Factsheet. How to manage your debts - A self help pack. e y. i c e. Make Every Count

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1 M on Factsheet e y 5 A dv i c e How to manage your debts - U ni A self help pack Make Every Count t The information and benefit rates in this leaflet are correct at April

2 HOW TO MANAGE YOUR DEBTS A SELF HELP PACK Contents: Are You Liable For The Debt? Look At Your Income Spending Priorities Repaying Priority Items Repossession Unsecured Debts Legal Letters County Court Action And Judgments The Magistrates Court In The Long Term Further Help DIY Financial Statement Putting Together A Financial Statement This is a brief guide and it cannot state the full details of the law. Further details on specific items are available from your local Citizen s Advice Bureau (CAB) or Advice Centre. If in doubt seek help. Are you liable for the debt? Always check that you owe the money before agreeing to make repayments. Many people are asked to pay back money they may not be liable to repay. Generally speaking you are not liable for your partner s, or anyone else s debts, unless you signed an agreement or acted as guarantor. The two main exceptions to this are council tax and water charges. Did you sign an agreement? Most people will have to sign an agreement in order to get money or goods on credit. If you signed the agreement alone, you have sole liability you and nobody else owe the debt. If you signed along with someone else you have joint and several liability. This means you will each be regarded as owing the full sum. Just because you live with someone, are married to them, have a civil partnership with them, or you just have the same address, does not mean you are liable for their debts. However Page 2 of 22 Issue 7

3 you can be jointly liable for council tax and water charges with your partner if you live with them (or lived with them when the debt was incurred). If you have signed as a guarantor for someone, you have accepted liability for the debt in the event that the other person does not pay. If someone signs an agreement in your name and without your agreement you may not be liable, and they may be guilty of fraud. You will need legal advice. If you have been forced to sign an agreement against your will, e.g. by a partner, or you have been misled, you may not be liable for the debt. Seek legal advice. Look at your income Resolving debt problems should always begin with looking at ways of increasing your income. Benefits and tax credits Are you claiming the correct benefits and at the correct amount? Many people do not claim benefits to which they are entitled. Remember there are different types of benefits. Some are based upon national insurance contributions, some are based on your income and capital, and others are based upon your personal care and mobility needs. It is always worth getting your benefits checked by an adviser to make sure the claim is correct and that you are receiving everything to which you are entitled. Some people miss out on benefits because they wrongly assume they cannot claim anything when they are working. Tax credits and some benefits can be paid even if you are working. Help with benefits can be obtained from your local Citizens Advice Bureau or independent advice centre. See also If you are repaying a social fund loan from your benefit and finding it difficult to manage on the benefit you are left with, you can ask jobcentre plus to reduce the rate of the deductions. Tax Codes Always check that your tax code is correct for your circumstances you can obtain further information from your local CAB or office of Her Majesty s Revenue and Customs (HMRC). The current rate of income tax allowances can be found at Page 3 of 22 Issue 7

4 Sorting out priority and non-priority debts It is important to divide your debts into priority and non-priority debts. Many people get into difficulty because they pay the wrong creditors first. Priority debts are debts that could result in you losing your home or an essential supply, if they are not paid. Below is a list of debts that are usually regarded as a priority and the reason for this. Priority Item Reason for Priority Rent or Mortgage and secured loans Lender/ landlord can repossess the home Council Tax Councils can use bailiffs, attach benefit or wages and apply for committal to prison Electricity and Gas Supplier may obtain permission to disconnect supply Magistrates Court Fines Bailiffs can be sent to collect unpaid fines, refusal to pay can result in imprisonment Maintenance arrears/csa Bailiffs or deduction from earnings, or committal to prison HP/conditional sale, rented and hired Goods may be repossessed goods Business Rent Repossession of premises Business Rates Bailiffs, committal to prison Income Tax/VAT Bailiffs, committal to prison (for evading payment) TV Licence Fine of up to 1000 Other items to consider Water charges water companies may no longer disconnect supplies to enforce payment, but payment of water bills must still be regarded as an essential. If your water rates are included with your rent then your landlord may try to evict you because you have arrears of water rates. County court orders - if you have been ordered to pay a debt via a county court order, the court should take into account your ability to pay a debt. If you cannot afford to pay, see the section on county court judgments for how to deal with this. Insurance (especially of your car and home) car insurance has to be paid by law, but insuring your home can be overlooked as an essential item; if you are uninsured, you could lose everything through fire or theft. Page 4 of 22 Issue 7

