What to Do?
You have heard it all before, on the news, in the papers, and many are really living it, we are in or close to a recession! It depends on who you ask as to if we really are or not. But splitting hairs aside, we are in some deep financial doo doo. Companies are closing down, major financial networks/banks are being hit hard, the mortgage business is in trouble, not a pretty picture. But how are we as Britains handling this and what can we really do.
I speak to people every day and they are naturally concerned over the state of affairs of things. Many of them are in the middle of this and are asking what can they do?? And when advice is provided and options discussed more and more are going off and doing nothing, which is an option, a wait and see option. Wait and see if things improve...they don’t. Many people are paralyzed by their fear, even though they have researched out and discussed their options with an advisor.
Here are a couple of examples of people who I have spoken with in recent days:
Example Number One: This couple have a property with no equity, over 50K in unsecured debts and both are working and they can just scrape by making the minimum contractual payments. The problem is that she lost her job and found another one at the same wage, but in another city over 3 hours away. Too far to commute and fortunately for her, an old university friend lives in that city and allows her to stay there 4 nights a week for free, otherwise the job would not work out due to the costs of needing accommodations. So they can limp along this way and meet their obligations, but they will also not see each other but 2 days a week, and on some weeks, 2 days every other week. So what to do?
We discussed selling the house and him looking for work near or in the same city as his partner, and also the possibility of bankruptcy. They may or may not be ordered to pay into the bankruptcy due to the fact he may give up his job and move to where she is, or she quits work and moves back to the property and they deal with if they can keep the property in bankruptcy or not. Yes, a bit complicated and a lot to digest to make a decision. But as you can imagine, there is much more going on here than just finances, it is not only their lives and futures, but their relationship as well.
Example Number Two: A self-employed gentlemen phoned me the other day regarding his business and debt situation. He is a sole trader and over the years his business has decreased and lately, whilst still making a small profit, it has really dropped off. With the decrease in profits he can no longer service the level of debt he has. He is single and has no property.
His dilemma is this, when to pull the plug on the business and then should he go bankrupt? The business is still profitable, enough to support him, and it may turn around, but for now he cannot service the debts and something needs to change. The answer for him is simply pick a date when if you are not in a position earning the amount of profit needed to handle everything, then go bankrupt. He would still be allowed to trade and earn, but that brings up the second part of his situation, should he continue to trade as a sole trader or look for other work as an employee? Of course there are his decisions to make, but again as you can see, it is not all just about money, or debts.
A sort of third example which ties in with the second one above is a phone call I received yesterday. It was from a man who I had spoken with almost a year ago. He stated I had advised him last year and wanted some additional advice. He went over his situation and I did recall speaking with him prior. When we went over his options as I saw them, he told me that was what he thought and what I had said last year. I’m glad I’m consistent. Then I asked him why he had not taken the advice last year, he stated he thought things would turn around and get better. They of course, did not.
So what options do you have with your debts? Think of the options as a continuum and at one end of that line you have, do nothing, and at the other extreme is bankruptcy, with all the other options in between.
Doing Nothing: An option yes, but not a good one for the long haul as your creditors are not going to be happy when you do not pay. They will chase you for payment, phone you to collect, possibly take you to court for a CCJ, maybe send bailiffs out, have a charging order placed against any property you may have, and even make you bankrupt. But there is no guarantee they will make you bankrupt, especially if they will not receive much.
Repayment Schemes: This can be anything from token payments of £1 a month, to a debt management plan to a more formal arrangement such as an IVA/Individual Voluntary Arrangement. The type of plan that is best for someone is usually dictated by what they can afford. And again, informal arrangements have a purpose, but they are informal and the creditors are under no obligation to stop interest and charges and also continue to try and collect more payment. They have to accept the payments you send, but can request additional amounts.
In a formal arrangement such as an IVA, the accounts are frozen to interest and charges. Payments are made into the IVA for 5 years and after the 5 years the remaining balances are written off and you are debt free. The only caveat to this is that there is a minimum payment amount each month the creditors are willing to accept based upon the level of debt you may have. Also, if you own a property and there is equity, you are expected to release a portion, not all, of the equity in the 5th year of the IVA.
So what are the advantages of each of these schemes? If you cannot afford what the minimum payment into an IVA would be, then a DMP or debt management plan may be better for you. Also if you have more equity in a property then debt, you cannot do an IVA as you are technically not insolvent, so again a DMP may be better suited for you.
In discussing equity in a property, that brings up another option available to some. Liquidating a property or asset and using the proceeds to pay off or settle the debts. You can settle debts for less than what is owed, a Pence on the Pound, type of offer. There is even a formal settlement a one-off full and final IVA. Of course many people want to preserve their property, and that is understandable, however one way or another, that asset is going to be used to pay off the debts; either through a charging order, the sale of the property, or in bankruptcy the Trustee will want it sold. But as I said, people want to hold onto their property, they are emotionally attached to it. I have written in the past about how people are like this and these attachments can cloud someone’s thinking about what to do in handling their debts.
