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Mike Thomas head of debtwizard.com and his team provide advice on debt problems to Officers and support staff. He has clients in more than 80% of the nation's Police Forces as well as in the Prison Service, M.o.D., Fire Brigade, Ambulance Service and in other Public Service Departments. He regularly features on TalkSPORT and BBC radio as well as BBC television news.

Here Mike describes how his team helped a Police Officer who was increasing his debt close to £1,000 every month even though he already owed another £63,000.

The facts

A Police Officer was referred by his Federation after he received a notice that legal proceedings had begun against him for a County Court Judgement, CCJ. The creditor was demanding payment of £8,333 on a credit card debt; the officer also had another £54,265 outstanding in other loans and credit cards. He was quite stressed and worried about his job. His current payments to his creditors amounted to £1,425 each month, this from a take home pay of £2,100. This left £625 each month for him to live on and to pay for rent, utilities, car costs and CSA payments, clearly he was insolvent and needed professional help fast.

The Advice

After completing an income & expenditure form it was soon established that the true amount of monthly disposable income, after accounting for the necessary household expenditure and his CSA payments, was £450 and it was obvious he could not meet the £1,425 each month to pay his debts, he was increasing his debt by £975 each month, he just borrowed more on each credit card just to make the payments to other creditors, his debts were spiralling out of control.

Consideration was given to the following options; Debt Management Company, DMC, Bankruptcy or propose an Individual Voluntary Arrangement, IVA. The DMC option was dismissed due to creditors' lack of support in that in the majority of cases some creditors would still add interest and late payment charges thus making the overall debt increase, also the debt would be paid back in full, in this instance this will take a minimum of 12 years providing the creditors were to freeze interest. This was unworkable and unrealistic for the officer. He did not wish to go bankrupt, even though the payment term to creditors through the bankruptcy period would be for only 3 years, he had no assets apart from the vehicle which was paid for and worth approximately £7,000.

The debtor decided to propose an IVA, to his creditors as he was clearly insolvent. The proposal would entail monthly payments equivalent to his disposable income, £450 over a period of 5 years, and he proposed to sell the car, current value £7,000 and replace it with one for around £3,000. This freed up £4,000 in additional funding and was to be pledged into the IVA to boost the overall return to creditors. This act was seen by creditors to be a positive move by the debtor and demonstrated his desire to pay back what he could. Creditors were contacted immediately, advising them that the individual was seeking professional advice in order to address his financial problem, thus alleviating the debtor from the constant pressure from telephone calls and threats of Court action to recover the debts.

The Outcome

Approximately 10 weeks after the initial consultation a meeting of creditors was held, at which the individual's proposal for an IVA was accepted. All interest and late payment charges can no longer be added to the debt.

Both the debtor and his unsecured creditors are bound by the terms of the arrangement and, providing the debtor continues to make the monthly payment to the Supervisor of his arrangement, who will then distribute the funds to his creditors, at the end of the arrangement his unsecured liabilities will be deemed to have been legally discharged. It is not projected that creditors would have received much of a return in the event of the individual's bankruptcy other than a percentage of the sale proceeds of the car as this would be seen as an asset. In the IVA creditors will receive a return of circa 41%, i.e. 41pence for every pound of their claim providing the IVA is completed in accordance with the terms. He will be reviewed on a regular basis, usually every 12 months, to see if he can increase his contribution to the IVA. The debtor had no further contact with the creditors. Although the individual's credit rating is impaired, credit was, as in many cases, his downfall and it is probably helpful that he is not able to obtain further borrowing for the time being. He is now back in control of his finances and getting back in control of his health. Guidance was given as to future money management.

More details on Debt Management Companies, Individual Voluntary Arrangements, Bankruptcy and our Debt Option Comparison table, 6 Option Guide to Getting Out of Debt and the Budget Planning Forms can be found at www.debtwizard.com. For free access to the site you need only insert an email address and password. Because we carry no advertising or sponsorship we cannot be pressurised or influenced on the advice we give.

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.