Facing up to my debt. What’s my best way forward?

sourcrates

Just to reassure the OP, Monzo are quite insolvency friendly, bank accounts are not usually withdrawn when you enter a DRO or an IVA, however some banks may choose not to do business with you under such circumstances, but Monzo are not usually one of those banks.

Cherubneddy70

Oh my goodness, I come back for further advice to see the post stating Monzo may close my account! Hope you’re right sourcroutes. 

Anyway. An update. I’m 3 months down the line and haven’t made any payments on my debts for 3 months now. No defaults served as yet, but clearly they’re around the corner. I’m finding it quite stressful. I had to move house and was worried I wouldn’t pass the credit check for a private tenancy but amazingly did. I’m getting daily calls/ texts/ letters from my creditors and obviously all access to credit has been stopped. 

I’ve started to wonder whether I should consider an IVA or DMP. Original plan was to await the default notices, to wait for the debts to be sold, and then to set up minimum payments with the debt collection companies to avoid being taken to court. 

Please can someone explain the pros and cons of both approaches? I don’t own any assets ( I rent and my car is a lease car.) Thanks.

sourcrates

IVA`s were introduced as an alternative to bankruptcy, for those who could not normally go bankrupt due to owning a house, or other substantial assets.

A lack of regulation in the industry as a whole, has seen these arrangements being offered to clients when they are totally unsuitable for their circumstances, mainly due to the large fee`s that can be charged for the setting up and administration of them, an IVA is really only suitable for you if you are a homeowner with large debts, and that is not you, so cross IVA off the list.

Individual debt management is the best way forward for you, once your debts are sold on, or sent to collection, make arrangements with each company, it can all be done without the need to speak to anyone, or provide any proof of income etc, all on line, most have quite good websites.

It is taking longer, currently, due to FCA guidance, for creditors to default accounts, defaulting is not always the best option for everyone, but it will eventually happen, in 99% of cases, accounts are either sold, or assigned to a collector to manage on behalf of the creditor, it does take time, you may be waiting 6/9 months or more, and it may happen sporadically, but just keep in mind, the vast majority of creditors follow exactly the same debt collection process as has been described.

There is nothing to worry about, despite what the letters may say, any impending legal action would have to follow the civil procedure rules, which would be in the form of a "letter before action" which has a 30 day return window, now if you get a letter like that, (very unlikely at this early stage, but just FYI) post back for advice, otherwise, continue as you are, its a sound plan, and should work well for you.

Remember, no amount of letters and calls can make you pay a debt, only enforced legal action can do that, so all else you can ignore, collection activity is all computer generated, ever increasing threats of what "might" happen if you don`t contact us, its all designed to get a response from you, letters that say "despite our previous reminders" yet this is the first you have heard from them, its all clever stuff, and total garbage, your doing fine, well done.

Cherubneddy70

Thanks so much @sourcrates that’s really helpful. 

hamilton20

As a single parent you should really consider getting life insurance as a priority, more important than saving for a holiday in my opinion. 

Cherubneddy70

Ok. Received my first default notice today. Plan is to wait until they sell the debt or arrange for someone to try to collect it, at that point my plan is to set up payments with them. Reading back through previous posts, however, I saw this: 

“ If you've got the default and started making a nominal payment, they'll be happy. If you ignore them after you've got the default they might threaten a CCJ. If court papers arrive, come back here for advice. “

Should I start making nominal payments now? 

Also, I’ve had arrears notices too, are they the step before default notices?

sourcrates

Cherubneddy70 said:

Ok. Received my first default notice today. Plan is to wait until they sell the debt or arrange for someone to try to collect it, at that point my plan is to set up payments with them. Reading back through previous posts, however, I saw this: 

“ If you've got the default and started making a nominal payment, they'll be happy. If you ignore them after you've got the default they might threaten a CCJ. If court papers arrive, come back here for advice. “

Should I start making nominal payments now? 

Also, I’ve had arrears notices too, are they the step before default notices?

The plan you propose is good, very few accounts ever see legal action, I think the figure in 2019 was something like 12% of defaulted debt gets taken to court, the rest never does.

Those figures just show how much bad debt there actually is, and its because there is so much bad debt, that we have debt collectors, and debt purchasing companies, and also why the default response to bad debt is to either sell it, or assign it to a collector, very few original creditors will go straight to legal action, the actual number is miniscule.

Legal action is most likely after a debt has been sold, maybe more than once, and the debtor has refused all contact over a long period of time, there are of course exceptions, but for the majority of accounts, that`s how they roll.

Debts do not always have to default to be sold, defaults can be registered after between 3-6 missed payments, but some creditors take longer, it can be a waiting game at times, there`s nothing stopping you making reduced payments if you want to, as defaults will naturally follow, but doing so runs the risk of arrangement to pay markers instead of defaults, which stay on file longer, your plan to wait is the right way to go unless circumstances dictate otherwise.

Cherubneddy70

Thank you @sourcrates, I shall wait. I’m reading all the letters they send me very carefully to ensure I know what stage I’m at for each debt.

RAS

I'd suggest paying nothing for a year, and building up a good emergency fund. Do pay down any CT, and utilities debts if you can afford to. 

Spend the time honing the details of your budget so that you know how much you need to live on, neither hair shirt or really generous

Review the situation next May and then make token payments unless you feel you can afford more?