What are my options?

Sal2y

Hello all,

Due to having to liquidate a family business after covid I find myself in a situation with a comparatively large amount of debt to my current income. I have spoken with Stepchange who said because one element may be a business debt they wouldn't be able to deal with it directly and recommended Business Debtline who could deal with a combination of personal and business debt. As yet I just get a recorded message from BD asking me to ring back.

I worked for a long time without drawing an income, relying on personal loans and a credit card. Now since liquidation of the business I find I am just rinsing my overdraft every month and staying in the red. Coupled with a non secure income stream at the moment (I drive HGVs through an agency, so its essentially zero hours) I don't really know what's best. All I know is I am getting nowhere fast.

Below is a brief breakdown of debt:

Personal:
£23k between two Natwest loans
£5.4k on an HSBC credit card (Limit is £5.8k)
£2k overdraft facility with Natwest. This fluctuates between near the end or 0/a few hundred in credit.

Business/Personal:

£57k Personal Guarantee Liability on a Lloyds business loan split between me and two other guarantors with each guarantor being jointly and severally liable for the full amount.

This was essentially split between our 3 family members and we are currently negotiating with Lloyds about a repayment plan. Given our earning power their recoveries department have stated they are not expecting me or one other to be able to pay anything at the moment and are aware we're seeking debt advice. The third person is a high earner, but also has a lot of debt, so they are expected to reach some sort of agreement soon.

My main concern with this one is how to integrate it into my debt pot, as Lloyds have stated;

"Under the terms of the Personal Guarantee, each guarantor is jointly and severally liable for the full amount. If we were to receive repayment from one of the guarantors, this would mean the overall liability is reduced for all guarantors. If, for example, one guarantor was unable to make repayments, this would mean the liability would still be the full amount for the other guarantors."

So if I add 1/3 of £57k to the amount I try and find a debt solution for, the actual amount owed doesn't reduce for the other two guarantor's? 

I don't have a house/valuable assets, or hidden savings shares.

I appreciate if you have read this far and will gladly take any pointers on where to start as there is a lot of info out there and a lot of different opinions.

My current thoughts are to request a 3 month payment holiday on the loans just to give me room to build up a bit of cash and stop paying for my overdraft. It also gives me time to try and find a permanent job when the Christmas peak for agency staff is over and my income potentially drops.

Thank you for any advice.
Sal

Brie

You would probably get the best advice here if you posted a full statement of accounts and include 1/3 of the business debt on there.  The template is on the top sticky in the debt forum.  

And yes - you are right.  While looking at solutions it's common to allocate a suitable portion to each of the joint debtors (keeps things a bit tidy) you are each still responsible for the entire debt.  So if you managed to pay off all your personal debts and £19k towards the business debt, if the other two did nothing about it you would still be responsible for the other £38k that was outstanding.  And likewise so would they.  

I don't know what the answer is for you.  I do believe that some of the better solutions for personal debt - like a debt relief order - are not possible given the business debt as well as the fact that your personal debts appear to exceed the £30k upper limit.  But if you are able to post more info others may have some better ideas.

fatbelly

Joint and several liability means you are each liable for the full amount. I know that's a difficult concept.

I'd be thinking 'Is there any reason why you can't go bankrupt?'

peb

I suppose the only issue with going bankrupt is that the guarantors will be hit for all the business debt.   

Sal2y

Brie said:

You would probably get the best advice here if you posted a full statement of accounts and include 1/3 of the business debt on there.  The template is on the top sticky in the debt forum.  

And yes - you are right.  While looking at solutions it's common to allocate a suitable portion to each of the joint debtors (keeps things a bit tidy) you are each still responsible for the entire debt.  So if you managed to pay off all your personal debts and £19k towards the business debt, if the other two did nothing about it you would still be responsible for the other £38k that was outstanding.  And likewise so would they.  

I don't know what the answer is for you.  I do believe that some of the better solutions for personal debt - like a debt relief order - are not possible given the business debt as well as the fact that your personal debts appear to exceed the £30k upper limit.  But if you are able to post more info others may have some better ideas.

Hi, apologies for the late replay and thanks for the information.

I spoke with StepChange which has both helped and made things even more confusing somehow. Their advice was that as the business debt was secured against a property and a payment plan being agreed with one of the guarantors then I wouldn't have to declare it on my application unless the solution was a form of insolvency. 

Lloyds have actually stated in an email if we weren't to pay the debt off then the debt would be registered against the property and theyd recoup the money when the property is sold, not force the sale (the property is worth 3+ times the amount of debt) 

If I leave the business debt off and go through the stepchange portal I have received the recommended solution as alternately a DMP, DRO and an IVA. Not Bankruptcy as yet.

