Debt Doctors Archive

1:i have missed the last 3 months mortgage payments and my lender is threatening repossesion. I owe them just over £100,000 and the house is worth nearly £250,000. I have spoken to several mortgage brokers and they say I can't get a new mortgage due to the arrears, any ideas?
Monday 5th January 2009

The major mortgage lenders have agreed to a new Mortgage Arrears Protocol that requires them to explore a number of options with you before pursuing court action, which includes re-possession of your property. Companies like Royal Bank of Scotland have also made a commitment to ensure that its customers have had the chance to seek advice from debt advisors like the Citizens Advice Bureau (CAB) before any repossession proceedings take place. If you are already 3 months in arrears on your mortgage then we would advise you to take urgent professional debt advice and for your chosen advisor to assist in looking at the options that can be explored with the lender. Understanding your household and personal circumstances is very important and maintaining a dialogue with the lender is equally important.

Your lender should discuss with you and your appointed advisor all the options available for dealing with their arrears problems, and negotiate repayment arrangements which are affordable to you. Your mortgage is a priority payment and it may be that you are paying non-priority payments ahead of your mortgage. In such circumstances it may be worth looking at a debt solution like a Debt Management Plan or an IVA alongside a repayment arrangement with your mortgage provider. This assumes that you have a sizeable amount of unsecured debt. You appear to have a sizeable amount of equity in the property and a re-financing solution may be viable in several years once you have cleared the mortgage arrears. Again, it is important to understand your circumstances, for example; if the reason that you are now unable to afford your mortgage payments is because of a reduction in household income then the options available are different from a situation where your debts have got out of control or your expenditure has risen to a level that you can no longer afford all of your fixed expenditure items.

Your lender should have put in place effective arrangements for borrowers like yourself or third parties acting on your behalf to contact them to discuss repayment of arrears. If you are in receipt of or qualify for Income Support for Mortgage Interest (ISMI) then it was announced that the changes to ISMI will be brought forward to January 2009. You can claim ISMI if you claim Income Support, Pension Credit or income-based Jobseeker's Allowance if you are facing problems paying the interest payments on your mortgage.

At the moment ISMI is paid after 39 weeks of unemployment and only on mortgages up to the value of £100,000. The changes to ISMI are good news as the waiting time has been reduced to 13 weeks and the value of the mortgage has been extended to £175,000, bringing help faster to more people. ISMI only helps with the interest. Where borrowers are in receipt of ISMI, lenders have been advised not to take court action before the account is at least six months in arrears.

There are a number of schemes being introduced in 2009 to protect homeowners from having their homes re-possessed, especially where there are mitigating circumstances like young children and people with special needs.

An alternative may be to look for specialist financial advice that can assist in unlocking the equity in your property to enable you to clear any arrears. This may include sale and rent back with the option of re-purchase where your circumstances may change in the foreseeable future.

The key is to take professional debt advice quickly and to review your entire household income & expenditure both now and the foreseeable future.”

2:I have £60k of credit cards and cannot afford to pay now and the interest on some are over 24%. I have called the biggest one (£20k balance) and they will not negotiate a lower rate and have in fact increased the rate to 27%. Can youhelp with this?
Thursday 6th November 2008

We have seen a number of leading card issuers (e.g. MBNA) significantly raise their monthly rates on new and existing balances with the effect that minimum monthly payments can rise significantly and in some instances only cover the accrued interest. It is not unusual to incur a penalty fee because your direct debit is drawn as normal, but hasn't taken account of the increased interest. The card issuer should refund the £12 fee in these circumstances. You have done what most lenders would recommend that you do and contact them if your are experiencing payment difficulties. With the new Treating Customers Fairly (TCF)requirements coming in as part of the Banking Code, we are seeing some lenders looking to move large balances to a new account with much lower interest rates to allow you start paying off some of the balance, but with a very small credit limit left on the main account. In your instance, this could mean moving £19,000 into another account and your original card account limit being reduced to £1,000. It appears that the card issuer you are referring to is not one of these.

If you feel that you no longer able to meet contractual payments on a regular basis and that you are now going backwards then you need to look at alternative options. Without knowing your personal circumstances, it is difficult to know whether a re-financing option is viable or in your best interests. Converting unsecured debt into secured debt is not always best advice, you may have already explored this option with a regulated financial advisor. If you are not a home owner then re-financing may not be an option.

If you are committed to deal with your debts then sitting down with a professional debt advisor is the logical next step. They will complete a full assessment of your income & expenditure and determine which options are viable and, taking account of your personal preference, agreeing what is in your best interest. These options may include a Debt Management Plan, an IVA (Individual Voluntary Arrangement) or Bankruptcy. From experience, very few people look to petition for their own bankruptcy. In the case of both a Debt Management Plan and an IVA, the advisor will determine what you can reasonably afford and this will form the basis of the proposal to your creditors. It is very important to recognise that once a professional debt advisor gets involved in the negotiations that the credit cards you have cannot be used for further purchases. So it is a moment of truth.

As a rule of thumb, if you are paying between 3%-4% of the debt balance on your credit cards every month (i.e. £1,800-£2,400 in your case) and you can only afford 1% of the debt balance (i.e. £600 per month) then this will be accepted as a reasonable offer subject to your circumstances and the figures from your statement-of-affairs. The difference between the contractual payments and the negotiated amount with interest & charges frozen may be significant (e.g. £1,200) and allow you to afford to meet all your priority payments (e.g. mortgage, rent, secured loans, council tax, utilities). Ironically, if your debts are mainly card debt and you pay back at £600 per month then you are likely to be debt free in 8 years. Having plugged £20,000 at 27% APR into the MoneyExpert calculator, you would have to repay £1,409.90 a month to be debt free in 8 years. So you are looking at roughly £200 a month on a Debt Management Plan for 8 years to clear your largest card balance of £20,000.

