Law works Training Programme DEBT. Speaker Ahmad Butt November 2006

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1 Law works Training Programme DEBT Speaker Ahmad Butt November 2006

2 Unlimited credit is living on borrowed time Sunday November 5, 2006 The Observer Britons owe around 1.2 trillion. Some of that is mortgages, but much is unsecured borrowing - credit cards, one-off loans, overdrafts. To meet this demand a new breed of specialist debt management firms, also enjoying scarce regulation, have sprung into being. They offer short-term relief from repayments but at long-term cost in high interest rates. Alternatively they broker Individual Voluntary Agreements (IVAs) on insolvency, under which debt is partially written off in exchange for administration fees and a permanently blotted credit record. In the last quarter 27,644 people went bankrupt or declared insolvency. The figure for the year is expected to be over 100,000. IVAs have jumped from 5,000 in 2002 to an estimated 40,000 this year.

3 Londoners are now the deepest in debt in UK EVENING STANDARD (LONDON), May 2, 2006 by JANE PADGHAM LONDON was today revealed as the debt capital of Britain, as a new report showed both secured and unsecured borrowing are much higher than across the rest of the country. While 23% of Britons owe more than Pounds 100,000 on their homes, the figure rises to 30% in London due to the capital's sky-high house prices. Londoners are also more likely to rack up huge unsecured debt through borrowing on credit cards, personal loans and overdrafts. Some 19% of Londoners have unsecured debts of more than Pounds 30,000 compared to a national average of 14%.

4 Over-indebtedness Monitoring Paper Q (URN 06/401b) As part of the strategy outlined in Tackling Overindebtedness: Action Plan , the DTI committed to monitoring over-indebtedness in the UK. This paper aims to provide a high level balanced summary of the evidence on the level of over-indebtedness. Information is drawn primarily from publicly available sources, although where appropriate we also refer to specific research. This paper covers information on the situation up to June The paper will be updated on a 6 monthly basis in future to

5 Seminar Contents 1 Types of Debts 2 Negotiating with creditors. 3 Assignments. 4 Bankruptcy. 5 IVA - basic overview.

6 Types of debts - consequences Priority Non -Priority

7 Priority Imprisonment Inland Revenue, Council Tax, VAT Culpable neglect or wilful refusal cases- Disconnection Utilities Eviction Rent Mortgage

8 Non priority Most debtors will seek assistance with these non-priority debts Mostly CCA 1974 regulated Take instructions on whether to dispute or to make offers? Where making offers use MAT booklet as self help guide.

9 Negotiating with creditors Financial Statement Standard letters MAT/Nat Debtline budget sheet BBA Statement FS_Budget_Form_0405.pdf Trigger figures:

10 Where disputing Whole or part of the debt CCA regulations Accounting Consider referral to an agency.

11 Assignments. The basics Novation is a way to transfer all obligations under a contract and all its benefits arising from that contract to another party. When a contract is novated the other contracting party must be left in the same position prior to the novation being made. An assignment is a transfer, in law, of a right or obligation of one person to another. Assignment differs from novation is as much, that the parties to the contract do not change but note, that a novation requires the agreement of all parties involved.

12 Assignment in CCA CCA 1974 Jurisdiction s.141 actions are commenced only in the County Court and by Creditor or Owner. S.189 definition of Creditor - rights and responsibilities have passed.

13 Bankruptcy - Debtors petition The aim on this topic is to set out and explain the parameters of the advice that is necessary for clients contemplating petitioning for their own bankruptcy.

14 Where to start? High Court/ District Registry DIY - i.e. Debtors Petition or Creditors Petition

15 The Cost of a Debtors Petition Debtors Petition Check with your local court, currently; 310 deposit 140 court fee 5 affidavit 2 exhibit

16 Creditors Petition 370 Deposit 180 Fee various sundry additional costs legal advertising etc Total say 1000.

17 What is provable in bankruptcy? Any debt/s due or debt obliged to pay before commencement Credit Cards Loans [unsecured] Overdrafts Unregulated debts Personal / informal debts Utilities etc

18 Provable debts What s not Negligence PI Fines - criminal Fraud State benefits Student Loans Three times more students wrote off student loans by declaring themselves bankrupt in 2003 than in BBC News 24 Secured debts

19 Effect on your home Tenant Renting short lease May effect if unsuitable over sized Arrears of rent - usually allowed Check Tenancy

20 Property Home owner Owner occupier Big risk!! Enterprise Act 3yr limit for Trustee to take some action Sell, Children? apply for order for sale apply for charge What if debtor is in negative equity?

21 What other steps can be taken? Wages Income payment orders/agreements

22 Effects of personal Bankruptcy Bank Account Utilities Limit of Credit 500 Employment OFT -DTI license to trade discharge 12mths unless earlier bankruptcy or culpable Advertising Fees htm

23 Restriction Orders 2 to 15 years dishonest conduct prior to bankruptcy breach - criminal offence Income payment orders up to 3 yrs

24 Unfit conduct Keeping accounts 2 yrs Trading in deficit disposal of assets preferential treatment non co-operation concealment

25 Statement of affairs Affidavit details financial information schedule of creditors

26 Summary of steps Pay fee seek exemption pay deposit sign petition file petition wait for Registrar to approve leave with order and appointment date with OR. review the statement of account seeking to identify cause and if appropriate culpability important to dress and behave with common sense

27 IVA ory/0,, ,00.html 6b2b-11db-bb4a e2340.html

28 IVA - basic overview The Enterprise Act received Royal Assent on 7 November Insolvency aspects start - 1 st April nkruptcysearch.htm Before the EA 2002 IVA s undertaken solely by Insolvency Practitioners Since 1 st April 2004 Official Receiver FTVA

29 IVA Formal restructure of debts Requires courts approval Total of debts is reduced to the new agreed figure. Creditors can only ever seek the new balance in the event of a default. IP can petition for failure to comply Usual length was five years Cost high start up 2-3k & 2k p/yr nominee fees

30 FTVA Cost low Official receiver = civil servant Post bankruptcy take up = annulment. Lump sum payment can end bankruptcy in one go. Evaluation due to be completed 1 st March interim report : Inconclusive Anecdotal evidence is good -

31 Question time? Solicitors Pro Bono Group - Law works Training Programme

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