No choice but to consider DMP - help appreciated!

emsgirl

Hi,

I have been reading advice on this forum for a while and I've realised that despite trying for years to repay my credit card debts I have actually just been treading water at best and now more recently getting further into debt month by month. It has been a combination of everything being more expensive post pandemic and only having one pay rise in the last 6yrs alongside my husband being made redundant and expensive car repairs etc etc with no emergency budget. It has reached the point where I can no longer cover my credit card minimum payments and I am using credit cards to purchase basic things like food shopping and petrol. They are now almost at the limit so I know something has got to give. We don't live extravagantly, I haven't had a holiday in 2yrs and I take a packed lunch to work every day and have a coffee about once per mth. We don't have takeaways, my phone is a £2/mth sim only deal I really try to be sensible with everything.
I am absolutely gutted as I've worked so hard and feel like it's so unfair as I've tried hard to pay it all back for years. I dread to think about the amount of interest they have had off me over the years! 

Anyhow, rant over. I know it's a mess I've got myself into and I need to get out of it and what I'm doing isn't working. We've been in limbo for years - we don't go out or plan things ahead as we have no money to do anything. It's miserable. We just work and pay bills and our debts just keep getting bigger. It has now reached about 60k in total and as I said I am struggling to meet the minimum repayments and cards are reaching their limit so within the next month I will have reached my debt 'ceiling' and I have no choice other than to try a DMP.

My understanding from reading this forum is as follows:-
- I stop payments to all my creditors and build up an emergency fund
- I ignore them completely until I get a default on my credit report
- I then contact them to set up a repayment plan which they will hopefully accept

My questions are as follows:-
- I am terrified of stopping payments to creditors as I know that getting the defaults mean they can then potentially take legal action (though I know the defaults are required to stop your credit report being damaged for as long as the AP markers damage it). If they do take legal action then how long would it take to go from missing payments to letter of action for CCJ? I know if you pay off a CCJ within 1mth it would be deleted from you report. So I'm trying to work out if in a worse case scenario I had to pay off a potential CCJ how long from missing payment to needing to pay off a CCJ to stop that going on my record would be so I know how much emergency fund I am likely to have by then.
- Also can they only apply to make you bankrupt once they have a CCJ against you?
- What is a statutory demand? Is this the same as a default? Can it increase risk of bankrupty petition?
- And what about charging orders? I know they are rare but they do happen. I worry as I am employed and have a house with equity that I will be an easy target for this. So under what circumstances are they likely to happen? And again how long would it likely take in total to get to this stage?
- Am I better off just going for a DMP after missing 2mths of payments so I have a small emergency fund and they haven't taken any defaults against me so there is less risk of legal action?
- I have a mortgage and have used the mortgage charter already to go to interest only payments for 6mths which finishes in April. I'm with HSBC so when I remortgage will I still be able to switch products when my fixed rate ends in Jan 27 despite having defaults? If I also do the extension of term using the mortgage charter to lower my repayments once my interest only 6mths ends will I still be able to switch products when my fixed rate ends?
- Does anyone have experience of how easy/difficult the following creditors are when going down the default/DMP route and what their typical mode of action is ie how long to default, do they sell on to debt collectors etc? Do they harrass you much? American Express CC, Barclaycard CC, MBNA CC, Next, Halifax CC, M&S CC, Virgin CC, Zopa loans, Admiral Loans?
- I intend to do do affordability complaints. I will do my Barclays Overdraft one now but when along the journey is the best time to do affordability accounts for the loans and CCs? I am worried if I do them too early it would delay the defaults while they are investigating.
- I intend to change my pay into a safe bank account but it probably won't take effect until next month now. If I cancel the DDs this month from my Barclays current account but my pay still goes into it can I transfer my pay to the safe bank account from the Barclays bank account or will it be tracked by Barclays and would they question where it's gone if it leaves the Barclays account in overdraft?

