Advice on how to get out of debt I cannot pay

Tikitaka

Hi,

I'm new here and hoping to get some advice on the best way forward to get out of debt. I'm resident in Scotland.

Context:

I took out two personal loans a couple years ago whilst having a good career. My mental health (for which I have a diagnosis) deteriorated shortly afterwards, and have been working intermittently since. It looks unlikely that I will ever go back to my previous career. In fact, I'm hoping to go back to studying on a scholarship (hence even lower income). The current intermittent work pattern allows me to decompress and recharge, something I could not do in my previous high-flying career.

My current income is somewhat seasonal, which means that I get zero (or very low payments) on some months and considerably high payments on others. At the end of the year, it's averaging out OKayish, but I tend to have liquidity issues quite regularly (having had to apply for UC in one given month).

Since leaving my previous career, I managed to pay the considerable monthly payments (high interest) for almost two years (which means I could not build a cash buffer/savings big enough, and my intermittent work pattern has been "eating into" whatever slight reserves I had).

Current situation:

I stopped paying earlier this year; the bank gave me a 6-month payment break and interest freeze. Now that freeze is over, the income-expenditure assessment shows again no affordability of repayments, and they suggest another 6 months whereby during this time they "may" send me a default. When I asked whether the default can be done now, they said yes. They explained that after the default I will be moved to a "repayments team" that will be in touch periodically to see what and if I can pay.

The outstanding balance on the loans is about £25k (plus about £1k in overdraft).

I have no property (I'm renting), I have no vehicle. I thus have no assets (apart from occasional "savings", ie. whatever is left from the months when I get paid more. Those rarely go above £2500).

Last developments:

I explained everything to the bank as I am explaining here. I have been forthright in telling them that I have a mental health problem, I am unable to go back to my previous career, and that I'll either stay on my current intermittent work pattern (for which my income is no more than £28-30k a year - I was earning way more in my previous career) or go study on a scholarship (the scholarship should be about £18k/year for 3-4 years).

They pushed for the 6-month solution during which they "may" send a default. At this stage, I tried asking for a write off based on my circumstances. I am quite anxious, so I don't remember what they said when they said no to this, but I remember that when I then asked for a partial settlement they started checking internally.

For a 50% settlement (£12500), it may be approved, but I don't have that money. I suggested a 14% settlement (£3k), and they said they will check but they don't want to give false hopes. I explained that the £3k is money I need as a cash buffer, but for the sake of my mental health if it helps closing the deal I'd pay once I get my next payment.

So, now we're on a two-week break before we resume talks - hopefully when we'll talk again I will know on which day I will get my next payment.

How I need advice:

Quite simply: what should I do?

From talking to Stepchange and other another advice firm, the solution they seem to push for is the DAS (the Scottish equivalent of the DMP). 

The problem with this is twofold: on some months I may be able to pay some £150-200, but on some other months I simply won't have any money. And I cannot foresee where my income will be beyond 5 years. Secondly, £25k divided by £200 is some 10 years of this going on. Doesn't help with my anxiety at all. Lastly, the DAS does stay on your credit file for 6 years just like a default - it doesn't seem worth it to me on so many levels.

Some private advice firms push for a Trust Deed (I think the English equivalent is the IVA), but it seems just like a legally stricter version of the DMP to me, and it affects any present or future assets.

I was initially looking into the Minimal Asset Bankruptcy here in Scotland, whereby if you have little assets and disposable income and small-ish debts, you can get a write off within a year, I believe. I was discouraged from this because of the "acquirenda rule" within bankruptcy: if you acquire assets within the next 5 years (I believe), then the debt is kind of "reinstated". I won't be able to have any minimal savings for those 5 years. It also puts me at risk if I'm ever to get any inheritance. 

I feel the best way forward would be to push for a partial write-off, but I'm not able to offer more than £3k (which is already putting me on the edge financially, as I'd have almost no cash buffer left).

Should I just default ASAP instead?

I feel overwhelmed by the amount of information I find online, and I'm reluctant to call StepChange again as the person I'd spoken to 6 months ago was not trying to engage with the intricacies of my situation, but rather just push for the DAS (the Scottish equivalent of the DMP). 

My gut feeling tells me if the write off (partial or complete) fails, the next best solution would be the default. But I am lost: what happens then? How long does it go on for? How can I push for a partial settlement after default and is it true that it is more likely then? Can the default be backdated to earlier this year when I stopped paying? What happens to any savings I'll have (are they protected if a low amount)? Is the default's impact on the credit score the same as the DAS (DMP) or worse?

I really just want to breathe. I am terrified of this going on for years - the bank said it's unlikely it'll ever go to court, but of course they can/will sell the debt and I really don't want to be chased forever, with letters, calls, or, worst of all, debt collectors coming to my door. I'd rather just pay what I can, but close the deal.

Is there something I'm not doing right? Shall I get some advisor (e.g. the Citizens Advice Bureau) to talk to the bank on my behalf? Should I rather keep the conversation about the write off in writing (I see some templates on the CAB website)?

Thank you for your patience in reading!