Advice on defaulting

intheblack_sheep

My husband and I have realised that we can't carry on the way we are and need to tackle our debt. It is about 45k between us (husband has 2 personal loans, about £10k each, I have CC £12k, then various other smaller debts).
It's got to the point where we are having to use CC for food etc as our disposable income has to cover the repayments! Vicious circle. 

So, I created a budget on Stepchange that I thought was manageable, and just need to agree to the DMP.

Then I discovered this forum and I'm now unsure what to do! 😭 

At the moment we are not behind on any payments, we haven't defaulted on any CC or loans. 

But I've now read that it is best to do this before starting a DMP? And to use the money that would have been paid to build up an emergency fund? 

My question is - if we did this, are our creditors less likely to stop interest/charges when we proceed with the DMP?

I really need our creditors to stop the interest so we can clear this (if they do, expected to clear in just under 5y with DMP).

And I'm concerned we will pee them off if we default, and less likely to accommodate? 

Please any advice before we proceed with the DMP!! Thank you 

ByzantineByron

Yes you need all creditors to default. So stop paying your debts. This can take months but you need them all to default before offering a DMP.

You may not realise this fully, but if you are having to use credit to pay for groceries then you are long past the point of being able to pay them so stop paying them.

Also, use the excess funds that you would have been using to service debts, to build up an emergency fund. You will be living without credit for a while, so you need a rainy day fund.

RAS

It is quite possible that interest will rack up when you initially stop paying.

Once the default is registered, interest and charges cease to be applied. If you make reduced payments your credit record is wrecked for 6 years after the last debt is paid off,

This why you need to go cold turkey. Asking creditors for patience and forbearance just delays the defaults. So you don't respond, you don't justify, you just don't pay.

Meantime you sort out your SOA, tweak it so it's sustainable and save into your emergency fund. And know that your credit record will start repairing much sooner, 6 years after the default date.

Creditors can't take legal action until they've issued defaults, so you need to open mail regularly to check for defaults and thereafter for letters before action. But if you set up payments after the default those are unlikely.

intheblack_sheep

We've just applied for Breathing Space as well 🤦🏻‍♀️ so I guess it will take even longer to default?!

Oh dear. I thought we were doing the best thing, by sorting out a DMP at this stage, before it got so bad that we weren't able to make repayments and defaulting.

I was shocked to see the advice being to actually default! What if a couple default quite quickly but others don't? At what point should we proceed with DMP?

And do we just ignore all contact from creditors? I don't want them hounding me 😭

Also, if we do this, surely it is going to take much longer to repay - as the debt will be increasing much faster! 

We're not bothered about it staying on our credit file as we don't want to be applying for credit again!

ByzantineByron

You proceed when all creditors default. If you go ahead sooner then you run the risk of some creditors saying 'I'm alright Jack' and just saying no.

It goes against the grain of everything we're told, because we're brought up to pay what we owe. But you can no longer afford to pay, so don't. If some default slower then that's more rainy day money for you.

What will happen is the creditors will sell the debt off to a third party for pennies in the pound. These debt collection agencies will try to contact you (they have no more legal powers than the milkman so refuse to engage) and some may offer a cut price deal to clear the debt. It works for them as they'll make a profit and works for you if you've got the cash to pay it. Otherwise just wait until they all default and offer a DMP based on what you can realistically afford while living a comfortable life (Stepchange can be of help here)

Creditors will hound you, but just ignore the phone calls, file the letters and only pay attention to the ones that come before Legal Action

intheblack_sheep

RAS said:

It is quite possible that interest will rack up when you initially stop paying.

Once the default is registered, interest and charges cease to be applied. If you make reduced payments your credit record is wrecked for 6 years after the last debt is paid off,

This why you need to go cold turkey. Asking creditors for patience and forbearance just delays the defaults. So you don't respond, you don't justify, you just don't pay.

Meantime you sort out your SOA, tweak it so it's sustainable and save into your emergency fund. And know that your credit record will start repairing much sooner, 6 years after the default date.

Creditors can't take legal action until they've issued defaults, so you need to open mail regularly to check for defaults and thereafter for letters before action. But if you set up payments after the default those are unlikely.

So once we've defaulted with 1 creditor, how long should we wait before proceeding with DMP? As if we were waiting another 3 months for example and others hadn't defaulted, that initial creditor will be taking legal action by then? 

Also, what are the chances of the creditors stopping interest in each situation? (Going ahead with DMO  now VS when a few have defaulted)

Thank you for your advice! It's really appreciated

RAS

There are a lot of things that require credit checks like phone contracts etc. 

Setting up the DMP now could harm your credit record for 9-12 years even if you pay off everything in year 6. Waiting for the defaults, and you'll start clearing the credit record in year 6, even if life happens and you still owe money.

