Help...Should my girlfriend go bankrupt?

m4rtininm4nc

I have always been financially astute and never had any financial issues, and I have a long term plan, which I am on target for.

My girlfriend and I were talking about moving in together and we got onto the subject of finance. She told me she had some problems, so I said lets sit down and work out what you have coming in and whats going out etc.

This is what I found:
£850 coming in (salary)

Debt
£800 Overdraft
£5000 on Credit Cards
£23000 Loans (One loan for 21000 over the next 10 years+!!)

Monthly Debt Repayments
She is making the minimum repayments on her cards and standard payments on loans. She amounts to about £600 per month.

Her only asset is a car worth £4000, which I have advised to sell and buy a run around car and she currently lives with her parents and has no other assets and her family have been helping her with repayments

She tried to go down the IVA route but she cancelled it, as I don't think the company she was dealing with was communicating to her properly and explaing what was going on.

Looking at this situation, she has virtually no assets and large debts which she is going to carry on into the long term. Even if she can service her debts now, what is to say will happen in the future? She could get sick, go unemployed and it would catch up with her anyway.

Do you think she should consider bankruptcy? and if so would this case get through?

We have booked an appointment with CCCS but the appointment is only on 28th July, and I just want to know what is likely to happen, as i'm really worried about this.

chilli_dog

whilst not to take away the good advice on this board, i am a member of another site

https://www.debthelpuk.co.uk

make sure you click to the forums section, top right, you will have to join but it is painless.

Bankrupcty is not to be taken lightly and can have effects on your career ie if you are an accountant.

You must bear in mind that if your girlfriend stops making the contracted payments to her creditors this will impact her credit rating, and yours possibly if you start living together.

My advise,

Send a letter to all of her creditors explaining the situation. Send token payments for the month until you have talked to the CCCS, they are very good. Change bank accounts straight away. They can usually grab your wages to pay off the overdraft, use a bank that is not connected to yours.

Is the car on HP or is it a seperate loan for it? Some HP agreements let you hand back the car if you have paid back over 50% i think.

Try the CAB for help also.

This advice is with good intentions, and previous experience only. Please Please get advice from experts.

Good luck

Martin

Malestrom

If she can service her debts then I wouldn't really suggest that bankruptcy was applicable here. Post some more details with reference to her monthly payments and APR's and we may be able to offer more advice. I'm thinking that the 10 year loan is going to be a real money-eater so i'd be interested to see if there isn't a better option there.

m4rtininm4nc

Thanks for the advice. So just to pick up on some of the points above;

"Bankrupcty is not to be taken lightly and can have effects on your career ie if you are an accountant.

You must bear in mind that if your girlfriend stops making the contracted payments to her creditors this will impact her credit rating, and yours possibly if you start living together."

She hasn't a job/career that Bankrupcty would affect. And her credit rating is already poor, I asked her to sign up with Experian. As I understand it (from other threads) I can ensure that even if we live together we can state that we are not financially linked, therefore not affecting my credit rating.

The car isn't on HP and hopefully we will sell soon and replace with a run around car.

If she can service her debts then I wouldn't really suggest that bankruptcy was applicable here. Post some more details with reference to her monthly payments and APR's and we may be able to offer more advice. I'm thinking that the 10 year loan is going to be a real money-eater so i'd be interested to see if there isn't a better option there.

She can just about service her debts but only with the help of family.
Ok, monthly payments are as follows: (Card, Montly payment, Monthly Interst rate, Completion Date - estimate, Balance)
Monument £62 3.6% July 2008, £2062.87
Overfraft N/A 1.6% £800+ at its limit keeps incurring £30+ charges
M&S £83.13 1.24% Aug 2007 £2342
Capital One £154.11 0% Dec 2005 £750 (0% negotiated)
RBS Loan £150 Unknown Unknown £21000
M&S Loan £150 Unknown Apr 2006 £1500

In regards to the RBS loan, that balance includes interest, but have asked her to get me more details on the % interest and expected completion date.

So....this all adds up to £598.

Her rent is £200 and living expenses are as follows:
Petrol £40
Car Ins £52
Mobile £20
Food/General Living: £350
Total: £662 and then add in her debt repayments of £600 and we have outgoings of £1262 which is £400 more than is coming in

I am helping her get a better deal on Car Insurance and am encouraging her to quit her mobile and replace it with a pay as you go and just use it for incoming calls / or to dial out in emergancies.

And have made her track everything she spends to control her spending. She's done brilliant this week. Including petrol she has only spent £30!

We are also going to sell the car and that will certainly help pay some of the debt, but my advice to her would be to pay her family back first (more than £1000)

And of course I am sure we can reach further agreements with creditors, and am sure in time she will be fine, but how long is this going to take?

This debt is ennourmous in comparision to her income, if we are to have a future together (live together, get married, etc), then her slate has to be clean

I just don't want to be in a situation where she attempts to pay this back for 1 or 2 years and then something happens, like lose her job, get sick etc), then she will by defintion be bankrupt! and if this debt is going to hang over her for 10 years, something is bound to go wrong at some point. And more importantly I don't want to be the one picking up the tab for it. Sorry if I sound harsh, but I have spent years scrimping and saving to get myself into a half decent financial position so i can retire early.

