Struggling with debt? Ask a debt advisor a question

Camille_B · 8 July 2013 at 12:21PM

I would really appreciate some advice on my mum's current situation. Due to a court order relating to a divorce she is being forced to sell the house she is living in and split the proceeds with her ex husband. Once it sells and the mortgage is paid off, and after solicitor/estate agent fees, she should come out with somewhere between £100K - £115K. However, she has £52.5K of debt, including two county court judgments from 2008 and since 2008 she has been under a DMP (not a very good one though I don't think).

She has been to a mortgage adviser who said that (unsurprisingly) she would be very unlikely to get a mortgage. He also said that ideally the total amount of money she receives from the sale of the house she is living in should be used to buy a new property. However, one of my main questions is would she be able to do this or would her creditors be able to force her to pay her debts off with the money from the house?

In addition to this, she is in very bad health at the moment and struggling to hold down her full time job. I am worried that if she has to rent she will end up out of work and unable to pay the rent. I am also wondering, in this case, would it be possible for her to access any kind of help in the form of benefits?

I would be very grateful for any help/advice on this. Thanks

archiedak2 · 8 July 2013 at 2:19PM

Hi,

I currently have a DMP with payplan. I have paid off £6000 over the last 18 months and have £32000 debt remaining.
The debt was accrued during a period of unemployment experienced by my ex-partner. Unfortunately I have been left with the burden of managing the debt alone.
I am increasingly frustrated about the limitations that being in the DMP imposes and how it is limiting my ability to move on from my failed relationship.
I have a mortgage on my home which has approx £40k of equity.
I have considered a number of options; selling and paying off DMP, IVA full and final. But my preferred option would be to negotiate a full and final settlement figure, increase my mortgage and pay off the settlement amount and then put a plan in place to re build my credit rating and take back some control over my life.
Would this be possible / advisable, is there even a chance my mortgage company would lend me any additional money, and if so how much. I'm worried I will be laughed out of the bank!

Thanks

StepChange_James · 8 July 2013 at 2:42PM

rubyjam wrote: »

We have been with StepChange for 2 years. Last year we had to temporarily reduce our DMP payments (2 months) for essential boiler repairs.

Barclaycard were less than helpful and immediately started charging us interest and added fees. I wrote to them explaining the situation and they said they couldn't refund the interest/charges as we had broken our agreement. This set us back months Infact it added another 3 months to our debt free date Thankfully all other creditors accepted.

We are now in the situation that we will have to reduce our DMP payments for 12 months at least. We are going to loose our Child Tax Credits and Child Benefit as our 18 year old daughter has decided to leave college and is going to work abroad (starting in Sept 2013). Our budget is too tight to cover the difference in income and we struggle to manage on the budget we have now. I think we will be around £200 a month worse off.

My question is .... £200 is a considerable sum to reduce our DMP by and it will add years to our debt free date. Could our Creditors not accept the lower payments and give us CCJ's or put a Charging Order on our house or even try to make us Bankrupt? I am particularily worried about Barclaycard ... they didn't like us reducing payment for 2 months - I dread to think about their reaction to a more permanent reduced payment

I thought we were finally making inroads into our debt and it would be devastating if we had to throw in the towel now.

Is there a maximum number of years you can be in a DMP? Or a miminum percentage you need to pay back for a DMP to be realistic?

Hi Ruby Jam,

Child benefit and tax credits being stopped can be a massive shock to a household’s income, so it’s not unusual for us to speak to people in this sort of situation.

Rather than have strict criteria we tend to look at changes in circumstances on a case by case basis, because no two people’s situations are the same. So it’ll be a matter of reviewing your budget and looking at what strategy would suit you best. If it's a DMP we'll adjust the plan if there's something more suitable we'll support you with that.

I know it’s easier said than done, but I’d suggest not worrying too much about your creditors’ reaction to the potential reduction in payments. If your budget shows that you’re offering them as much as you can afford then I’d hope they’d be willing to accept the payment even if it was less.

If your creditors aren’t happy with payments then could go for a CCJ but the courts expect you to make monthly instalments of what you can afford, so it’ll usually be a similar payment to the one they get from the DMP.

Again, charging orders are possible, but most creditors don’t go down this road. If one debt did it would mean the debt would be paid off if you sold your house in the future but the charging order doesn’t give the creditors the right to force the sale of your house.

I hope this helps, but if there are more questions it might be worth giving us a call. We can be a bit more specific when we’ve got your account up on screen.

Kind regards

James

StepChange_James · 8 July 2013 at 3:04PM

Camille_B wrote: »

I would really appreciate some advice on my mum's current situation. Due to a court order relating to a divorce she is being forced to sell the house she is living in and split the proceeds with her ex husband. Once it sells and the mortgage is paid off, and after solicitor/estate agent fees, she should come out with somewhere between £100K - £115K. However, she has £52.5K of debt, including two county court judgments from 2008 and since 2008 she has been under a DMP (not a very good one though I don't think).