This is due to my income varying and how many weeks I go back and payslip amounts I put in. Also as to whether I choose 'Not Sure' or 'No' as to whether an insolvency would affect my job. 

If I choose 'not sure' I receive a DMP as a recommended solution however the term is longer can range from 12-35 years depending on how many payslips I enter to get an average wage. A different stepchange advisor told me the question really only applies for certain professions but then in the same sentence said because I am in rented accommodation and will likely have to move next year I should not chose an IVA/DRO solution due to landlords and letting agents checking credit files.

If I choose 'No' then depending on how many payslips I enter I get either an IVA or DRO.

So it seems, going through the Stepchange portal I can change the recommended solution without providing any false information.

What they weren't able to tell me is how likely HSBC/Natwest were to refuse a DMP if the term was longer than 10 years, which I would really like to know.

For what it's worth my situation is such that I would expect and attempt to pay off a DMP early due to earning more money over the next 2-3 years, although I know this is by no means something to bank on.

I would like to go through Stepchange if possible, and also choose a solution that allows me to be a be freer over the next year in terms of spare cash, if it comes, and bankruptcy would seem to throw up a lot of problems with that.

Any advice is greatly appreciated.

Sal2y

I forgot to add that I have also been in contact with Lloyds who consider the business debt to be personal liability as the company it was taken out for has been liquidated. So I would still be able to go through stepchange for an IVA, and not someone like Business debtline.

But as Brie said, this would then make a DRO unavailable to me so that would be off the table.

So I guess my question is whether or not to go for a DMP expecting to be able to pay it off early, or an IVA. In the case of an IVA I'd have to add the Lloyds debt into the application, according to Stepchange.

fatbelly

A dmp keeps your options open as it's an informal solution

Sal2y

Hi fatbelly, thanks. I agree, I have done a lot of reading on this board and elsewhere and believe its the way given the situation I'm in.

One thing I'm struggling with is to understand the idea of attempting to get defaults being better than just going into a DMP. The information is scattered between many threads, although I know there is no definitive answer and its just the most likely course of action that will be taken.

So my understanding is, if you enter into a DMP through someone like stepchange your AP (?) markers stay on your credit file for 6 years after the debt is paid off? 

So by going for a default first you can save some money to avoid having to use credit, then this default would drop off after 6 years. What I don't understand is aren't you entering into a DMP after the default happens again anyway? Either with a debt recovery company or the original creditor, so would they not just put more AP markers on your file from when this starts? 

I also have noticed a few threads with people saying creditors are not allowing people to get into default recently which seems like it might make this strategy more risky.

fatbelly

Once there's a default marker, it stays for six years and then the whole entry drops off. We see that as a better option than the alternative.

If you go straight into a dmp you have not given yourself a chance to save an emergency fund and risk creditors being 'helpful' (in their eyes) by putting an arrangement maker that will affect your credit history for longer

They won't add an ap maker to a default

RAS

Once debt is defaulted the debt provider's options are limited. They, or the company they sell the debt to, could go for a CCJ but that costs. They know that if you are already paying something, it's likely to be better than they'd get from a CCJ with you on a zero hours contact. So better to pay them something small once they defaulted the debt. 

Given your financial situation, you need flexibility over the next couple of years. Neither an IVA or a DRO support that flexibility, one will fail until if your income drops, the other will fail if you earn over the £75 per month surplus during the year.

So do an SOA covering your household situation, as best as you can, and put any surplus each contract into a fighting fund. I assume you're currently SE, so make sure you make full provision for HMRC. 

O ve things stabilise, you can reconsider the situation.

sourcrates

Sal2y said:

What they weren't able to tell me is how likely HSBC/Natwest were to refuse a DMP if the term was longer than 10 years, which I would really like to know.

What normally happens when you stop paying your non essential debts, is that the majority of accounts are assigned to a debt collector, or sold to a 3rd party, within 3/6 months or so.

Of course this may vary by creditor, but essentially it makes no difference if a creditor accepts your DMP proposal or not, if they don`t like it, they will just sell the debt to some other company who will, you still pay what you want to pay regardless of who owns your debts or what they may or may not think of the offer.

Defaulted debts are rarely settled in full anyway, either you come into more money and either pay them down or you obtain settlement offers further down the line and reduce your liabilities that way.

Self managed debt management is absolutely the right way to go for anyone with a flexible income and a modicum of self belief, the debt solution you choose should be as flexible as you and your income.