Bankruptcy or IVA or DRO?

bery_451

Person is Individual in England and has defaulted on unsecured Loans & Credit cards.

Lost his job and now on Universal Credit and is in £10,000s of debt under £50k. Hardly any savings, no car, no assets apart from a couple of bank accounts in which he gets his UC paid into and probably has a few hundred quid to cover day to day living costs.

Do all of these options stay on his credit rating report for 6 years?

He can see a few defaults on his Experian credit report so that made his credit rating score bad for 6 years, so will Bankruptcy or IVA or DRO improve his credit score rating otherwise what is the point of these options/schemes when the 'Defaults' or even 1 default has tarnished his credit rating score for 6 years?

If all options stay on his credit rating score making the score low for 6 years then which option is the best & quickest & easiest to get out of debt written off and get his credit rating score ack to normal after 6 years?

Any more recognised/approved schemes apart from DMP & the Debt Respite Scheme?

Does Bankruptcy option mean handing your bank accounts to the appointed liquidator meaning you lost control of your bank accounts and your money in them automatically after declaring bankruptcy meaning for example for £50000 owed to creditors the liquidator takes the few hundred quid in bank accounts and gives that to the creditors shared equally but it is way off doesn't pay the full £50k debt.

Does individual insolvency prevents courts?

Brie

The credit score is meaningless as he's the only one that sees it. What lenders will see is his credit report and that's going to show this situation for at least 6 years so no point worrying about it right now.

Everyone needs a bank account so the bankruptcy liquidator isn't going to take that privilege away. I suspect there will be a cut off point and money that in after that point will be his no matter what - but I'm not an expert on bankruptcy. I do know that it is an expensive option compare to other solutions.

Biggest question from me is does he rent or own a home? If he rents then a DRO might be the best solution as that would have things done in a year (normally). But getting another job might scupper this as it's a big change in financial circumstances.

Personally I'm not a fan of IVAs, if he's on benefits it's not a good idea. It does work for some people who have a steady income. Likewise DMPs.

My suggestion is that he (& you perhaps) read the bits on Debt Camel that discuss the solutions to see which fits best. link - Debt solutions - what is your best option?

RAS

The issue with all insolvency solutions is that they affect your credit record for 6 years, as do defaults.

The added issue is they are reported on the Insolvency Register, which is a public record unlike your credit record. So can be easily read by employers and landlords.

The other factor is that increased income or a windfall can scupper a DRO or mean paying back the debt in full plus the IPs fees. At least a DRO is risky for a year rather than 3 years, or 6 for an IVA. Each individual has to assess the risk.

ManyWays

The advantage of bankrupotcy and DROs is that they will get a clean start and a clean credit record after 6 yeras. (With no assets to protect and only benefit income, an IVA should be ruled out.0

With defaults, a debt collector can go for a CCJ after 5 years, which is then on the credit record for another 6 years. Individual insolvency prevents this.

What is the chance of getting a decent job in the next year?

You can have a basic bank account in bankruptcy or a DRO. Much like a normal bank account except no overdraft and no cheque book

bery_451

https://forums.moneysavingexpert.com/discussion/comment/81858721#Comment_81858721

Ok so basically if a credit report contains a default or bankruptcy or iva or dro then no lender will lend to him for 6 years unless they charge him high risk interest like over 1000% apr or something or secured collateral upfront required or he has to wait 6 years to able to borrow unsecured again at normal close to bank of england interest rates?

When you mentioned cut off point, do you mean the liquidator wont touch his UC benefits coming into his account?

He rents. Okay so getting a job will auto void a DRO agreement?

bery_451

https://forums.moneysavingexpert.com/discussion/comment/81858754#Comment_81858754

Defaults & Insolvencies have the same negative impact on a credit report rating?

Where can I see this insolvency public register?

What you mean by windfall and that will void the DRO agreement that results paying back the debts in full? Who are IP's?

