Advice on longterm effects of DMP/IVA/Bankrupcy

sillymee

Hi everyone

Sorry in advance for long post.

I am self employed and have debts of approximately £60K owing to banks (credit cards and loans) plus another £15K to boyfriend/family.

My business is actually doing very well, but debts have mounted up and consist of business expenses, fairly basic living expenses and a lot of interest. My main problem has been staffing; I have more work than I can deal with and have had staff to help me out - in January last year I had 6 members of staff but unfortunately their sales skills were not quite up to mine (no where near!) and I was spending all my time 'managing' (not very well) and none of my time selling. I decided to make them redundant as their wages were literally crippling me and believe it or not this year my turnover was higher in Janary with only myself and one member of staff (part time) with 80% of the sales being attributed directly to me. The other big problem is cashflow, often there can be a 6, or more, month 'lead time' between closing the sale and actually getting the money (this is not due to bad credit control just the nature of the industry I'm in).

I have not paid any of my minimum payments since January. I have been in touch with all my lenders and many of them have agreed to a token payment of £1 per month and to freeze interest. I am committed to paying the debt off, in full, however I'm beginning to worry about the long term effect this will have on me. I understand how the DMP works and initially just wanted to do a self administered plan; I know a little about IVA and Bankrupcy but not too much as I never really wanted to consider it. Can someone clarify that, say a DMP lasts 10 years (I would hope it to be a lot sooner, but want to be on the side of caution) that I would still be class as in default and it would therefore be on my credit record for 17 years? If I were to consider IVA, how long would this generally last/cost and stay on my record? And, again, with bankrupcy - how does the discharge usually take? Obviously I realise that the long term consequences will be worse if I look at IVA/Bankrupcy.

What I really want to do in the long term is buy a house, as at the moment we live in rented accommodation, but I guess getting any type of mortgage is going to be difficult even if I am 'only' in default, because I'm self employed? Although I really am committed to paying the money back, in full, at the moment it feels like (by my understanding - I hope to be corrected) that I may be 'penalised' as it will be on my credit file for so long. Has anyone out there actually got a mortgage whilst still in default, and SE? If so what were the rates like? Apart from the obvious difficulties (and stigma - sorry to all those out there who have gone through it) of bankrupcy, it feels in a way an 'easy' option as I would then be able to start afresh and not really loose anything as I have nothing of value that could be taken - I've got a battered old car which I absolutely need; I understand this could not be taked? I know it isn't really an easy option, but it sometime seems attractive. I was advised by one of my lenders that an IVA would not be suitable for me as I do not have a regular income. Some months I may only recieve say £800 but others it can be as much as £8,000. Once I pay of a few priority debts (in the next month or 2) I should be able to 'save' enough on the good months to cover the bad months.

Before you ask, I will do a SOA (as best I can with my fluctuating income and outgoings) and I have contacted Business Debtline...

Thanks for 'listening' and in advance for any advice.

Sillymee

livinginhope

Hi there sillymee,just wanted to welcome you to the board and wish you luck.
I don't have any experience of being self employed and getting a mortgage,but after speaking to my mortgage company the other day,they said that being on a DMP doesn't really affect getting a mortgage as the loan is secured on the house,but your income would still need to be proven.
I would agree that an IVA would be unsuitable if your income fluctuates so much,you would need to know you will be able to pay it each month.
Bankruptcy is an option,but remember the consequences are high,your business could be at risk,my father went BR,due to a bad partner and he had to wait 10 years to be discharged,he still can't get a bank account or CC,yet he is a millionaire,stupid really isn't it,everything has to be done through my mother or other family members.
Good luck with whatever you decide
LIH

CLAPTON

running up debts of 75,000 on a business and describing it as 'doing very well' seems a little odd at first sight, but maybe the bad times are behind you.

hopefully you now have a proper business plan with cash flow forecasts for a year or so showing that you will make a decent amount of money and that you will have sufficient cash to deal with the peaks and troughs of your business.

as far as your questions go, the situation is basically this.
a default stays on you file 6 years from the date of default and not the date you pay it off
similarly an IVA or bankruptcy stay 6 years from the start of the IVA or the date of bankruptcy
so things are a bit better than perhaps you feared.

mortgages are different from other debt as it secured on property so its often easier to get a mortgage than a credit card... they will however, probably want to see a decent sized deposit and you may well pay over the odds as far a interest rates are concerned.

obviously once you actually get a default on your credit record it will become difficult/impossible to get any more credit... but maybe that is a good thing.

also remember that in bankruptcy or an IVA you are not allowed to give preferential treatment to your family loans.

sillymee

Yes you are right it does sound odd... BUT I had a terrible time at the start with my website (I have a web based business) not being ready until nearly 12 months after I began trading, of course lots of startup fees and the killer really has been the staffing cost. For example I had one member of staff that didn't sell anything for 4 months. When I say things are going well I mean if I had no previous debt to pay, for example, my (own) sales for January were around £8k which taking into account all the associated costs would give me a pre tax profit of about £5K (when I eventually get my hands on the money). Thank you also about the advice regarding the defaults - that makes much more sense and also makes it more suitable for me to continue with the self managed DMP, I think...

Thanks again

Sillymee