Write to the creditors and tell them only to communicate in writing, because there are legal requirements that they send certain information by mail. Once a week, get together, open and file.

Just to add, one of the classic issues with debt charity supported DMPs is that they only allow a very small saving to emergency funds. So when the car claps out and the cooker goes, people are in practical difficulties and have to suspend their DMP, sometimes for months, until they have enough money to cover replacements. Much better to save a decent emergency fund up front.

intheblack_sheep

ByzantineByron said:

You proceed when all creditors default. If you go ahead sooner then you run the risk of some creditors saying 'I'm alright Jack' and just saying no.

It goes against the grain of everything we're told, because we're brought up to pay what we owe. But you can no longer afford to pay, so don't. If some default slower then that's more rainy day money for you.

What will happen is the creditors will sell the debt off to a third party for pennies in the pound. These debt collection agencies will try to contact you (they have no more legal powers than the milkman so refuse to engage) and some may offer a cut price deal to clear the debt. It works for them as they'll make a profit and works for you if you've got the cash to pay it. Otherwise just wait until they all default and offer a DMP based on what you can realistically afford while living a comfortable life (Stepchange can be of help here)

Creditors will hound you, but just ignore the phone calls, file the letters and only pay attention to the ones that come before Legal Action

Yes, it feels very wrong! My heart is struggling to justify it, and question if it's ethical! 🤦🏻‍♀️ (To stop paying what I owe someone). 

And what would I do if I was threatened with legal action? When do I call it 'quits' and proceed to the next stage? 

I have a few debts that are relatively small (£100-£200 each) that could be paid off quite quickly if we weren't paying the credit cards/loans off at the moment - is it best to clear those if it's possible?

intheblack_sheep

RAS said:

There are a lot of things that require credit checks like phone contracts etc. 

Setting up the DMP now could harm your credit record for 9-12 years even if you pay off everything in year 6. Waiting for the defaults, and you'll start clearing the credit record in year 6, even if life happens and you still owe money.

Write to the creditors and tell them only to communicate in writing, because there are legal requirements that they send certain information by mail. Once a week, get together, open and file.

Just to add, one of the classic issues with debt charity supported DMPs is that they only allow a very small saving to emergency funds. So when the car claps out and the cooker goes, people are in practical difficulties and have to suspend their DMP, sometimes for months, until they have enough money to cover replacements. Much better to save a decent emergency fund up front.

Do you know of a template that I could use for asking them to only communicate in writing?

Brie

There doesn't seem to be a template for communicating only in writing on the sticky - something we should sort out I think!!

Debt-Free Wannabe Sticky - Provit & Statute Barred Letters, Defaults, Help and Guidance, All Here... — MoneySavingExpert Forum

But I'd be sending them something like this....

Dear <creditor>

I am currently reviewing my financial situation and would like your co-operation.

I request that you communicate with me only in writing, by post.  To this end I request that you not use my email address nor send anything to me by text nor ring me to discuss my account. 

Should you decide to forward by account to another company or agency I request that you do so without including my email address or any phone number as harassment is not an acceptable action.   

Yours.....




I might have suggested asking them to delete your email address or phone numbers but a bank will have legitimate reasons for having these recorded.  As long as they stick to snail mail for chasing the debt that's fine.  And as stated should they pass the account to a collection agency you specifically do not want that company being able to harass you by email or phone. 

Rob5342

Leicsbob said:

ByzantineByron said:

You proceed when all creditors default. If you go ahead sooner then you run the risk of some creditors saying 'I'm alright Jack' and just saying no.

It goes against the grain of everything we're told, because we're brought up to pay what we owe. But you can no longer afford to pay, so don't. If some default slower then that's more rainy day money for you.

What will happen is the creditors will sell the debt off to a third party for pennies in the pound. These debt collection agencies will try to contact you (they have no more legal powers than the milkman so refuse to engage) and some may offer a cut price deal to clear the debt. It works for them as they'll make a profit and works for you if you've got the cash to pay it. Otherwise just wait until they all default and offer a DMP based on what you can realistically afford while living a comfortable life (Stepchange can be of help here)

Creditors will hound you, but just ignore the phone calls, file the letters and only pay attention to the ones that come before Legal Action

And what would I do if I was threatened with legal action? When do I call it 'quits' and proceed to the next stage? 

Legal action is rare if you are paying something towards them. The original creditors usually sell debt on for a small fraction of their value instead of taking legal action. The companies buying them do so as an investment. As they buy them for so little, a relatively small monthly repayment could see them doubling their money in a few years so there is little incentive for them to take legal action if they have money rolling in for nothing.