So DRO is risky for 1 year because the borrower financial circumstances can change in that year for example landing a new job that can void the DRO agreement?

bery_451

https://forums.moneysavingexpert.com/discussion/comment/81858792#Comment_81858792

Will UC benefit income be protected under DRO? When you say no assets to protect, after applying for DRO, who assesses and checks whether all the assets have been declared on the DRO application form? For example I could have a ferrari car but not declare it on DRO form or have a £million quid in a undeclared uk bank account.

When you say decent job, what salary voids a DRO agreement?

He already has 2 bank accounts. So if he applies for DRO, he has to give up his 2 current bank accounts and apply for new basic bank accounts? Who uses cheque books nowadays?

johnjs88

When my DRO was approved, I informed Monzo about it and they simply put a marker on my account which disables lending options such as overdrafts.

As for the Salary question - If the increase in income takes him above the £75 per month maximum surplus income then yes, the DRO is at risk of being revoked.

bery_451

https://forums.moneysavingexpert.com/discussion/comment/81859670#Comment_81859670

Okay so you have to manually inform your banks of the DRO agreement, the DRO officer/debt adviser that you applied to doesn't do this work for you on your behalf after being approved?

ManyWays

So DRO is risky for 1 year because the borrower financial circumstances can change in that year for example landing a new job that can void the DRO agreement?

Yes. It happens to about 1% of DROs, so its rare, but you should not walk into a DRO if you expect to get a well paid job soon. There is NO simple £ per year limit on income, it depends on the expenses. You are allowed to pay the usual amount into employers pension scheme. Obviously UC will be reduced or even stopped. So it is the net change that matters

Best suggestion is if he hopes to get a job soon, wait until he has one and then see what his debt options are.

You do not have to tell your bank about a DRO, this will be done automatically if you have an overdraft. If you do not have an overdraft, many of the big banks run an automatic sweep of the Insolvency Data base so they find out anyway. No one uses cheque books, thats why it does not matter that you can not have one in a basic bank account.

Will UC benefit income be protected under DRO?

Not specifically, but any good debt adviser does not usually have a problem showing you have less than £75 a month spare if your only income is UC.

When you say no assets to protect, after applying for DRO, who assesses and checks whether all the assets have been declared on the DRO application form?

The debt adviser makes sensible checks.

For example I could have a ferrari car but not declare it on DRO form

Your car insurance would probably look unusually high and would be queried!

or have a £million quid in a undeclared uk bank account.

The debt adviser would spot any transfers to and from other accounts. And no one with a lot of assets in their right mind would go for a form of insolvency, rather than just clear the debts. It is also a criminal offence under the Insolvency Act to deliberately conceal assets, or give false information. NB I have never come across anyone being prosecuted for this and no one needs to worry about small or accidental omissions.

RAS

You and your friend would benefit from a basic Google search for DRO and Bankruptcy and the Insolvency Register and reading the gov.uk pages. At the very least, understand the basics round income and assets before making any decision.

The amount of savings and car value depends on the insolvency solution. The amount of income and expenditure depends on specific circumstances of the person concerned.

Basically, people need to live within their income. If the excess is over £75 per month a DRO isn't an option. Someone higher medical costs or essential travel costs will be allowed more expenditure.

Regarding lying, it's a crime and in bankruptcy can lead to prison and/or bankruptcy restrictions for many years. And the IP has three years to make decisions on hidden assets from the date when they discover them.

There was a recent query here from someone who discovered they were still on the Insolvency Register after 12 years. They'd not cooperated with their Insolvency Practitioner who'd simply maintained a restriction. So they now had to talk to someone they'd tried to avoid for over a decade, and make 12 year's worth of financial disclosures, pay any dues plus penalties etc.

Whether using a DMP or insolvency solution, getting credit will be difficult for 6 years. It forces people to budget, live within income and save before buying. There's a specific 6 years limit on repeat DROs.