DMP questions - would appreciate some help!

onthepath123

Hello,

First time posting and looking for some help to figure out resolving the situation I’m in.

For starters, I have 168k in unsecured debt, and owe a family member 19k. I have a high income (£5105 PM) but the debt is currently unserviceable due to high interest. I have run a StepChange calculator for a DMP based on their recommendation and would be looking at paying £1750 a month for 8 years, however, I do have c. 80k in assets which I would be willing to sell and make a settlement offer later into the DMP.

I keep seeing and hearing conflicting advice regarding defaulting vs setting up a plan with no missed payment markers. I have a few questions if someone with more knowledge would be so kind as to help.

1. I’m concerned that adding another 6 months of interest to guarantee defaults against all of the accounts will add a considerable sum to the total balance which will in turn make settlement more difficult or the plan longer. Is my logic correct? Does it still make sense to do this?

I do have a 10k emergency fund but this is depleting quick due to servicing the existing debts as I’m in a negative cash flow of c.2k a month.

2. If I stop paying, cancel all of my direct debits and default on the loans and credit cards, do I just ignore the creditors? What’s the process I should actually follow here?

3. How restrictive actually is the StepChange budget? I’m worried about having no money at all left over each month and living like a hermit. I know I got myself into this mess, however, it’s continuously got worse due to interest and payment creeps. I don’t want the plan to fail.

4. How realistic is it that a 70-80k lump sum in 12-18 months could clear the debt entirely?

And lastly… my partner and I had a joint account which closed on the 7th August. I understand that I will need to submit a notice of disassociation to remove the credit link on our credit files, and that I should wait until this is complete before applying for breathing space and then the DMP. She is going to buy a property in her name once I sell my house (currently on the market) and so I need to protect her credit score (currently very good, minus the association with me which will end in the next few weeks)

thanks very much for your help.

Brie

Wow! That's a bit of debt!! I'm sure there's an interesting back story but I won't pry. In any case well done for having the courage to face up to what is happening.

So I do have to ask are you sure you owe the money? Is there anything that might suggest that you may have misunderstood a credit agreement (stress/mental health/crisis) and mean that you shouldn't have been granted the credit? Either of these things may eliminate the debt or possibly eliminate the interest charged over a number of years. Have a look at the letter templates for responsible lending, provits and providing credit agreements.

Of course once you apply for breathing space interest/fees should be stopped but that is for that 60 day period.

Yes you ignore the creditors in that you don't react to their heavy handed threats that non payment could mean a court judgement. You may want to inform them that you have a debt crisis and need to default but that will happen in time even if you don't mention it. And mentioning it won't, in my experience, stop the interest much sooner.

You don't need to use StepChange for the DMP. You can get them to do the early work and then DIY. But basically if you don't have the money to make payments then the budget is wrong and needs to be reworked. It's quite normal for this to happen as people's circumstances change or if there is a sudden demand elsewhere for the cash (i.e. if the car dies and needs replacing immediately). By DIYing you manage all the payments yourself.

And frankly I think it incredibly unlikely that your creditors will be happy to take less than 50% after a year or so. They might agree to 80 or 90%. But you may be able to pick them off one at a time, make an offer to all of them and see who comes back with the best reply. Or simply ask what they would think is a fair full and final settlement and see if any of them suggests something acceptable to you.

Don't forget that it can take 2 - 3 months for credit histories to be updated and should your partner decide to get a mortgage with the same banking group where you had the joint account they may still be able to see the association on her accounts. If you haven't already it will be best if you have accounts in completely different banking groups (i.e. you with Barclays and she with Santander or something like that)

Best of luck.

ManyWays

Can I ask what these assets that that are saleable? are any of your creditors likely to know about them?

If you sold them now and cleared the highest interest debt, would it be realistic to repay the remainder without a DMP? Doing this will dramatically improve your chances of 0% balance transfers?

I think we need to see a Statement of Affairs to say anything much., our preferred format is here https://www.stoozing.com/soa.php. Please include the lender real names, not CC1

Rob5342

Stopping paying will result in extra interest and charges, but once defaulted interest will stop being added and later on you should be able to make a reduced settlement offer which conteract the extra interest.

DMPs are informal arrangements with no fixed rules. You need to switch your thinking, the idea is that you work out a budget that you can live on, and then pay what you have left over towards your debts. You'll need to make a lot of changes to maximise how much you can pay, but if the budget becomes unsustainable then you just adjust it. Stepchange do have a certain way they like to do things, but you can make up a budget that arrives at the figure you want to keep them happy, or manage it yourself which is very simple.

curlu

I’m just in the process of waiting for the last 2 of 7 debts to default after I stopped all payments in December. 4 have been sold on so far and although I initially thought I would go through Stepchange, it’s been really easy just to set up payments myself via the various agencies online portals. They suggest a figure and I’ve been able to agree monthly payments that are less than Stepchange suggested, yes it will take longer but I don’t mind as the interest and charges are stopped and it will take as long as it does. It’s easy to overthink things at this stage, but just keep reading the excellent advice on here. Only one of my loans is proving tricky to default and I have made an affordability compliant which has now gone to FCA.

Keep_pedalling

Is your partner’s house purchase dependant your house sale? I am no expert but I would have thought if you gift them the equity from your house sale to purchase in their sole name you would still have a beneficial interest in the new home.

onthepath123

Hello folks,

thanks for the comments and feedback.

1. My partners house purchase is using her deposit, and will be solely in her name. My current home is solely in my name, and so there’s no risk here. We will definitely have somewhere to live.
   
2. The split of debt is 55k in loans and 113k on Credit cards. The largest credit card is £25k to AMEX - which is the one I’m most concerned about when defaulting as I’ve heard they can be particularly litigious for high balances, and will reject a DMP. Should I pay this off before entering the DMP? It would wipe out my current available funds (from sale of assets).
   
3. The remainder of the sale of assets would be from my House Sale (55k) - I have equity currently.
   
4. There is an option to pay off as much as possible right now, and then use the money from the house sale to pay down the highest interest credit cards. There are 4 cards currently at 0% (11.4k, 9.8k, 8.7k and 3.5k). The remainder at 23.9% - 24.9% My biggest concern from not taking the DMP route is that the current minimum payments servicing the debt puts me in a negative of roughly 2k a month. Removing the Amex saves £800 a month, but I’m still negative until the house money clears. (Likely 6-8 months).
   

Thanks for everyone’s advice

onthepath123

the other option I had looked at was a full & final IVA - with the money available it has been recommended as a possible solution - what are the thoughts on this route?

ManyWays

https://forums.moneysavingexpert.com/discussion/comment/82121604#Comment_82121604

No, beneficial equity does not work like that.

If you gift someone money, they can spend it on what they want. (Ignoring gifts with reservation)

If you go bankrupt soon afterwards, the Official Receiver is likely to want the "gift" returned, but that is because you gave an asset away in advance of insolvency, nothing to do with beneficial equity.

ArtyJ931

my own point of view - selling a house to pay off consumer debt would be absolute last resort. I’d rather keep my house and pay for 20 years than do that.

onthepath123

https://forums.moneysavingexpert.com/discussion/comment/82121655#Comment_82121655

I would ordinarily agree, but we’re currently living in a flat and have a 2 year old. It’s unfortunately not sustainable to stay there and so we’re moving to a ‘normal’ house. Thankfully my partner has a reasonable salary and we are able to get a mortgage in her name.