could lose your home
utility arrears. If you don't pay these, you can have your gas or electricity supply disconnected
council tax arrears. If you don't pay these, a court can use bailiffs to take your goods. If, after this, you still have arrears unpaid, you can be sent to prison
court fines such as magistrates' court fines for traffic offences. If you don't pay these, the court can use bailiffs to take your goods. If, after this, you still have arrears unpaid, you can be sent to prison
arrears of maintenance payable to an ex-partner or children. This includes Child Support you owe to the Child Support Agency. If you don't pay these, a court can use bailiffs to take your goods. If, after this, you still have arrears unpaid, you can be sent to prison
income tax or VAT arrears. You can be sent to prison for non-payment of income tax or VAT.

If you've received any court papers or letters that seem urgent, you may need to act quickly. If you are not sure from the papers what you should do next, get advice straight away from an experienced advisor

Be aware that you need to have reasons as to why you are paying some creditors in preference to others. It may be the case that at some stage you are called upon to justify your choices.

Non-priority debts

Non-priority debts include:

credit debts such as overdrafts, loans, hire purchase, credit card accounts and catalogues
student loans
money borrowed from friends or family.
benefits overpayments

If you don't make any offers to pay these non priorty debts, without explaining why, your creditors may take you to court. It is unlikely that this will happen straight away and it is likely to take a significant period of default before a creditor takes the step of expending cash to issue a summons.

However if you fail to pay the creditors what you owe or arrange a payment plan when the court has ordered it, your creditors can take further action. For example, they can get another court order which allows them to send bailiffs round to take your property away.

Step Two - work out a budget

You will need to list all the income and expenses for your household. These figures need to be honest and realistic, as there is no point in putting down a figure which does not reflect actual expenditure as this may mean that you produce unrealistic offers of payment

Your income elements will include:

wages or salaries for your partner and yourself. Put in your net earnings, that is, after deductions. This should be the amount you regularly receive. If the amounts are different each month, average them over three or six months
any benefits you are paid, including Child Benefit and tax credits
maintenance from an ex-partner for you or your children. Include any Child Support from the Child Support Agency
contributions from other members of your family and any lodgers.

Do you have free time on your hands or additional skills that you could turn to generate extra income . You may be able to claim benefits or tax credits.

Your expenses will include:

housekeeping. This needs to include realistic amounts for what you spend on food, toiletries, cleaning materials school dinners and meals at work, after school activities, hobbies and clubs, video rental, cigarettes, sweets, children's pocket money and pet food.
housing costs. This needs to include mortgage or rent, a second mortgage or secured loan, buildings and contents insurance, service charges and life or endowment insurance cover attached to your mortgage
council tax
gas electricity and water charges
telephone charges for both mobile and fixed line
travel expenses. Include both public transport and the cost of running a car such as road tax, insurance, and maintenance
life insurances
childcare costs
TV licence and any TV rental costs
clothes
any other essential expenses, such as medical and dental expenses
money you should set aside for unexpected events and contingencies. This includes saving for things like the replacement of essential household goods when they break down.

Whatever you have left in your budget after taking into account all of these payments will be your disposable income.

Step Three – Prioritise the debts payments

Act on contacts from your priority debtors. If the write to you call them. If they call you, be polite and answer their questions without equivocation. If you phone, you should follow up the call with a letter, confirming what you said on the phone. Keep copies of any letters you write to them.

If your priority creditors are threatening to take court action or have started to take court action against you and you need a little time to sort out your finances, send them a holding letter explaining your problems. This may be a collection tactic but it is unlikely that they will spend money pursuing you without knowing for certain what your financial position is and that they recover their expenditure. Ask them not to take any further action during this time.

When you have worked out how much you have left over after paying your expenses, contact each of your priority creditors and try to make an arrangement to pay back what you what you owe. Be honest don’t promise payments that you know are unrealistic. Confirm that you will keep them updated with any changes in your circumstances.

If you can’t afford to pay anything to your priority creditors and your situation isn’t likely to get better, the outcome may be very serious. We have a solution here and so please contact us for advice.

Step Four - sort out your non-priority debts

After dealing with your priority debts, you will need to work out how to deal with your non-priority debts. Dealing with these will be dependent on what you have left as disposable income after paying for essential household expenses like housing costs and food and the money that you have earmarked for the priority debts.

If you have disposable income

If you have money to spare, you may have several options for dealing with your non-priority debts.

The options available:

making offers to creditors yourself
approach a Debt Management Company to make an offer for you
applying for a court order that allows you to pay only a proportion of the debt. This is called an Administration Order
Apply for an Individual Voluntary Arrangement (IVA)
Put all your debts into one loan. This is called loan consolidation

If you have no money to spare

If you have little or no money left after you have done your budget, you have nothing of value to sell and you think your circumstances are unlikely to get better soon, you will have limited options for dealing with your non-priority debts. The options you will have are:

asking your creditors to write off your debt
applying for bankruptcy

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