That's why, my view is she should bite the bullet, declares bankruptcy. Pay what she can to the creditors for the next 1 to 3 years and then call it quits.

Can anyone explain, in this situation why she couldn't apply for it? Would this case get thrown out?

Please let me know if you need anymore info!

Thanks all!

mountainofdebt

food/general living....what does this cover?

Unless there is some agreement to the contrary, I suspect the family wouldn't mind being paid back after the majority of the interest bearing debts have been paid back.

We also had trouble with my hubby's overdraft and we've managed to pay it back by literally stop using his account, making sure that a set sum each month is paid into the account and then paying an additional amount into the account equivalent to the month's interest charges.

(I appreciate that convential thinking is to pay off the highest debt first but I (personally) think that with the amount of debt your girl friend has, she could probably do with a physiological boost that paying off her overdraft would give her.)

Assuming that the monument monthly APR is 3.6% and this is not a typo, is there any chance of moving that debt to her M&S card for a lower APR?

Does your girlfriend actually need a car ...can she managed without one until at least a large part of the debt is paid off?

m4rtininm4nc

Appologies, just checking my figures again, I have double counted (theres a good start!...and I thought I was pretty good with finance! )
Her rent is £200 and living expenses are as follows:
Car Ins £52
Mobile £20
Food/General Living: £250 (This includes Petrol/Transport, Music Lesson, Food and bascially everything else that you need to live) - I believe I can help her cut this down.
Total: £522 and then add in her debt repayments of £600 and we have outgoings of £1120 which is £270 more than is coming in.

We've looked at the car option and will explore further.

Yes the monument is 3.6% per month, there are 2 interest charges (for some reason), basically its absolute robbery. She would have got a better deal with a loan shark. I have made a list and agree about paying off the card with the highest interest first, which we would be able to do if we sold her car for £4000 and should also be able to pay off her overdraft too.

But even if we do that, she still has a hugh amount of debt which is going to take years to pay back, and thats assuming everything is rosey and keeps her current income, which isn't certain by any means.

mountainofdebt

I've got to ask this.....what did the £21K loan go towards??? (Have only just realised that your girlfriend lives with her parents!)

I don't know if her parents know the full extent of the problem but if they don't I suggest that she is as honest with them as she has been with you.

Yes they will be shocked and no doubt there will be alot of shouting and tears (for the sort of reaction she can expect, see the bank of mum and dad - new series on thursday BBC 2 @ 8.30pm!) but to be honest it sounds as if your girlfriend needs all the help she can get.

If her parents are on board, perhaps they will be willing to forgo her rent payment which will reduce the shortfall by £200 ...what food does she buy ....if its lunch then packed lunches are the order of the day I'm afraid. As for the music lesson...I hate to say this but this really a luxury that your girlfriend simply can't afford. How much are these?

Any chance of her getting a bar job to reduce the shortfall even further?

Worse case situation would be that she has to wait until Dec. to reduce the shortfall by £150 when the Capital One card is paid off. As soon as it's paid off cancel the card.

With regards to the monument card, can she find out what the double charges are for ? What's her credit limit with M&S....if she can only get part of that debt away from monument she will be doing herself a really big favour. Also as she clears cards I would cancel them....write the letter yourself if you have to.

Also is any of her loan repayments incude PPI?

m4rtininm4nc

I've found it really hard to get to the bottom of. She tells me that the loan was used to pay off other credit cards and buy out her car from the HP agreement.

She isn't in to wasting money on expensive designer clothes, she isn't in to eating in expensive restaurants, she hardly drinks, doesn't take drugs, she's not into gadgets, she hasn't had any expensive holidays. It completely baffles me. She told me that the root of the problem was caused by her salary which was just £8000 at year for a number of years. But even so, it still doesn't add up to me. There must be other things, but I haven't a clue what.

Saying that I was also shocked as she said she never looked at interest rates and took up credit card deals that were offered in the post! I know its going off track but this situation demonstrates the need for finance education in school!

Maybe it really is just interest compoudning interest over the last 10 years?? Her mum is fully aware of the problem.

Yes, I agree that her mum could waive the rent, but she is already having to borrow from family to keep on top of the situation.

She has packed lunches and no doubt we can reduce her monthly spends, like taking out the music lessons etc. Thats why I have asked her to keep track daily of all her spending so we can analyse where the money is going. There is no doubt we can reduce her spends.

And the loan doesn't include PPI. She did have it on her credit cards, but I told her to cancel them, just to explain why, when we first had these discussions about finance, she only revealed the credit card debt to me and not the £21000 loan! - therefore I sat down with her and did her a budget and we worked out that we could have that £5000 credit + £800 overdraft cleared in under 2 years.

So I looked at everyway of reducing outgoings, I've never been a fan of PPI and I don't have it myself, mind you I do pay off my card everymonth. But my feeling was that as the debt was £6000, if anything did happen I would be able to sort it out for her. But after finding out about the £21000, it has changed things. There is no way I am willing or really able to sort this out for her.

