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.::How debt affects your credit record::.

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You need to be aware that some of the options to deal with your debts will affect your credit record. This will mean that it will be more difficult for you to get credit in the future, including a mortgage or even getting a new mobile phone contract.

This is because information about your financial situation is collected and stored on file by credit reference agencies. They give this information to lenders like banks, building societies, finance houses and major retailers. The lender uses this information to help them decide whether or not to give you credit.

Information held by credit reference agencies includes:

your credit agreements, including balances and payment histories
failure to pay your mortgage
whether you have had your home taken back (repossessed)
county court money judgments (CCJs)
bankruptcy orders
Individual Voluntary Arrangements (IVAs)
previous credit searches
Administration Orders.

You can check your credit file to make sure it is correct.

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.::Bankruptcy::.

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If you have no money left over in your budget, or you have so little that it will take many years for you to re-pay your debts, you may want to look at bankruptcy as an option.

Going bankrupt can take the pressure of creditors away from you. You are allowed to keep certain things, like household goods and a reasonable amount to live on. When the bankruptcy order is over, you can make a fresh start and the money you owe is usually written off. In many cases, this can be after only one year. Creditors have to stop most types of court action to get their money back following a bankruptcy order (but in some cases the bailiffs may still be able to take your belongings away).

However, there are disadvantages to going bankrupt, for example:

it will cost you money (up to £475) to go bankrupt
if you own your own home, it will usually have to be sold
some of your possessions might have to be sold, for example, you will usually lose your car and any luxury items you own
if you own a business, it is more than likely that your business will be closed down and your employees sacked
you can't keep your bankruptcy private. A list of bankrupt people is published on the internet and your case could also be published in your local newspaper
even when you are no longer bankrupt, you could have another order, called a bankruptcy restrictions order made against you. These orders can be made if, for example, you took on debts knowing that you had no hope of paying them back. A bankruptcy restrictions order can last for 15 years and will make your financial affairs very restricted
even when you are no longer bankrupt, there are some debts such as court fines and student loans that will never be written off.

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.::Putting all your debts into one loan – consolidation::.

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If you have enough money left over after paying your priority creditors and your essential expenses, you could think about taking out a loan to pay off your non-priority debts. This is called a consolidation loan. You can use a consolidation loan to pay off things like credit card debts and loans.

It’s usually not a good idea to borrow more money to repay your existing debts as this can make things worse and cost more in the long-run. Many creditors ask for the new loan to be secured against your home. This means you could lose your home if you don't keep up the payments.
However, if you can afford the repayments, have stable finances and are good at controlling your spending, this could be an option for you.

If you are thinking of borrowing to pay off your debts:

make sure you have enough money left in your budget to afford the repayments
check you can afford the repayments for the whole life of the loan
shop around for the best deals
don’t borrow more than you need
if you get a consolidation loan to pay off your credit card loan, make sure you close the credit card account and don't use your card anymore.

If you do take out a consolidation loan, be careful you don't end up with more debt than you started with.

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.::Individual Voluntary Arrangements (IVAs)::.

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If you have enough money left over after paying your priority creditors and essential expenses, you may be able to arrange an Individual Voluntary Arrangement (IVA).

An IVA is a legal agreement with creditors (usually non-priority creditors) to repay your debts. This could either be in part or in full. The arrangement is negotiated, written up and checked regularly by an independent solicitor or accountant called an Insolvency Practitioner. Not all the creditors have to agree to an IVA as long as the creditors to whom you owe 75% of your debt agree.

Example:

You have a total of £100,000 debt. You have three creditors:
Creditor A (£6,000)Creditor B (£70,000)Creditor C (£20,000)
Creditor C doesn't agree to an IVA but it doesn't matter because Creditors A and B do agree and between them, they have more than 75% of the debt. Creditor C still has to keep to the terms of the IVA.

The costs of setting up an IVA can be high and you may have to pay an upfront fee. If you don't keep to the payments, you can be made bankrupt.

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.::I have a county court judgment against me over an unpaid credit card debt and the card issuer has threatened me with bailiffs. What can I do?::.

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(This information applies to England and Wales only)

The first thing to do is to try and negotiate with the company. Even if you can't pay the debt in full, you could try to agree a set amount to pay weekly or monthly.

If you cannot come to an agreement with the company, they will need to get a warrant of execution from the courts before they can send in the bailiffs to remove property from your home in payment of your debt. If they already have the warrant, you should apply to the court to have it suspended.

If the bailiffs arrive, you do not have to let them in and they cannot generally force their way in. However, they are allowed into your property without your permission if they can enter without breaking in. This is called 'gaining peaceful entry' and includes getting in through an open window, or a closed but unlocked door.