As you can probably tell I am very nervous about going down this route but I feel that if I know what the worse case scenarios are and I can deal with them then I will be better prepared. Please be kind as this is breaking me - I really feel I have tried so hard to do all the right things and have fought it for years but it's like the 'tetris' debt tower has reached the top and it's game over!

I'm sure I will have more questions as it goes on but I was hoping if I could get some support and guidance with these questions it would be helpful and I'd be very grateful. Thanks all.

ManyWays

- I am terrified of stopping payments to creditors as I know that getting the defaults mean they can then potentially take legal action (though I know the defaults are required to stop your credit report being damaged for as long as the AP markers damage it). If they do take legal action then how long would it take to go from missing payments to letter of action for CCJ? 
All the creditors you have mentioned are normal lenders, none of them will rush to court and indeed most will never go to court but will rather sell your debt on to a debt collector (which is good as a debt collector is more likely to accept a low settlement offer). The idea of a DIY DMP is that you set up payment arrangements after a default .

- Also can they only apply to make you bankrupt once they have a CCJ against you?
- What is a statutory demand? Is this the same as a default? Can it increase risk of bankrupty petition?
A statutory demand is the step before making you bankrupt, which none of your creditors is going to do. 

- And what about charging orders? I know they are rare but they do happen. I worry as I am employed and have a house with equity that I will be an easy target for this. So under what circumstances are they likely to happen? And again how long would it likely take in total to get to this stage?
You need to put up a Statement of Affairs, see https://www.stoozing.com/soa.php, and stop worrying about worst cases and look at what is likely to happen. There is a lot of difference between being able to pay £60 a month to a 60k debt and £600. 

- Am I better off just going for a DMP after missing 2mths of payments so I have a small emergency fund and they haven't taken any defaults against me so there is less risk of legal action?
You will get defaults with most debts eventually in a DMP unless it is short lived, but let's look at your SOA. 

- I have a mortgage and have used the mortgage charter already to go to interest only payments for 6mths which finishes in April. I'm with HSBC so when I remortgage will I still be able to switch products when my fixed rate ends in Jan 27 despite having defaults? If I also do the extension of term using the mortgage charter to lower my repayments once my interest only 6mths ends will I still be able to switch products when my fixed rate ends?
Yes you will be able to get a new fix from HSBC with defaults. Lets see your SOA before talking about whether its a good idea to increase the term, its usually better to pay less to consumer debts and not prolong the mortagge

I intend to do affordability complaints. I will do my Barclays Overdraft one now but when along the journey is the best time to do affordability accounts for the loans and CCs? I am worried if I do them too early it would delay the defaults while they are investigating.
I have no idea if that happens. Its good to make any complaints within 6 years of a lending decision such as an increase in a credit limit or things get more complicated at the Financial Ombudsman.   

- I intend to change my pay into a safe bank account but it probably won't take effect until next month now. If I cancel the DDs this month from my Barclays current account but my pay still goes into it can I transfer my pay to the safe bank account from the Barclays bank account or will it be tracked by Barclays and would they question where it's gone if it leaves the Barclays account in overdraft?
No one at a bank sits there and thinks Emsgirl has cancelled a lot of direct debits, perhaps she is in difficulty so lets stop her moving her pay. This occupies your whole mind all the time at the moment but your bank isnt even going to notice or think about it.

RAS

We really do,need to see that SOA as it seems you've been struggling with essential payments for some time?

I think that once you stop paying the consumer credit, you need to get the mortgage payments back on track as soon as possible. That, CT and food are priorities, then utilities.

fatbelly

Don't overthink. One step at a time

Give us a soa

https://www.lemonfool.co.uk/financecalculators/soa.php

emsgirl

Thank you all so much for your comments. I really appreciate that you have taken the time to respond to me it just feels like a relief that I can have some support getting through this and I am really very grateful to you. Just to confirm I haven't yet missed any payments on credit cards or on my priority debts like mortgage or council tax. I just feel like it's getting to the stage where I may not be able to continue keeping up with the non priority debts whilst keeping up with the priority ones. I am also an over thinker as you have sussed out but I also know that I will be more confident in handling this if I know the possible pitfalls and worst case scenarios, I am not expecting all of these things will happen but I also believe knowledge is power and I want to go into this with my eyes wide open.