She has been to a mortgage adviser who said that (unsurprisingly) she would be very unlikely to get a mortgage. He also said that ideally the total amount of money she receives from the sale of the house she is living in should be used to buy a new property. However, one of my main questions is would she be able to do this or would her creditors be able to force her to pay her debts off with the money from the house?

In addition to this, she is in very bad health at the moment and struggling to hold down her full time job. I am worried that if she has to rent she will end up out of work and unable to pay the rent. I am also wondering, in this case, would it be possible for her to access any kind of help in the form of benefits?

I would be very grateful for any help/advice on this. Thanks

Hi Camille,

Thanks for posting.

If either of the CCJ debts have obtained a charging order they'll be repaid as part of the house sale process.

Otherwise I'd say it's fairly unlikely anyone would take steps that would force your mother to pay them money she had. If a creditor petitioned for her bankruptcy or an unpaid CCJ debt applied for something called a Third Part Debt Order then it could get to that point but it's rare that either of these things happen.

If she's unable to work due to ill health then there should be some benefits she'd be entitled to claim. Though if she was to be renting and had a lump some of left over money in the bank this might affect her eligibility for some benefits.

It's hard to say what would be the best direction to go. It might be worth getting in touch and we can offer impartial advice. She could either speak to us herself, or if she gives us permission we could talk to you on her behalf. Here's our contact details: http://www.stepchange.org/Contactus.aspx.

Kind regards

James

System · 8 July 2013 at 3:06PM

ideal_knowledge001 wrote: »

Hi there,

One of my uncles is in a serious financial mess and I am not sure what's the best thing to do here.

He has a property valued at £200k with a £170k mortgage. It is an interest only mortgage as that's what he can afford and the mortgage company won't change it to repayment as he is paying off arrears of about £2000.

He also has credit card charges put in place by the court that whenever he sells the property he will have to pay those charges.
the credit card charges are about £10k.

My uncle is really struggling with the mortgage and is looking to sell his property to his son but the problem is the son cannot get a mortgage of more than £150k, the son has saved up £20k for the extra down payment.

Would I be correct to say the best way out of this mess would be if my uncle sells the property to his son say for £180k meaning the mortgage amount will be cleared off aswell as the credit card charges?

This would mean he will have to wait until the son arranges another £10k for the deposit.

Or do the credit card companies usually negotiate say instead of 10k the son/uncle pays them a lower lump sum which would mean they will get their money sooner as my uncle will be able to sell his house to the son sooner?

Or is there another option which may be more beneficial?

Thank you

Hi,

Thanks for your post.

Our specialty is debt advice and debt management – we’re not mortgage advisors. Because of that for advice on the best course of action with the mortgage specifically it would be best to get independent financial advice.

With the credit card debt on the home as the lenders have a Charging Order on the property for the full amount owed it is unlikely that they’ll accept a lower lump sum. But the best thing to do would be to speak to them directly. Make an offer to them in writing but do not pay anything until you have a written confirmation of an offer you want to accept.

Your Uncle may want to sell the property regardless but if he is struggling with the mortgage it sounds as though he would benefit from some debt management advice. There may be other options open to him other than selling his home. Before he makes any decisions I’d recommend he use our confidential online debt advice tool – Debt Remedy – or call us to speak to a debt advisor.

I hope this helps.

Thanks,
Jess

StepChange_James · 8 July 2013 at 3:42PM

archiedak2 wrote: »

Hi,

I currently have a DMP with payplan. I have paid off £6000 over the last 18 months and have £32000 debt remaining.
The debt was accrued during a period of unemployment experienced by my ex-partner. Unfortunately I have been left with the burden of managing the debt alone.
I am increasingly frustrated about the limitations that being in the DMP imposes and how it is limiting my ability to move on from my failed relationship.
I have a mortgage on my home which has approx £40k of equity.
I have considered a number of options; selling and paying off DMP, IVA full and final. But my preferred option would be to negotiate a full and final settlement figure, increase my mortgage and pay off the settlement amount and then put a plan in place to re build my credit rating and take back some control over my life.
Would this be possible / advisable, is there even a chance my mortgage company would lend me any additional money, and if so how much. I'm worried I will be laughed out of the bank!

Thanks

Hi there,

I think we all expect people in banks to be a bit like that "Computer says no" character from the telly, so you're not alone in being concerned about asking your bank for help.

As a general rule we tend to advise against taking out more secured debt to pay off unsecured debts. Owing more on a mortgage puts the property more at risk should you ever suffer a set back with your finances.