Bankruptcy: Bankruptcy is at the far end of the continuum, and for some should be used as a last resort, but it is there for a reason and as such is an option to be relieved of the responsibility of debts.
Bankruptcy can be intimidating. The basics of bankruptcy are fairly straight forward; you fill out the forms, file them at your local County Court, or the High Court in London, a judge declares you bankrupt, an Official Receiver reviews your situation to see if you have any assets such as property that can be liquidated to pay into the bankruptcy. If you have a surplus of income to pay into the bankruptcy for a period of 3 years. In most instances you are bankrupt for 12 months, and then discharged. If you are paying into a bankruptcy under an income payment agreement, you continue to pay for an additional 2 years after the discharge.
However, as clear cut as that may sound, bankruptcy is a court procedure and you need to make sure you are putting your best case forward. Many people fail to complete the forms properly and wind up paying more than they need to without professional bankruptcy advice.
If you have a property and go bankrupt, you may be allowed to keep it, if there is no equity and you can afford the property. The Official Receiver may place a charge on the property for 3 years to see if any equity rises, or you may be allowed to buy out their interest in the property under a low coast buy-out scheme.
Of course there is much more to bankruptcy than this, and as I said, it can certainly be a field of landmines and surprisingly complicated but this overview will provide you the highlights of the process.
You are in bankruptcy in most instances for 12 months, it stays on your credit file for 6 years, and if asked have you ever been bankrupt, you need to disclose this for life. That’s the real downside, the disclosure part. But that does not mean you will ever get credit again or be able to buy property, you will need to build your credit back again. If you want to go bankrupt, we can help you do that and even complete the forms for you.
In conclusion, people who know all their options are not taking advantage of them. I have clients ask me, "What should I do?" "Please tell me what to do!"
Initially we are there to advise and guide people, they need to make their own decisions as to what is best for them and what to do, but even on occasion when I set out a clear and precise plan of action for a client, they simply do not follow it. They do nothing. Now I realise to make some of these decisions is tough and I have written about these matters in the past. But action needs to be taken, the old words of if you choose to do nothing you still have made a choice, however in terms of finances, a wait and see stance is not all good. If your investments were losing money and your stocks were decreasing, would let them bottom out to zero, or sell and cut your losses?
For many of us our personal finances are more than just money; it intertwines into other aspects of our lives, such as relationships, our health, etc. There is always more going on than just the money or debt, so understandably so it can be difficult to move forward in deciding which path/option to choose.
What will you choose to do?
I speak to people every day and they are naturally concerned over the state of affairs of things. Many of them are in the middle of this and are asking what can they do?? And when advice is provided and options discussed more and more are going off and doing nothing, which is an option, a wait and see option. Wait and see if things improve...they don’t. Many people are paralyzed by their fear, even though they have researched out and discussed their options with an advisor.
Here are a couple of examples of people who I have spoken with in recent days:
Example Number One: This couple have a property with no equity, over 50K in unsecured debts and both are working and they can just scrape by making the minimum contractual payments. The problem is that she lost her job and found another one at the same wage, but in another city over 3 hours away. Too far to commute and fortunately for her, an old university friend lives in that city and allows her to stay there 4 nights a week for free, otherwise the job would not work out due to the costs of needing accommodations. So they can limp along this way and meet their obligations, but they will also not see each other but 2 days a week, and on some weeks, 2 days every other week. So what to do?
We discussed selling the house and him looking for work near or in the same city as his partner, and also the possibility of bankruptcy. They may or may not be ordered to pay into the bankruptcy due to the fact he may give up his job and move to where she is, or she quits work and moves back to the property and they deal with if they can keep the property in bankruptcy or not. Yes, a bit complicated and a lot to digest to make a decision. But as you can imagine, there is much more going on here than just finances, it is not only their lives and futures, but their relationship as well.
Example Number Two: A self-employed gentlemen phoned me the other day regarding his business and debt situation. He is a sole trader and over the years his business has decreased and lately, whilst still making a small profit, it has really dropped off. With the decrease in profits he can no longer service the level of debt he has. He is single and has no property.
His dilemma is this, when to pull the plug on the business and then should he go bankrupt? The business is still profitable, enough to support him, and it may turn around, but for now he cannot service the debts and something needs to change. The answer for him is simply pick a date when if you are not in a position earning the amount of profit needed to handle everything, then go bankrupt. He would still be allowed to trade and earn, but that brings up the second part of his situation, should he continue to trade as a sole trader or look for other work as an employee? Of course there are his decisions to make, but again as you can see, it is not all just about money, or debts.
