Case Studies 194k Debt Cleared in 3 Years

Scenario:

A couple were told bankruptcy was their only option with his debts of £153,000 and hers of £41,000. They were not declared bankrupt and will be free of this debt in 3 years - why?

A debtor had unsecured liabilities of approx £153,000 of which his spouse also had £41,000 in her name. Their home was valued at around £163,000 with a mortgage of £150,000. The husband was due to retire within the next 2-3 years and was contemplating paying off some of his debts with his pension lump sum, approximately valued at £70,000. This would have still left a serious amount of debt between them both. He had sought advice from several firms and was told that all he could do was enter into an informal arrangement or Debt Management Plan with his creditors, either way, with just £600 per month to offer. This was going to take nearly 27 years excluding any pension lump sum. Not surprisingly he was extremely agitated and depressed about his finances and believed no one could help him.

Advice Given:

After completing a thorough examination of their finances and in particular their income & expenditure it was decided that the sum of £600 per month they were currently paying their creditors was too high and unrealistic when taking into account other necessary outgoings.

It was evident that a solution had to be found quickly that was best for both the borrowers and the lenders. The health of the husband was a real concern. Bankruptcy was considered due to the high level of debts and the inability to make any worthwhile monthly contributions as well as there being very little equity in the property. As creditors would not receive any dividend in a bankruptcy it was proposed that the husband pledge £30,000 of his lump sum pension into an IVA, as well as monthly contributions of £310. Due to the high level of the spouse’s debts it was deemed appropriate that she would also need to propose an IVA. The payment of the pension lump sum would also conclude the IVA’s with there being no requirement to make further monthly contributions.

The Outcome:

Both IVA’s were accepted by creditors as the best way forward for all concerned, however, creditors only agreed to the IVA’s if the husband increased his lump sum payment to that of £35,000, which he did so. There was no specific time limit for the lump sum payment other than over the next 5 years; the little equity in the house was excluded from the arrangements. Creditors would not have been entitled to the husband’s pension in a bankruptcy; therefore, this was a very astute way of using a debtor’s asset to settle debts with creditors. They are both now rebuilding their lives and are back in control of their finances.