I am also slightly more worried as I am fortunate enough to have a home with equity and a fairly well paid job. This just makes me think creditors may target me more for payments as they may think they can get more out of me. Hence I was concerned if I moved my pay that when they eventually start chasing me for paying my overdraft back I thought they may have queried where that money had gone. I did look into remortgaging as an option but HSBC wouldn't lend me more money and so the only options were with second charge mortgages which were higher interest and seemed a bit dodgy tbh! I know its not the best option to turn non secured debt into secured debt anyway but it just seems so alien to me to just stop paying debts when I have juggled so much to manage to pay them every month I've explored all options. 

I will post a SOA as soon as I get chance and again I would be very grateful for any feedback from you following that. Many thanks again all.

emsgirl

Statement of Affairs and Personal Balance Sheet[/b][b]

Household Information[/b]

Number of adults in household........... 2

Number of children in household......... 2

Number of cars owned.................... 1[b]

Monthly Income Details[/b]

Monthly income after tax................ 3350

Partners monthly income after tax....... 1000

Benefits................................ 170

Other income............................ 0[b]

Total monthly income.................... 4520[/b][b]

Monthly Expense Details[/b]

Mortgage................................ 647

Secured/HP loan repayments.............. 0

Rent.................................... 0

Management charge (leasehold property).. 0

Council tax............................. 300

Electricity............................. 125

Gas..................................... 125

Oil..................................... 0

Water rates............................. 50

Telephone (land line)................... 0

Mobile phone............................ 70

TV Licence.............................. 15

Satellite/Cable TV...................... 35

Internet Services....................... 35

Groceries etc. ......................... 650

Clothing................................ 100

Petrol/diesel........................... 200

Road tax................................ 50

Car Insurance........................... 55

Car maintenance (including MOT)......... 50

Car parking............................. 0

Other travel............................ 0

Childcare/nursery....................... 0

Other child related expenses............ 100

Medical (prescriptions, dentist etc).... 20

Pet insurance/vet bills................. 60

Buildings insurance..................... 10

Contents insurance...................... 10

Life assurance ......................... 11

Other insurance......................... 0

Presents (birthday, christmas etc)...... 100

Haircuts................................ 50

Entertainment........................... 50

Holiday................................. 0

Emergency fund.......................... 0[b]

Total monthly expenses.................. 2918[/b]

[b]

Assets[/b]

Cash.................................... 0

House value (Gross)..................... 360000

Shares and bonds........................ 0

Car(s).................................. 5000

Other assets............................ 0[b]

Total Assets............................ 365000[/b]

[b]

Secured & HP Debts[/b]

Description....................Debt......Monthly...APR

Mortgage...................... 125000...(647)......0.94[b]

Total secured & HP debts...... 125000....-.........-   [/b]

[b]Unsecured Debts[/b]

Description....................Debt......Monthly...APR

Next...........................1300......60........24.9

Virgin.........................6100......160.......19.2

American express...............5100......270.......35.2

Admiral Loan...................7200......225.......9.9

Santander Loan.................580.......290.......2.9

Zopa Loan......................12600.....495.......9.4

Barclays Overdraft.............5500......100.......29

MBNA...........................9200......260.......28

MBNA...........................1800......60........28

M&S............................1900......60........18.9

Barclaycard....................8100......230.......23

Halifax........................5500......230.......28[b]

Total unsecured debts..........64880.....2440......-  [/b]

[b]

Monthly Budget Summary[/b]

Total monthly income.................... 4,520

Expenses (including HP & secured debts). 2,918

Available for debt repayments........... 1,602

Monthly UNsecured debt repayments....... 2,440[b]

Amount short for making debt repayments. -838[/b]

[b]Personal Balance Sheet Summary[/b]

Total assets (things you own)........... 365,000

Total HP & Secured debt................. -125,000

Total Unsecured debt.................... -64,880[b]

Net Assets.............................. 175,120[/b]

[i]Created using the SOA calculator at www.stoozing.com. 

