StepChange #debtmyths

Former_StepChange_Rachel

The myth:

Bankruptcy is the most popular form of insolvency #debtmyths

The reality:

It would be easy to think that bankruptcy is the most common way that people deal with an unmanageable debt problem. The truth is that they are less common than individual voluntary arrangements (IVAs) and debt relief orders (DROs).

Last Friday we saw the release of the quarterly individual insolvency figures from the Insolvency Service. In the last three months of 2012 there were 6,919 bankruptcies, 7,397 DROs and 10,986 IVAs.

These figures just go to show that there are lots of different options to deal with a debt problem and it’s important to get free and impartial advice from an organisation recommended by MoneySavingExpert.com (we’re on the list!) before you decide what you’re going to do.

Depth_Charge

StepChange_Mat wrote: »

Hi DC and thanks for your comment.

The fees are high and that was the point that we were trying to make!

We do work with trust funds and grant providers to help our clients afford the fees incurred with bankruptcy and DROs.

We’ve raised over £130,000 from these sources since May 2010 and we’re constantly looking for ways to help those clients most in need.

Thanks again for your comment.

Kind regards,

Mat

Hi Mat

You are welcome

Thanks for the reply and the clarification:)

System

The myth:

All IVAs last five or six years

The reality:

Life has a funny way of surprising us, and the IVA was designed with this in mind, providing flexibility for those setbacks in life that are outside a person’s control.

If your income drops or your priority expenditure rises, you might find you can't maintain your agreed payments for the full five years. In light of this, your creditors may agree to accept smaller payments on the grounds that you'll keep on paying for a time frame longer than originally agreed.

This is also true if something positive were to happen, and you found yourself a bit more well off due to a windfall. You may have the option to wrap the IVA up by paying your creditors a lump sum.

Former_StepChange_Rachel

The myth: You must include your partner on your debt management plan

The reality:
If all debts are in your name only there’s no rule to say that your partner’s income must be included on a DMP. If your partner doesn’t want to be on the budget then it is possible to create an income and expenditure budget based on your finances only.

It entirely depends on your preference and how the household bills are worked out. Some couples find it easier to compile a complete budget whereas others might prefer to keep things separate.

StepChange_James

The myth:
You can clear your student loan by going bankrupt #debtmyths

The reality:
As it’s National Student Money Week we thought we’d do a debt myth for those with student debts.

We were recently talking to someone from the Student Loans Company and they said this is something they hear all the time. People tell them that they’ll just go bankrupt and not have to repay their student loans.

While most debts will be included in bankruptcy, student loans are on the list of things that do not go into the bankruptcy pot. So those thinking that bankruptcy could provide an easy way out of their student debt might be in for a big shock!

If you’d like to read more about which debts can be included in bankruptcy you can find out here: http://www.bis.gov.uk/insolvency/personal-insolvency/bankruptcy-debts#debts-included.

System

The myth: You and your partner can do a joint bankruptcy #debtmyth

The reality:

Personal bankruptcy is something that you have to do as an individual. There are some debt solutions that you can do as a couple but bankruptcy isn’t one.

This means that if you and your partner were thinking about bankruptcy you would have to do is separately.
If both partners in a relationship go bankrupt they have to petition individually, filling out two sets of forms and paying two fees (£1,400).

If only one person in a relationship goes bankrupt and there are debts in joint names then the whole balance will become the responsibility of the person who didn’t go bankrupt. As you can imagine, this can be a problem with joint debts after separation.

If you’re considering bankruptcy then we’d recommend getting in touch with a free debt charity.

Former_StepChange_Rachel

The myth:

You shouldn’t start a relationship with someone on a DMP #debtmyths

The reality:

This debtmyth was inspired by a post we saw on the Debt Free Wannabe forum titled “Marry me, marry my debts?”. The OP was worried that her debts would become her partner’s responsibility when they get married. Luckily the other forum members reassured her that the debts would remain in just her name.


While I’m no agony aunt, I do know about debts and can safely say that it’s OK to date someone who’s on a DMP. Their debts are not your problem and if they’re on a DMP with us they’ll have set up a realistic budget to live to and should no longer be relying on credit to live. So rather than a DMP being a sign of finances being out of control, it can actually mean that this prospective partner is better at managing their money than most.


Someone on a DMP won’t be able to whisk you away for Caribbean holidays or treat you to slap up meals, but that shouldn’t stop you! Not wanting to sound all mushy or anything, but the contents of someone’s heart should be more important than the contents of their wallet.

System

The myth: You have to visit court to apply for a DRO #debtmyths

The reality:

A debt relief order (DRO) is a form of insolvency that is similar to bankruptcy in many ways but has lower fees (£90 instead of £700) and is only available to those with less than £15,000 of debt.

Despite what many think, you don’t have to physically attend a court hearing to have a DRO application approved.

Applications are handled through “approved intermediaries”(we’re one!) who help you put an application to the Insolvency Service with a combination of phone calls and letters.

Read our recent blogpost to have debt relief orders explained with as little jargon as humanly possible.

StepChange_James

The myth: Taking out payday loans and paying them back will improve my credit score #debtmyths

The reality:
Taking out small amounts of credit and paying them off on time every month is said to help boost your credit rating. This is something we’d only recommend if you don’t have any debt problems and are confident that you’ll be able to pay the debt without issue.

Many people think that taking out payday loans is a good way to boost their credit score, because it will show they’ve taken out a loan and paid it back on time. While there might be some benefit from adding this record to your file, it’s likely that future lenders will be less keen on you when they see you’ve resorted to using payday loans.

James Jones from Experian says that having a payday loan on your credit history may be seen by lenders as evidence that your finances are under strain. You can read more about payday loans on credit histories on the Experian website.

Former_StepChange_Rachel

Tuesday

The myth: Debt consolidation and debt management plans are the same thing #debtmyths

The reality:

The world of debt includes some baffling terminology: DMPs, DROs, IVAs, BROs (not the pop band from the eighties), DAS, CCJs and IPAs. With all of these abbreviations knocking around it’s no surprise that things get complicated.

Many people calling into our helpline ask for debt consolidation advice but are actually seeking advice about debt management plans. While it’s easy to get the two confused, they are very different things.

Debt consolidation is where you take out a new debt (usually a loan) and pay off all your other debts. We’d usually advise against consolidation as we speak to many people who’ve found it’s made their situation worse.

A debt management plan is a way of making reduced payments to your debts where a third party offers your creditors lower payments on your behalf. This isn’t an ideal solution for everyone, but it can be a good way for people to pay something towards their debts when they are struggling.

If you’re interested in a debt management plan then contact one of MSE’s recommended free debt advice organisations.