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Police officer avoids bankruptcy and keeps his pension

Monday, 22nd June 2009

062-police-hat In this case study Mike shows how an Individual Voluntary Arrangement, (IVA), was a useful tool in alleviating a police officer's debt problems.
The Police officer was saved from giving up his pension scheme to help pay off his debts of £84,000.

The facts

A police officer with unsecured liabilities of £84,000, consisting of credit card debts, personal loans and overdrafts, was struggling to make repayments every month to those to whom he owed money (his creditors). He and his partner lived in a jointly owned mortgaged property, with a shared equity in the house of approximately £40,000. His car, valued at £3,500, was subject to a hire purchase repayment of £145 per month, with two years still to run. He was unable to remortgage and in an attempt to free up some money he considered exiting his Police pension scheme, which would release around £210 each month to offer to his creditors.

After a review of his circumstances however, it became startlingly clear to our individual that because his true disposable income, after paying all household expenses, WITHOUT INCLUDING HIS UNSECURED CREDITORS, was only £600 per month and his contractual payments to his unsecured creditors were £1,800 per month, he was getting further into debt at the rate of £1,200 each and every month!

The Advice

Firstly, he was encouraged to stay in the pension scheme. Whilst bankruptcy was going to be a last resort, in such a scenario he would not be asked to leave the scheme and it was not envisaged he would lose his job if he were to be declared bankrupt as employers, and particularly police forces, increasingly view bankruptcy within their organisations more sympathetically these days.

debt management plan was then examined but even in the unlikely event that creditors agreed to freeze interest and other charges, this would take in excess of 14 years to repay.

Eventually the officer decided to propose an Individual Voluntary Arrangement (IVA) to his creditors which would entail monthly payments equivalent to his disposable income of £600 over a period of 5 years with a view to re-mortgaging his 50% share of the equity around year 4 of the IVA. If he was unable to remortgage the then the IVA would be extended by one year with the same monthly payments to cover his share of the house equity. He would keep his car and continue to make the monthly hire purchase payment of £145 for the remaining 2 year period, but would then divert this sum into the IVA thereby boosting the return to creditors for the last 3 years of the arrangement. Creditors were contacted immediately, advising them that professional advice to address his financial problems was being sought thus alleviating the pressure from his creditors.

The Outcome

Approximately 9 weeks after the initial consultation, a meeting of creditors was held at which the individual's proposal for an IVA was accepted. The creditors also accepted that he should stay in the Police pension scheme.

His unsecured creditors are bound by the terms of the arrangement and can no longer add any interest or charges to the accounts. Providing the debtor continues to adhere to the terms of his arrangement then his unsecured liabilities will be deemed to have been legally discharged. Providing the IVA is completed in accordance with the terms, creditors will receive a return of about 42p for every pound owed. The police officer has had no further contact with the creditors.

In this case the creditors agreed not to make it a condition of accepting the IVA that he exited his pension scheme. However, the majority creditor (one that holds more than 25% of the votes in value) can make such a request in order to release more resources. If so the debtor will need to counter by explaining the protection a police pension scheme offers and that it in a bankruptcy scenario he or she would be unlikely to face such a demand. It is projected that creditors would not have received much of a return in the event of the individual's bankruptcy, because of the cost of the Official Receiver's fees. Even though there was £40,000 equity in the property, as it was in joint names, his partner, not part of the IVA, was entitled to half.

Footnote

With debtwizard.com the fees for preparing a proposal for an IVA are not payable up front, instead they will be withdrawn from the funds paid into the arrangement. IVA's are only suggested as a way forward where it is considered as the most suitable option. Since this case study the IVA Protocol 2014 was launched and has made changes to how the pension and house equity are now dealt with in an IVA.

Debt Solutions Explained & Debt Solutions Comparison Table

Whatever the reason for the problem, you need to understand what help is available if you are financially strapped.

We have detailed below the six options available to you when debt problems arise, all these options, except for No.3 where you pay creditors in full, will affect your credit rating. See Debt Solutions Explained & Debt Solutions Comparison Table

More useful articles re Individual Voluntary Arrangements (IVAs)

What is an IVA

IVA Fees

IVA Pros and Cons

IVA Information / Advice

Where can I get free debt advice and debt solutions with no fees?

Take me to free debt advice agencies.

You can follow Mike on twitter by using @debtwizard

This article is intended to afford general guidelines on matters of interest. Accordingly, the information in this article is not intended to serve as legal advice. Therefore, no responsibility can be accepted by debtwizard.com, for any loss occasioned by a person acting or refraining from, acting on the basis of this article. Users are encouraged to consult with professional advisors for advice concerning specific matters before making any decision.

All contents copyright © 2014 Debtwizard.com Limited

 

 

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