Bailiffs are not allowed to take basic clothing, bedding, furniture or household goods, and any goods they do take will be sold at auction in order to pay off your debt.

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.::My debts are getting out of control and I can’t possibly pay them all. What can I do?::.

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If you are worried about your debts, try not to panic but do not ignore your problem. Talk to the people or organisations you owe money to and let them know that you are having problems. Most organisations will be more helpful if you approach them first.

If you have more than one outstanding debt, or have fallen behind in paying your bills, you need to work out which debts are priority debts. A priority debt is one that could have serious results if unpaid. Not paying your rent or mortgage would leave you homeless, or not paying your gas or electricity bill could leave you being cut off and taken to court. When you have decided which are priority debts, work out how much you can realistically afford to pay back.

You will need to think carefully before taking out further loans to pay off existing debts. You may end up paying back a lot more than you borrowed and the interest rates may be extremely high. Some loans can be secured against your home and you could end up losing it if you fail to make repayments. Check your income and see if there are any benefits or tax credits you are entitled to that you are not getting. Look carefully at your spending and see if there is anything you are able to cut down on, again you can work out what are priority expenses and what things are not so necessary. You can also look at ways of reducing your outgoings, for example you could shop around for a cheaper gas or electricity provider, or look at cheaper mortgage or insurance providers.

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.::Wipe My Debts - Point 1 - Make a list of your debts::.

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Before you can tackle a debt problem, you need to collect together information about your money affairs. Make a list of all the people and companies you owe people to (your creditors).

You will need the following information for each debt:

the name and address of the creditor
the account or reference number
the amount you owe.

It’s a good idea to keep the latest letter or statement for each debt together in one place so that you can easily find them if you need them.

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 adviser.

Once you've made a list of all your creditors, you need to work out which ones to deal with first. You need to deal with some debts first 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
fuel arrears. If you don't pay these, you can have your fuel 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.

Non-priority debts

Non-priority debts include:

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

You can't be sent to prison for not paying non-priority debts. But if you don't make any offers to pay, without explaining why, your creditors may take you to court. If you still fail to pay 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. This will be sold to cover your debts.

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Tags: adverse, bad credit, bankrupt, ccj, court, credit cards, creditor, debt, debts, fines, individual voluntary arrangement, IVA, loan, mortgage, non-payment, overdraft, remortgage, unpaid

.::Wipe My Debts - Point 2 - Work out a budget::.

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List all the income and expenses for your household. Be honest and make sure that the amounts are realistic.

Under income, 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.
Think about the ways in which you might earn extra money or increase your income. You may be able to claim benefits or tax credits.

Under expenses, include:

housekeeping. Include realistic amounts for what you spend on food, toiletries, school dinners and meals at work, cleaning materials, cigarettes, sweets, children's pocket money and pet food.
housing costs. This should 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
fuel and water charges
telephone charges
travel expenses. Include both public transport and the cost of running a car such as road tax, insurance, and maintenance
insurance that is not part of your housing costs (see above)
childcare costs
TV licence and any TV rental costs
clothes
any other essential expenses, such as medical and dental expenses or support for an elderly relative
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.

When you've added up all the figures, you'll see if you have any money left over to pay your debts. You may even be able to see if you can make some savings. An advice agency can help you draw up a budget and help you increase your income if this is possible.

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.::Wipe My Debts - Point 3 - Sort out your priority debts::.

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Don't ignore letters or phone calls from your priority creditors. Get in touch with them as early as possible and explain to them why you are in debt. 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. Say that you will contact them again within two or three weeks. Ask them not to take any further action during this time. For more about negotiating with your creditors.

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. For example, you may be able to pay an extra bit each month until the arrears are cleared. Or you may not have any extra money at the moment but know you will have a lump sum in three months' time which will clear the debt completely.

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. Get advice straight away.

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.::Wipe My Debts - Point 4 - Sort out my non-priority debts::.

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After dealing with your priority debts, you will need to work out how to deal with your non-priority debts. How you deal with your non-priority debts will depend on whether you have any money left over from dealing with your priority debts and paying for essential household expenses like housing costs and food.

If you have money to spare

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

You should weigh up the advantages and disadvantages of each of these options carefully. Get as much information as you can before making a decision and don’t sign anything until you are sure it is the best option for you. If you have any questions, get advice.

You may have the option of:

make offers to creditors yourself
asking a Debt Management Company to make offers for you
applying for a court order that allows you to pay only a proportion of the debt. This is called an Administration Order
arranging a legal agreement with your creditors. This is called an Individual Voluntary Arrangement (IVA)
putting 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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