Reproduced on Moneysavingexpert with permission, using other browser.[/i][/font]

emsgirl

I just realised I have entered 1000 for my partners income but I forgot to include his debts which are two credit cards and a store card he pays approx £300/mth for. His mobile phone and petrol costs are probably another £100 too so in total another £400 deficit in the budget needs to be added. thanks

emsgirl

I did do a Stepchange DMP plan form and it estimated I would have about £525 to pay towards debts

kimwp

Hi emsgirl, just a quick note to say don't worry, once you've defaulted, the banks will want to minimise their costs, they won't want to spend time and money on meticulous detective work, figuring where your pay has gone or how much your house is worth. After defaulting, you'll contact them, say "I can afford x amount, where do I send it?" And they will say "lovely thank you, here are the details". Ahead of that, you will get letters and potentially calls (but you can tell them to only contact you by letter), because they have to do due diligence in telling you that you are at risk of defaulting and damaging your credit record - but that's fine, because a default is what you are aiming for. NB, don't start paying until you have a decent emergency fund built up. (Though you can always reduce payments later to rebuild it if needed)

Regarding your SOA, your non-debt outgoings are significantly less than your income, so on paper you shouldn't be in debt, particularly if you only had one pay rise in the last six years, your husband lost his job and the cost of living increase - these would mean you used to have a much wider margin between income and outgoings. Is your SOA accurate (includes all outgoings accurately including annual spends?). Did your outgoings used to be much greater?

emsgirl

Thanks kimwp. I don't think this SOA is as accurate as the Stepchange one - I will review it again tomorrow as I think the Stepchange went through things in more detail and I think I have missed things out as I did this in a rush so it isn't as accurate a reflection as it should be.

We have just had lots of bad luck over the years. My husband's son from a previous marriage died and we spent a lot on his funeral. This was the first thing that went onto credit cards. Then my husband had a heart attack when my two children were both under the age of two so he was out of work for a couple of years recovering. We couldn't claim anything because of my wage. So started slipping into debt. When he finally went back to work as he was earning minimum wage and we had to spend so much on childcare it was hardly worth him earning. So we started to build up more credit card debt. Then we ended up getting a loan to replace my car which had gone kaput and another one to get a run around for him to get to work. Then he decided to go self employed 1mth before covid hit to earn more money. He was due to start this work in April 2020 and so never got to start due to covid! So he missed out on pay he would have got on furlough if he had remained employed and he couldn't claim anything because he hadn't yet started his self employed work and my wage was too high for any benefits for him. With that and the cost of living we have just sunk further and further into debt. To be honest his money has been very hit and miss over the years so this really hasn't helped. He gives me £500 per month but some months I end up subbing some of that back as he's spent more on petrol or often ends up giving more to another child from his previous relationship when extra things are needed for them. Obviously I don't get it at all on the months he's not worked.

We've also had lots of things like unexpected vets bills and car bills and house repairs which have gone on credit cards as we have no emergency fund. Once the credit cards stopped letting me swap to new 0% rates was when it became impossible - the minimum payments increased and there was so much interest the balances just keep growing. I really never thought I'd end up in this position

fatbelly

On that SOA a dmp is realistic and clears the debts in around 40 months

If the real surplus is a lot less, like £500, then you are looking at over 10 years to get debt free. In that case you may find that stepchange suggest an IVA.

In either strategy you start by defaulting on the debts, getting your banking separated from them and saving an emergency fund

You do need to get your mortgage back on track or you are storing up bigger problems. No more extending the term or going interest free.

Your fixed deal expires in Jan 27 so your 125k mortgage is going to get more expensive. Do you see yourself staying in this house long term? Or downsizing when the kids move out? I can see there might be a strategy of long dmp followed by settlement deals eventually, which could work for you.