5 Always remember to check if you have any insurance policies (payment protection policies) that will help you to pay your mortgage or other form of borrowing in the event of illness, disability, redundancy etc. Repaying priority items If you are in arrears with priority creditors and you cannot clear them by large payments, one of the first things to do is to set a repayment based upon current repayment, plus a sum for arrears. Rent and Mortgage The current weekly or monthly sum must be paid regularly, and you need to add a sum to clear the arrears by instalments. The amount that you need to pay will vary according to different factors (including how much the arrears are, what other priorities need to be met and how much you can pay without missing those priorities). The key is regular payment. This will gradually reduce the debt and will also show that you are committed to clearing the arrears. If you are a tenant on income support, income-based jobseeker s allowance or incomerelated ESA it may be possible for the landlord to obtain payment of arrears at a fixed rate direct from your benefit. At present this is 3.25 weekly. Council Tax This is due at the start of the financial year. Your council will normally allow you to pay by instalments providing you clear the bill by the end of the financial year. If you fall into arrears you may lose the right to pay by instalments. If you have arrears from previous years, you should also offer an additional payment to clear these. If you cannot pay as above, you may need further advice. If you are in receipt of income support, income-based jobseeker s allowance or incomerelated ESA the local authority may apply for payment of arrears at a fixed rate direct from your benefit. At present this is 3.25 weekly, Gas and Electricity The fuel supplier may set a rate of weekly or monthly repayments to cover current consumption and arrears, or may insist upon the installation of a pre-payment meter to do the same job. If you are on income support,,income-based jobseeker s allowance or income-related ESA payments of current fuel usage plus a fixed sum for arrears may be taken direct from your benefit. At present the sum for arrears is set at 3.25 for each debt. Page 5 of 22 Issue 7

6 If disconnection of your fuel supply is threatened, contact the supplier at once and discuss sensible repayments; if you cannot reach an agreement, seek further help. Magistrates Court Fines If you cannot afford the payment of a fine, you must contact the court with details of your income and expenditure and a new repayment offer. You may be required to attend a hearing so that the court can hear details of your financial situation and set a new rate of payment (see later). The court can deduct money direct from income support, income based jobseeker s allowance or income-related ESA (usually 5.00 per week or 3.25 in some cases). Maintenance Arrears/Child Support Agency (CSA) Current payments should be met, plus an offer to repay arrears by instalments. If the maintenance is payable via a court, that court s enforcement procedures will apply. The CSA are usually willing to negotiate repayments of arrears but will require payment of the current maintenance assessment. A flat rate for maintenance arrears can be deducted from benefits if this applies to you, seek advice. Hire Purchase/Conditional Sale To keep possession of goods on HP or conditional sale, you must usually offer the current payment plus a payment towards the arrears that will clear them within the lifetime of the agreement. If this is not possible, you will need further advice. You must NOT sell an item on HP or conditional sale in order to clear debts unless you have the specific permission of the lender to do so without permission is theft! Repossession Mortgage and Rent If arrears of rent or mortgage have grown too high the lender or landlord may apply to the county court to gain repossession of the property. You will receive papers from the court giving details of the claim, and a date and time for a hearing at the county court. It is always advisable to attend court. You may take a representative if you wish, and your local CAB or advice centre may be able to help you. The court hearing is your last chance to make an offer of payment to clear the arrears. The district judge of the county court will listen to both you and the creditor, and s/he will make a decision based upon the facts and the law. Page 6 of 22 Issue 7

7 The court will always offer you a chance to resolve the problem, even if the lender/landlord has not previously accepted your offer. If your offer is accepted, possession will probably be awarded, but postponed so that the arrears may be repaid as agreed. This means that you will not lose your home providing you pay as agreed. If your offer of repayment is insufficient, possession of the property can be ordered and eviction could take place at a later date. If you remain in your home after the date set for eviction your creditor will have to go back to court to get a warrant to evict you. Items on Hire Purchase or Conditional Sale If under one third of the balance has been paid, the goods can be repossessed without a court hearing. In other cases, the creditor must seek a return of goods order from the county court. As above, you will have a chance to attend court in order to make an offer of repayment and to have the repossession postponed. Non-priority debts If you have a creditor who is not one of those listed above, they are an unsecured or nonpriority creditor. This means that although you owe them money, they have no security against your home or your goods, and you cannot be imprisoned or have your services disconnected for not paying them. Unsecured creditors include: Personal Loans Credit Cards Store Cards Charge Cards Catalogues/Mail Order Bank loans and overdrafts Buy Now Pay Later Unsecured creditors include lenders who collect money on the doorstep! No creditor likes to be offered less than was originally agreed, but they will usually negotiate if you are acting in good faith and are genuinely unable to pay. The method of making an offer of repayment is covered later - the principle is that every unsecured creditor should receive a proportionate offer of your spare income. To decide what your spare income is you need to set down your income and expenditure in a financial statement. Page 7 of 22 Issue 7

