Debt Collation Advice

TinkerBellaBella

Hi,
Our son is 21, and has accumulated debts of just over £15,000.
They include credit cards, defaulting on monthly payments for phones, iPads, etc… and selling the items for money!
A few thousand pounds of the debt is payments owed for rent - he doesn’t have a signed contract. 

He’s been totally out of control.
He has no assets, no monies etc..
He’s been on sick leave and became unemployed for a couple of months due to anxiety and is due to start a new job tomorrow.
He mentioned an IVA but the company were adding £4,000 for their fees and he’s mentioned a DRO.
I’d be most grateful for any advice of a way forward and would much appreciate any help at all.
Thanks

fatbelly

It sounds like he has reached out for help and he's sensible enough to realise that the IVA pusher was scamming him. Those are good signs

A DRO would give him a fresh start but he may not qualify if he has too much surplus income and/or a car worth more than 2k

He can only have one per 6 years and it would not resolve his rent problem for the place he lives in, i.e. He could still be evicted. Hence that is the most important debt of the ones you listed.

It is difficult to give advice via a third party so could he come on here and we'll help him through it?

RAS

TinkerBellaBella

There are a few vital details that affect his decision, including whether he will be staying in the rented accommodation. If so, that is a priority debt alongside Council Tax. A rental contract is created if he has paid rent and it was accepted; the status depends on whether the landlord was resident or not. He should seek advice on the housing forum here if he wants to terminate the contract or has left.

He'd be best also coming here to explain his debt situation himself rather than through you.

There are 4 main options for non-priority debt. It is important that your son speaks to a debt charity like Stepchange but you both need to understand they can't make the decision for him. Although they can administer some of the options. 

Bankruptcy clears all debts, can involve a 3 year repayment and has a small fee. It also has to be declared whenever you are asked during a credit check.

A DRO is for those with less than £30k and who don't have any assets to protect. One requirement is that after priority and living costs, he can't have a residual income exceeding £75. The fee is £90 and CAB are one of the few intermediaries.

IVAs are heavily advertised on TV and media because the fees are £4-9k from which the advertiser gets an introduction fee from the Insolvency Practitioner. They are widely mis-sold. If your income increases or you get a windfall, you can end up repaying the full debt plus the £4-9k fees. The budgets tend to be the strictest and if he can't release equity in year 5, then additional years are added.

A DMP is an informal arrangement in which he pays back what he owes gradually, at a rate he can afford. Once the debt has been resold a few times he would usually be able to negotiate a "full and final" payment with a discount. It is the most flexible option and he could manage it himself if he wishes, or ask Stepchange to manage it for free. We'd suggest he comes here for advice before starting one.

EssexHebridean

Excellent advice on the above on the various debt solutions available to him.

if he will come here himself, then that would be by far the best way of dealing with things as already stated, but if not, or until he is ready to do so, then he needs to take certain steps to make sure things aren’t getting worse. 

The first is to do an SOA - statement of affairs. You may want to sit down with him to help on this - the link to the calculator we suggest is in my signature below. He will need to have access to a years worth of bank/card statements as that will help to ensure that he has the figures for various things to hand. For things like car insurance, add on at least 30% to the amount he paid last year when working out the likely renewal cost - and that might well be an understatement sadly. He needs to complete the SOA openly and honestly - it is a great way of being prompted about all expenditure though, and will mean he has a solid budget to work with going forwards and that he will know what surplus he has too. He can then post that into a thread of his own on here and we could help by making suggestions of savings he might be able to make. 

He needs to step away from using credit now too - his budget should include a small amount for entertainment and that is the amount he has to spend. Encourage him to realise that he doesn’t need to upgrade his phone every time that option is available to him either - that’s horrifically poor environmentally aside from anything else! I assume from what you’ve said though he may have been acquiring the phones etc purely to sell on. 

Subject to what the SOA says, the next step may be to stop paying to any unsecured debts in order to let them default - that means that interest will stop being added. He MUST pay his priority debts and cover other necessary aspects of his budget before he pays anything to unsecured debts. 

Have you established exactly what the money he’s been gaining has been spent on? That may need to be a delicate conversation, but it’s important that he acknowledges that aspect as it’s the springboard that enables him to change the behaviour, alongside recognising that he has unmanageably high debt and wanting to fix the situation. 

One thing - however tempting, don’t gift him money to clear the debt. He is at a great age to learn full financial responsibility and the act of paying off the debt now will be a great chance for him to learn all aspects of budgeting etc. if you clear the debt for him, there is sadly every chance that he will end up straight back in the same situation or worse - it’s really important that he does the legwork on this himself.