The Standard Financial Statement and Cashflow

LimaSigma1972

Hi I am new to the forum and apologize if I am posting in the wrong section.

I have 2 main questions that I am hoping you could help with.

1) Debt agencies seem to use the Standard Financial Statement when providing debt advice. This statement seems to be a snapshot in time of income, outgoings, debts and assets. I wonder if anyone could explain how the statement deals with:

a) Cashflow i.e. when some months have much greater income or expenditure. How do advisors take this into account when helping make arrangements to pay debts? What is affordable when filling out the form could easily be unaffordable 1 month later. How would an adviser deal with this type of situation?

b) When completing the SFS how would an adviser verify things like assets. i.e. the value of a person's house could be very subjective without a professional evaluation.?

2) Bankruptcy:

a) If someones outgoings exceed there income by x amount and there assets are less than there debts. What is the tipping point that decides when to advise Bankruptcy? Do advisors take into account potential increases in income or return to work after illness?

b) In your experience of clients that do choose bankruptcy. How many actually do end after 1 year? How many are forced into some kind of longer payment period by the insolvency practicioner?

EssexHebridean

On the question of cashflow - the usual advice when budgeting is to base budgets on the lowest income months - so if your basic pay is £2000 per month but you sometimes get bonuses or commission, the budget should be based on the "certain" £2000 and the commission or bonuses - which are not guaranteed - should be seen as "extra". Does that help clarify that side of things? 

RAS

If your income fluctuates massively, eg contractor paid at end of contracts, you NEED a budgeting/security fund that covers at least a month's essential expenditure. That's separate from any emergency fund.

Otherwise, regarding to income, best to make sure your essential monthly expenditure is covered by minimum income and use the rest to pay for annual spends and stuff you can delay, all going into another budgeting fund. Use this for Christmas, insurance costs, clothing etc. Put surplus into the security and emergency accounts if you have a run of good months.

Debt advisors will look at your annual income and divide by 12 but you would be advised to avoid any solution like an IVA that requires regular payments. You could self manage a DMP and pay in good months?

sourcrates

LimaSigma1972 said:

Hi I am new to the forum and apologize if I am posting in the wrong section.

I have 2 main questions that I am hoping you could help with.

1) Debt agencies seem to use the Standard Financial Statement when providing debt advice. This statement seems to be a snapshot in time of income, outgoings, debts and assets. I wonder if anyone could explain how the statement deals with:

a) Cashflow i.e. when some months have much greater income or expenditure. How do advisors take this into account when helping make arrangements to pay debts? What is affordable when filling out the form could easily be unaffordable 1 month later. How would an adviser deal with this type of situation?

b) When completing the SFS how would an adviser verify things like assets. i.e. the value of a person's house could be very subjective without a professional evaluation.?

2) Bankruptcy:

a) If someones outgoings exceed there income by x amount and there assets are less than there debts. What is the tipping point that decides when to advise Bankruptcy? Do advisors take into account potential increases in income or return to work after illness?

b) In your experience of clients that do choose bankruptcy. How many actually do end after 1 year? How many are forced into some kind of longer payment period by the insolvency practicioner?

(1) Fluctuating income usually means taking an average over a certain period, and applying that to the figures, but to be honest, you don`t need to look to deeply into things unless its for an insolvency.

No one verifies anything, you are taken at your word.

(2) Bankruptcy depends on your personal circumstances and how much debt you have, homeowners should avoid it for obvious reasons, that`s why IVA`s were introduced.

If debts are so bad they cannot be dealt with any other way within a reasonable timeframe, then bankruptcy may be advised.
All bankruptcies initially last 12 months, then you are discharged, this can be extended if you don`t cooperate or fraud is suspected, the OR can order a BRO (bankruptcy restrictions order) which can last a lot longer.