Dealing with Personal Debt
The sooner you seek the appropriate advice, the sooner you can start working towards a debt free future.
Many people continue to struggle with debt and their conscience far longer than they should. The solutions do sound drastic on first glance, but on further investigation, you will find they offer effective options to help deal with the stress of debt, and face it head on; something some find impossible to bear on their own.
Whether your problems arise through the collapse of your business, redundancy, bad debts or simply unforeseen circumstances, Hodgsons will be able to advise you. We have been dealing with all types of personal financial trouble since 1971.
As an individual, if you really can't pay your bills any more, there are several insolvency routes open to you. Please email or call us to discuss those routes with us.
Hodgsons: Personal debt options explained
Where a debtor is unable to pay their debts, they can apply to make themselves bankrupt. The application can be made online and there is a fee payable.
On receipt of an application, an Adjudicator will decide whether the applicant debtor should be made Bankrupt.
If a debtor is made Bankrupt, they will be subject to a Bankruptcy order and their details will be published in the Individual Insolvency Register.
When a debtor is made Bankrupt, an individual (either an official receiver or an insolvency practitioner) will be appointed to manage the debtor’s Bankruptcy, investigate their financial affairs and be their Trustee in Bankruptcy. Any assets owned by the debtor, solely or jointly with someone else, (which are not essential), including their home, will automatically vest in the appointed Trustee. These assets will be sold to pay the debtor’s bankruptcy debts.
A Bankrupt will also be subject to various Bankruptcy restrictions until the end of their Bankruptcy. The Bankruptcy restrictions include prohibiting a Bankrupt individual from acting as a director of a company or creating, managing, or promoting a company without the court’s permission. Bankrupt individuals are also prohibited from borrowing more than £500 without informing a lender that they are Bankrupt and they cannot take assets worth over £500 out of the jurisdiction of England and Wales without their Trustee in Bankruptcy’s knowledge.
After a term of 12 months, a Bankrupt individual will usually be automatically discharged from Bankruptcy and restrictions. A Bankrupt individual can apply to annul their Bankruptcy if the debts and costs and expenses of the Bankruptcy have been paid or they have entered into an Individual Voluntary Arrangement with their creditors, and it will be treated as if the Bankruptcy never happened.
Debt Relief Order
Where a debtor is unable to pay their debts, they can make an application for a Debt Relief Order. An application must be made by a debt advisor on behalf of a debtor. There is a fee payable for the application.
Debt Relief Orders are only available where; the debts owed equate to less than £30,000, the debtor has less than £75 per month spare income and holds assets (including property) that are worth less than £2,000.
When Debt Relief Orders are granted, a moratorium will come into effect preventing creditors taking action to recover the specified debts and which lasts for 12 months. During this 12-month period, the debtor will be subject to restrictions, including being prohibited from obtaining credit without informing a lender of the debt relief order. The debtor will also be investigated. After the 12 months has expired the debtor will be released from all the qualifying debts. Some debts are not included such as secured debts, fines, student loans and damages awarded for personal injuries claims and these will remain payable by the debtor.
Debtors subject to Debt Relief Orders will have their details added to the Individual Insolvency Register. Their details will be removed 3 months after the end of Debt Relief Order.
Debt Respite Scheme (Breathing Space)
The ‘Breathing Space’ scheme refers to a temporary protection of debtors from their creditors. This scheme is available to some debtors. The Breathing Space can last for up to 60 days. The Breathing Space allows a debtor to seek debtor advice and make a plan of action.
If the debtor is in receipt of mental health crisis treatment, then the length of the Breathing Space shall be extended and will last for the length of the debtor’s treatment plus an additional 30 days.
During the Breathing Space period, creditors cannot contact the debtor nor take enforcement action against them. In addition, creditors cannot add interest or additional charges to the debtor’s debt.
A debtor can only apply for a Breathing Space through a debt advisor, who will submit an application on their behalf if a Breathing Space is appropriate. To be eligible for a Breathing Space a debtor must not have a Debtor Relief Order, an Interim Order, an Individual Voluntary Arrangement or be an undischarged Bankrupt at the time of their application. Debtors must also not already be in a Breathing Space nor have used the Breathing Space scheme in the previous 12-months, unless the previous Breathing Space was for mental health crisis treatment.
Debt Management Plan
Where a debtor is struggling to make payments towards their debts, they can enter into an agreement with one, some or all of their creditors called a Debt Management Plan. Debt Management Plans can only be used to pay a debtor’s ‘unsecured’ debts.
A Debt Management Plan is typically created and managed by a licensed debt management company. Under a Debt Management Plan the debtor will make monthly payments to the debt management company who will distribute the monthly payments to the relevant creditors.
Creditors are not required to agree to a proposed Debt Management Plan and unless stated in an agreement, creditors are still entitled to take action to recover the full debt amount due.
Debt Management Plans are not legally binding and can be cancelled at any time or in the event of a debtor not making repayments stipulated by the agreement.
Where a debtor has a court judgment against them for the repayment of debts which they cannot afford to repay, they can apply for an Administration Order. These orders are only applicable where the total debt is less than £5,000.
Administration Order applications can be made online. If granted, the debtor will make monthly payments to the court. The court will divide this monthly payment between the creditors. A court fee is payable each time a monthly payment is made. The court shall decide the terms of the arrangement, including the amount of the monthly payments and the duration of the arrangement, usually 3 years.
Creditors affected by an Administration Order are prevented from taking further action against the debtor, without obtaining prior permission from the court.
If a debtor fails to make scheduled monthly payments under the terms of the arrangement, the court can terminate the arrangement or contact the debtor’s employer to facilitate an attachment of earnings order.
Individual Voluntary Arrangement
An Individual Voluntary Arrangement is a legally binding agreement between a debtor and their creditors to pay back all or part of the debts over a period of time. An Individual Voluntary Arrangement must be set up by an Insolvency Practitioner or an individual authorised to act as Nominee. The Nominee will review the debtor’s financial situation and a suitable repayment plan will then be proposed. An Individual Voluntary Arrangement can be for any length of time.
An Individual Voluntary Arrangement will prevent creditors from charging interest on the debts and from taking action against the debtor for their debts.
An Individual Voluntary Arrangement can commence when the debtor’s creditors who hold at least 75% in value of the debts, agree to it. If approved, an Individual Voluntary Arrangement will apply to all creditors, including any who opposed it.
During an Individual Voluntary Arrangement, the debtor is required to inform the Supervisor of his/her arrangement of any changes to their financial position, including increased income. Debtors must not take out any additional credit without authorisation whilst subject to an Individual Voluntary Arrangement.
Any debtor subject to an Individual Voluntary Arrangement will be added to the Individual Insolvency Register. This entry shall be removed 3 months after the end of the Individual Voluntary Arrangement.
If the Individual Voluntary Arrangement is completed satisfactorily, all debts covered by it are then extinguished.