A Debt Management Plan (DMP) will take account of your changes in circumstances (i.e. if you can afford to pay) and potentially accelerate the rate at which you become debt free. On both an IVA and a DMP you will find it very difficult to obtain new credit for the duration of the plans, though you will probably find this is the case now with your balances at maximum level. Both debt solutions require real commitment, but you get the satisfaction of knowing that you have tackled your debts, stopped recovery action and you know that your debt balance is gradually reducing over time.

If this sounds of interest then complete the contact form and someone will contact you promptly.

3:i bought my only house last year when the market was on a hill.but after a year i am just helpless with my payments,ihad a loss in bussuness as well.i owe about 30000 from banks,i dont know what to do?any help
Wednesday 22nd October 2008

Without knowing your specific circumstances, my initial advice would be to take professional advice. Protecting your home and meeting priority creditor payments (e.g. Mortgage, council tax, utilities, critical insurances) is critical. Nobody wants to put their new home at risk even if the value is falling and you may potentially be in a negative equity situation.

We can send you a budget form to look at your income & expenditure, this will determine whether the loss of income has reached a point that you cannot afford to meet all your contractual payment or worse, that the position you are already using other forms of credit to cover your monthly expenditure (i.e. robbing Peter to pay Paul). You are obviously concerned with the situation and this can create situations where you start paying the wrong companies first if there is a deficit at certain times in your monthly cashflow. There is a contact us facility on DMT and this will be treated in confidence.

Your broker or mortgage provider may be able to look at some options to provide some short term relief (e.g. interest only payments on your mortgage), but if you have only be in the property for less than 2 years then a mortgage honeymoon may not be an option.

£30,000 of unsecured debt is not unusual for a home owner and this is the aspect that a debt advisor would look at to determine whether this can be re-scheduled to reduce the monthly payments and re-balance the cashflow equation so that you can afford to pay your priority creditors and have sufficient for a reasonable quality of life. One of the benefits of using an established and licensed debt manager is that the negotiations with your creditors (and I assuming there are a number) are on a business-to-business level where they are talking to exactly the right contact in these massive lending organizations. If the debt advisor has done a thorough independent assessment of your statement-of-affairs then your creditors will generally accept the offers proposed and agree to freeze interest & charges, so that you are not going backwards – though you may extend the rate at which you may pay back any money you have borrowed. If you are making only minimum payments to credit cards then this may only be marginally slower, as you are probably only servicing the interest on the debt.

If you would like a no obligation and confidential discussion regarding your situation then call Jamie Davies at EuroDebt Financial Services on 0845 36 25 303 and he will be able to provide some initial assistance. From this point you will also need to look at whether you want to use a professional advisor that charges a fee or use a charity. If it is relevant then Jamie can arrange for a Debt Advisor to meet you face-to-face to discuss your individual circumstances and potential debt solutions. Again, this is without obligation and you always have the option of a 14 day cooling off period. Whatever else, having made the decision to deal with your personal finances do not allow time to lapse unnecessarily, as this will generally only make the situation worse. Good luck.

4:Am I right in believing that I may need to be licensed by the Ministry of Justice if I make in excess of 25 referrals per quarter even if I am only referring these cases through a Master Agent on behalf of a licensed Claims Management company? If so, what are the implications of this?
Saturday 11th October 2008

If you are a broker that is looking to introduce business to a Claims Management Company (CMC) then, DMT’s understanding is, you do not need a claims management licence provided that:

you do not advertise this as part of your service; and

you do not refer more than 25 cases a quarter to a CMC - more than this and you would fail the incidental business test

If you fail the above criteria then you probably need to apply for a licence from the Ministry of Justice (MoJ) and review your PII cover. There is also a code of conduct that needs to be followed at http://www.claimsregulation.gov.uk/conduct.aspx. You will note the “MINISTRY OF JUSTICE AND OFT WARN CONSUMERS ABOUT RISKS OF BEING MISLED OVER THE ENFORCEABILITY OF CONSUMER CREDIT AGREEMENTS” warning on the MoJ home page (http://www.claimsregulation.gov.uk).

If you are promoting these services then there are Guidance Notes to be followed “Marketing and Advertising Claims Management Services - Guidance Note 2007”, which can be downloaded from the site.

A question we have been asked is whether offer this service can be seen to be in the client’s best interests and form part of your TCF requirements. Further to one of the recent Debt Doctor questions on this subject and given the MoJ/OFT joint warning, there is little evidence to support this point of view as a viable Debt Solution.

If you are referring through a Master Agent then it is more likely that they will require to be licensed. It is worth looking at the Authorised Business Search facility on the website and viewing the number of companies that have been suspended since April 2008. Our recommendation would be to undertake thorough due diligence before joining any scheme or parting with any enrollment fees.

5:Is there a minimum amount that a person can become bankrupt for?
Tuesday 7th October 2008

Creditors may file a Bankruptcy petition if they are owed more than £750. This is not a popular option for lenders as the dividend paid out is very low, often less than ten pence in the pound. It is more commonly used by local authorities and government agencies, who are less commercially minded. A person can elect to petition for their own Bankruptcy, which should only be considered if you are genuinely insolvent, taking account of all your assets and liabilities. Anyone who goes bankrupt may have to pay the following:

· The Court Fee of £150

· The Official Receiver's Deposit of £335

· The fee of £7 to swear the statement of affairs

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