Thats why I want her to have a clean slate. With my help, there is no way she will ever get into this mess again. I can see there are ways we could possibly get her in a situation where she can just about make repayments, but it is going to be a massive struggle and a long haul, we are talking years and years. I don't want to get married with this kind of debt, but without bankruptcy or an IVA, I don't see how we can pay this off in the next 5 years, and unfortunately that will be too late for me. It's an awful situation. I just need to know what we can do to make this end. From all the reading Bankruptcy is the thing that will bring this to a head and get the slate clean.

The dis-advantages seem to be that you can't get credit (or good credit) for 6 years including a mortgage. This doesn't matter has I have 2 properties already, with a plan to sell one off to fully pay off the other.

She can't be an MP, a company director etc, - this really won't affect her. She has no assets to speak of, it just seems the perfect option.

mountainofdebt

I really don't know the pros and cons of becoming bankrupt but I guess (and I stress this is only a guess) is that if she is meeting the monthly payments then she'll have a hard time in becoming bankrupt.

The thing is, is that she is having to borrow from the family yet she is paying the family rent...this really doesn't make sense. It's abit like borrowing from paul to pay paul back. Simply by not paying rent she could reduce her monthly deficit by £200.

She also has to stop using that current account. Incurring £30 charges will not help her ......things came to ahead in our household when hubby incurred £210 after going over his £3k (yes I kid you not!) overdraft 6 times in one month.

(When you say she is borrowing from the family, do they make up the shortfall?)

The other thing that springs to mind is she making minimum payments...I only ask as the M&S repayment seems high at about 3.5%. Personally I think she would be better off making the minimum repayment on the M&S card and throwing anything extra at the monument card ...is the Capital One repayment linked into the 0% deal...if not do the same with that card.

Has she anything she no longer uses and can sell on EBAY?

I really would recommend she watches the Bank of Mum and Dad....both of you may get some tips on how to sort the situaiton out.

pug_in_a_bed

What I did first when I found I was spirralling out of control was to get a basic bank account - ie no overdraft facility, no cheque book and a very basic card that is not accepted everywhere. This helped me budget and I mainly relied on cash - i had to be really careful and consider every transaction. It's got me really well trained now though! At the same time I tried paying off the pesky overdraft separately so it was absolutely treated like a debt to be paid, not a free gift from the bank!

A lot of people on the board have in their sig an indication of their debt at its highest and the debt free date. I am always thinking about this in terms of a psychological and inspirational boost - maybe you could consider this with your gf. She seems to be just about managing at the moment and if her family are, as suggested above, willing to waive rent for a while, this could make a difference.

I know it seems that she'll be in debt forever and ever if she does not go bankrupt; but please don't see it as an easy option - i'm sure you don't as you're very clued up, she's lucky to have someone so organised and it sounds like your support has been instrumental in facing the consquences of these debts.

I am bankrupt and it really does impact on your life in a big way. Yes, it was a huge relief to go through with it but obviously I wish I had had the opportunity to sort it out myself or, better yet, never got into that situation.

If she is managing at the moment and can make yet more decreases in spending to be put into her debts, then I really think maybe she should go along that road of trying to clear the debt. Its possible to live your life whilst doing so.

The receiver will look at the debts in the bankruptcy application and make a decision on the length of time for the order (for personal b'cy, normally a year but..) which can take into account whether they believe the individual has been wreckless in running up the debt. I have a friend who has been put on a 4 year order because he basically ran up wreckless debts through catalogies and higher purchase, getting more debt to cover what he'd spent, then spending more! Please don'tmisunderstand - i'm not saying she's been wreckless, just making a point about how itcan impact on your life and so on. My main point, i guess, is get all the facts absolutely straight before she absolutely decides to file.

Here's a tip: when I was researching mine, I wanted to speak to an insolvency practitioner : expensive normally but if you look one up in the yellow pages for persona b'cy and call up, often you can get a free consultation over the phone. I was very cheeky and called three: one was great, one was rubbish and one was ok. The CAB are absolutely cracking too. Don't do anything untill you have had your appointment in July.

Keep up the good work with helping out your GF, best of luck!

Lopo

Out of curiosity, how old are both you and your girlfriend if you are happy to reveal?

The reason I ask, it would help in seeing what stage your at in life, and further what are you both looking to do long term ?

The point I believe others are trying to make regarding paying rent are that she is technically borrowing money from them to then pay back to them as rent. Thats simply crazy. Where is the logic in that??

The best thing her parents can do is to stop charging rent on the promise she will pay them back later when she has found her feet and made the debts more manageable.

£200 a month towards the debts will make a serious impact.

I'm certain any normal parent would consider the welfare and state of mind of their child over the money worries that child would be going through.

I personally, would clear the overdraft asap to prevent further £30 charges taking place and respective interest charges. Then begin to ring up each credit card provider and start working on reducing those APR's via balance transfers etc...

Are you aware of her creditworthyness generally? Prospects on perhaps gaining a few 0% cards for example ?

Hope that helps.....Lopo