A sort of third example which ties in with the second one above is a phone call I received yesterday. It was from a man who I had spoken with almost a year ago. He stated I had advised him last year and wanted some additional advice. He went over his situation and I did recall speaking with him prior. When we went over his options as I saw them, he told me that was what he thought and what I had said last year. I’m glad I’m consistent. Then I asked him why he had not taken the advice last year, he stated he thought things would turn around and get better. They of course, did not.
So what options do you have with your debts? Think of the options as a continuum and at one end of that line you have, do nothing, and at the other extreme is bankruptcy, with all the other options in between.
Doing Nothing: An option yes, but not a good one for the long haul as your creditors are not going to be happy when you do not pay. They will chase you for payment, phone you to collect, possibly take you to court for a CCJ, maybe send bailiffs out, have a charging order placed against any property you may have, and even make you bankrupt. But there is no guarantee they will make you bankrupt, especially if they will not receive much.
Repayment Schemes: This can be anything from token payments of £1 a month, to a debt management plan to a more formal arrangement such as an IVA/Individual Voluntary Arrangement. The type of plan that is best for someone is usually dictated by what they can afford. And again, informal arrangements have a purpose, but they are informal and the creditors are under no obligation to stop interest and charges and also continue to try and collect more payment. They have to accept the payments you send, but can request additional amounts.
In a formal arrangement such as an IVA, the accounts are frozen to interest and charges. Payments are made into the IVA for 5 years and after the 5 years the remaining balances are written off and you are debt free. The only caveat to this is that there is a minimum payment amount each month the creditors are willing to accept based upon the level of debt you may have. Also, if you own a property and there is equity, you are expected to release a portion, not all, of the equity in the 5th year of the IVA.
So what are the advantages of each of these schemes? If you cannot afford what the minimum payment into an IVA would be, then a DMP or debt management plan may be better for you. Also if you have more equity in a property then debt, you cannot do an IVA as you are technically not insolvent, so again a DMP may be better suited for you.
In discussing equity in a property, that brings up another option available to some. Liquidating a property or asset and using the proceeds to pay off or settle the debts. You can settle debts for less than what is owed, a Pence on the Pound, type of offer. There is even a formal settlement a one-off full and final IVA. Of course many people want to preserve their property, and that is understandable, however one way or another, that asset is going to be used to pay off the debts; either through a charging order, the sale of the property, or in bankruptcy the Trustee will want it sold. But as I said, people want to hold onto their property, they are emotionally attached to it. I have written in the past about how people are like this and these attachments can cloud someone’s thinking about what to do in handling their debts.
Bankruptcy: Bankruptcy is at the far end of the continuum, and for some should be used as a last resort, but it is there for a reason and as such is an option to be relieved of the responsibility of debts.
Bankruptcy can be intimidating. The basics of bankruptcy are fairly straight forward; you fill out the forms, file them at your local County Court, or the High Court in London, a judge declares you bankrupt, an Official Receiver reviews your situation to see if you have any assets such as property that can be liquidated to pay into the bankruptcy. If you have a surplus of income to pay into the bankruptcy for a period of 3 years. In most instances you are bankrupt for 12 months, and then discharged. If you are paying into a bankruptcy under an income payment agreement, you continue to pay for an additional 2 years after the discharge.
However, as clear cut as that may sound, bankruptcy is a court procedure and you need to make sure you are putting your best case forward. Many people fail to complete the forms properly and wind up paying more than they need to without professional bankruptcy advice.
If you have a property and go bankrupt, you may be allowed to keep it, if there is no equity and you can afford the property. The Official Receiver may place a charge on the property for 3 years to see if any equity rises, or you may be allowed to buy out their interest in the property under a low coast buy-out scheme.
Of course there is much more to bankruptcy than this, and as I said, it can certainly be a field of landmines and surprisingly complicated but this overview will provide you the highlights of the process.
You are in bankruptcy in most instances for 12 months, it stays on your credit file for 6 years, and if asked have you ever been bankrupt, you need to disclose this for life. That’s the real downside, the disclosure part. But that does not mean you will ever get credit again or be able to buy property, you will need to build your credit back again. If you want to go bankrupt, we can help you do that and even complete the forms for you.
In conclusion, people who know all their options are not taking advantage of them. I have clients ask me, "What should I do?" "Please tell me what to do!"
Initially we are there to advise and guide people, they need to make their own decisions as to what is best for them and what to do, but even on occasion when I set out a clear and precise plan of action for a client, they simply do not follow it. They do nothing. Now I realise to make some of these decisions is tough and I have written about these matters in the past. But action needs to be taken, the old words of if you choose to do nothing you still have made a choice, however in terms of finances, a wait and see stance is not all good. If your investments were losing money and your stocks were decreasing, would let them bottom out to zero, or sell and cut your losses?
For many of us our personal finances are more than just money; it intertwines into other aspects of our lives, such as relationships, our health, etc. There is always more going on than just the money or debt, so understandably so it can be difficult to move forward in deciding which path/option to choose.
What will you choose to do?