Also, if you stretch this debt over the length of your mortgage it's likely you'll pay an awful lot back in interest. Having said all that, every situation is different and it sounds like you're finding it tough on your DMP at the moment.

I honestly couldn't tell you if a mortgage company would lend you the extra money. Lenders have tightened their criteria quite a lot since the way things were before the recession.

A lot would depend on how much you needed to borrow to make full and final settlements. If the amount you needed would leave you with a low proportion of equity then it's probably a long shot.

I hope this helps. You'll probably find some useful information in Martin's guide to remortgaging here: http://www.moneysavingexpert.com/mortgages/remortgage-guide.

Kind regards

James

bhoy1976 · 8 July 2013 at 5:29PM

Hi,

I recently paid off all of my debts after being in a Debt Management Plan with CCCS/StepChange since Janaury 2009. Now that this burden has been lifted from me I want to improve my financial record.

I have read conflicting reports on the internet regarding defaults and how long they stay on your credit file. I know these remain on record for six years but its a very complex subject for me.

From memory, my creditors placed a default on each of these accounts at differenty points of 2009. Some of these debts were sold on to other agencies in the years following.

A few things I am uncertain about:

When initially have a default placed on your account - say March 2009 - and enter a DMP, will the removal of the default take place in March 2015 or would the date be taken from when the debt is settled i.e. June 2013 with a removal date of June 2019?
If the same debt is sold on to an agency - say in March 2011 - does that mean you have another deafult on your record which will not be removed until 2017 or even six years after it is settled?

It is so confusing and I just really want to know when I can expect these defaults to disappear and get my finances back in order.

Any advice on how to make this understandable would be great.

Stevie

ianmak · 8 July 2013 at 10:58PM

I have a lump sum from selling my flat and moving in with my partner.
my debt company (one of the free ones) have suggested doing a Full and Final IVA. I should really ask them the questions, but I'd like some independent advice:
Are they worth doing?
Better than offering settlements?
Are they just out to make a bit of money?

Any advice appreciated.

System · 9 July 2013 at 10:39AM

bhoy1976 wrote: »

Hi,

I recently paid off all of my debts after being in a Debt Management Plan with CCCS/StepChange since Janaury 2009. Now that this burden has been lifted from me I want to improve my financial record.

I have read conflicting reports on the internet regarding defaults and how long they stay on your credit file. I know these remain on record for six years but its a very complex subject for me.

From memory, my creditors placed a default on each of these accounts at differenty points of 2009. Some of these debts were sold on to other agencies in the years following.

A few things I am uncertain about:

When initially have a default placed on your account - say March 2009 - and enter a DMP, will the removal of the default take place in March 2015 or would the date be taken from when the debt is settled i.e. June 2013 with a removal date of June 2019?

If the same debt is sold on to an agency - say in March 2011 - does that mean you have another deafult on your record which will not be removed until 2017 or even six years after it is settled?

It is so confusing and I just really want to know when I can expect these defaults to disappear and get my finances back in order.

Any advice on how to make this understandable would be great.

Stevie

Hi Stevie,

Firstly congratulations for becoming debt free by paying off your debt management plan!

A Default Notice can be issued after three late or missed payments generally before a debt is sent to a collections company. You would have one of these as your debt went to collections. Say this happened in March 2011 that will drop off in March 2017. While you have a default notice showing you may struggle to get credit though you can show you are managing your credit better now.

MSE have a couple of great articles on what are default notices and improving your credit file.

I hope this helps.

Thanks,
Jess

StepChange_James · 9 July 2013 at 10:44AM

ianmak wrote: »

I have a lump sum from selling my flat and moving in with my partner.
my debt company (one of the free ones) have suggested doing a Full and Final IVA. I should really ask them the questions, but I'd like some independent advice:
Are they worth doing?
Better than offering settlements?
Are they just out to make a bit of money?

Any advice appreciated.

Hello,

It's an interesting question but I don't think there's a simple answer. Lump sum IVAs are a completely legitimate debt solution but whether it's better than doing full and final settlements would depend on your circumstances.

It's true that you'll pay fees through an IVA (lump sum IVA fees tend to be lower than the monthly payment type though). Whether the fees are worth paying would depend on if an IVA company can negotiate enough of a discount to justify their charges - often they can.

One advantage of a lump sum IVA over full and final settlements is that the negotiating will be done by the IVA company which will involve less hassle. However, a disadvantage is that it'll more than likely look worse on your credit file if you've done an IVA rather than settled yourself.

I think you're absolutely right to double check the advice that you've had. With IVAs it's usually a good idea to talk to a few companies. This will help you get an idea of whether the advice you've got is sound and also mean you can make sure the fees you're being quoted are reasonable.

There's an article on our blog with a bit more info here: http://moneyaware.co.uk/2011/05/lump-sum-ivas-an-insolvency-secret/.

All the best.

James

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