Backpay and BR

Stressedscottish

Hi, OH & I are working towards BR, having to wait for one of our creditors to make us BR as we are above the threshold for DIY route (live in Scotland). So far this is the first month we've missed the mortgage and secured loan. WE haven't paid any CC either some for more then 1 month, Cap 1 CC is the furthest in arrears over 3 months now.
My employers undertook a big job evaluation at work which resulted in a new pay scale being introduced in Mar 08. I am now being paid on the new payscale and the back pay is due to be paid at the end of Aug 09. The new rates will be back dated to April 08, although I don't expect to get much of a lump sum as I was on maternity leave from April - Dec 08.

My question is if we have been made BR end of Aug will this backpay be taken straight off by the OR to go towards paying our creditors?

If it arrives before BR are we ok to spend it?

We are moving into a rental property at the beginning of Aug and will need to buy a washing machine and will have other living/moving expenses. Can we use the money for this or do we have to use it to pay some of our debt towards the mortgage and secured loan? I have no idea how much it will be, I could be getting my hopes up for about £50!
thanks in advance,
SS

stintond

If you can justify spending it on a washing machine for instance this is fine. If you get the money after going bankrupt you will have to tell them and they will take either all of it or they might let you keep half. If you get this money the OR will definately want to know what you spent it on if its a lot.
It is acceptable to say that you needed some of it to pay for the bankruptcy itself.

Pammybun

Hi, sorry I am a wee bit confused as to you saying you cannot apply for your own BR - basically if you owe more than £1500 and have a demand for payment and proof you canno tmake that demand then you can apply for your own BR in Scotland under the new rules.

This obvsiouly would be affected depending on the money that your receive in back tax. If you get enough to make the payments on the amount of money you owe then the AIB would take a dim view of you not using it to pay your creditors.
To be honest you need to look at things here. You hve only missed one mortgage payment. How much are you owed your creditors in total? How much equiry is in your house?
If there is no equity in your house then the BR would not affect this and you would be better off trying to pay your mortgage. If you stop paying the mortgage the house will be reposessed.
However if you have a lot of creditors and the equity in hour house would help to meet them then you will need to move and sell your home. So in that case it is good that you have already made arrangements for rental accommodation.
If you want to pm me I could give you more advice.
Basically at the moment without knowing what your situation is it is difficult to give you exact advice on your back payment - all I can say is that if it is a reasonable amount then do not go mad buying things that can't be justified as being necesssary.

Pam

coolcait

Hiya

I'm guessing you mean that you can't make yourself bankrupt under Low Income Low Assets (LILA) rules. So you would have to wait for a creditor to serve you with a charge for payment, or to make you bankrupt.

Realistically, I doubt very much that either of those will happen in the next few months (I realise that this won't be any comfort to you in a lot of ways, and I'm sorry I have to be so frank about it).

So, the big question really will be 'how much willl you get as back pay?'. If it's a couple of hundred quid, and you use it to get resettled in a new home which - possibly - is costing you less per month, and demonstrates your attempts to sort out your financial situation, you'd be abl to give good answers to any questions which a trustee might ask.

If the backpay was thousands, I think you'd be wise to spend only the bare minimum needed to get you resettled.

Good luck with all the forthcoming changes.

Stressedscottish

Thanks for the replies and sorry for the delay in replying.
Stintond - We will def need a washing machine as we can't take ours with us as it's built in. I'm just trying to work out if this will need to be a reconditioned or a new one and this will depend on money available once we've pulled together the deposit and advance rent.
Pammybun- We are unable to go down the LILA route as I am on too high an income. Hubby is self employed but due to the recession his work has all but dried up over the past 6 months. He still has some work coming in but this will only equate to about £350 a month now. We have a house but this will have neg equity. £70,000 mortgage left to pay and a secured loan of about £80,000. Basically I could afford to pay the mortgage but now way could I manage to cover the £850 per month needed to cover the loan let alone the minimum payments for the CCs. We have spoken to National debtline and an insolvancy adviser who have both said the house will inevitable be repossessed so to stop paying the mortgage now and save this money for paying the deposit and advance rent on the new house. Technically this was the first month we defaulted on the mortgage and secured loan but it has been a close thing for the past few months and we ended up borrowing from friends and family to pay the loan. We have spent the last few months robbing Peter to pay Paul with the CCs and just to by food and diesel etc. I'm not suggesting that we will go silly if I get a decent amount of backpay. I have no intention of squandering it on things we don't need. I jsut wanted to check out that if we use it to buy things like the washing machine, depoist for the house, van hire to move us this won't be held against us by the AIB.
Coolcait- The house we have found is £550 a month compared with £450 a month for mortgage and £850 secured loan. Although the rent is more than our mortgage was, it will be closer to where I work so I will be able to reduce fuel costs a bit. Hopefully the AIB will take that into account. I guess I'm just scared of doing the wrong thing and ending up BR for 3 years or longer.
Thanks,
SS

coolcait

Stressedscottish wrote: »

Coolcait- The house we have found is £550 a month compared with £450 a month for mortgage and £850 secured loan. Although the rent is more than our mortgage was, it will be closer to where I work so I will be able to reduce fuel costs a bit. Hopefully the AIB will take that into account. I guess I'm just scared of doing the wrong thing and ending up BR for 3 years or longer.
Thanks,
SS

Hiya SS

I really feel for you. I think that the Scottish system has advantages in some areas, but there are huge disadvantages for people like you and your husband who don't meet the LILA requirements. You are effectively still at the whim of your creditors, because you are relying on them to take legal action which would let you show that you are apparently insolvent.

Is there any chance that any of them might act as a concurring creditor so that you could apply for your own bankruptcy? I understand that it's quite rare for this to happen, but the legislation does allow it. For example, if there's so much negative equity in your property, could you make a case to your mortgage lender that it might be better for them to concur with you going bankrupt, so that the trustee can be burdened with the administrative hassle of selling the house? Not to mention the fact that it would be the trustee rather than the lender who would be seen as 'the bad one' . An important point, perhaps, given the Scottish and Westminster governments' publicly expressed concerns about mortgae lenders repossessing family homes...

I'm not too sure how persuasive a case it would be, but it might be worth a try - on the basis that 'if you don't ask, you don't get'?

As for the move you're making, who can predict how the AiB or other trustee would look at it. But you could definitely make a good argument based on the points you've made here about the savings you can make by moving - and your hopes that this would allow you to service other debts, while allowing the secured lenders the opportunity to recoup as much of their debt as the market allows...

One final thought - if your house does get repossessed and sold, even allowing for any shortfall, would that change your financial situation to a point where you could consider other options - like the Debt Arrangement Scheme or a Trust Deed? It might be worth your while to have your adviser look at that scenario too, so that you're looking at a full range of options.

Good luck!