8 Putting together a financial statement Putting your income and spending in to writing may sound frightening, but it will help to get the problem in perspective. At the end of this pack is a DIY Financial Statement, which will assist. Everybody s financial situation is different so you will need to adapt the financial statement to your own situation. However the priorities mentioned above apply to most of us and should be listed carefully. Try to set down your figures so that they are all weekly/fortnightly/monthly (whichever suits you best), even if you pay your bills at different times. This will help you to establish what needs to be set aside for each bill. You should consider the following points: realistic spending You may have to consider if some of your expenditure could be cut down, but do NOT put unrealistically low figures, especially for housekeeping. Remember too, that your fuel bills may be cheaper in the summer than the winter. You need to put together an affordable and sustainable budget in order to avoid your financial problems just carrying on. housekeeping, clothing and shoes Many people try to cut back on housekeeping in order to pay other debts. It is important to have a realistic budget for housekeeping. Similarly, a realistic figure must be included for clothing and shoes even if nothing much is spent on these items on a weekly basis. Eventually these items will need replacing and the money should be budgeted for. house upkeep and emergency costs It is impossible to budget accurately for costs that you may or may not have in future, but if possible try to set something aside for repairs to your home and for emergency costs, and list these on the financial statement. family and personal costs Think about the cost of entertainment, tobacco, alcohol, children s pocket money etc. Any provision must be sensible and reasonable. payments to unsecured creditors Do not list these in the essential expenditure section, list the creditor s name and the sum owing in the creditors section. How to work out what should be paid to them will be dealt with later. disability needs - Benefits such as disability living allowance and attendance allowance are intended to cover the care and mobility needs of a disabled person. While they could be listed in order to show the person s situation, they should then be cancelled out by the same sum being listed as disability needs creditors should not regard them as available income. spare income - Take your total expenditure away from your income and you have your spare income. Page 8 of 22 Issue 7

9 pro-rata offer - An offer of repayment needs to be made that treats all creditors in an equitable manner, i.e. they receive payments that are in proportion to what they are owed. This is called a pro-rata offer. The formula for this is quite straightforward. You need to have the figure for your spare income, each individual debt listed, and the total amount of all non priority debts. Pro-rata calculation surplus income X individual debt total debt Example pro-rata calculation There is 30 per calendar month available for distribution among creditors. The sum owed to each creditor is: creditor A creditor B creditor C 1, total 2, creditor A X = creditor B X = 4.71 creditor C X = You can confirm that the calculation is correct by adding up the offers made to the creditors. They should always add up to the total of the surplus income offered, in this case, 30. If you have no spare income (for instance if you are on income support) it is wise to make a token offer, which will show that you are willing but unable to make the required payment. You can use the same process as above, but substitute a figure of perhaps 5.00 per month for the spare income. The outcome may look a bit strange, but it is a good illustration of the situation and shows that you are willing but unable to pay. Page 9 of 22 Issue 7

10 Freezing interest and charges When contacting the creditor to offer a reduced repayment, it is essential that you ask the creditor to freeze interest and additional charges on the account. Freezing interest will mean that your reduced payment pays something off the sum owing and the overall debt does not get any bigger. Your creditors may question items of your spending, and they may even demand a higher payment than you have offered. Their demands may not always be reasonable, and this requires some thought and some negotiation. If it is possible to make some form of payment, even token payments, whilst negotiating, this may create some goodwill. If you are sure that you have set the details out correctly and offered a pro-rata repayment, it is best to stick to your offer as the repayment plan treats everyone fairly. If one creditor gets better treatment than others the entire plan can fall apart as everyone will want bigger payments. If your creditors will still not accept the repayment plan, seek further help. Enforcement action One of the most worrying things about financial problems is getting demands for repayment through the post. Creditors are entitled to make reasonable demands for repayment. There are a number of steps that they are obliged to take by law before they can attempt to recover money. However many of the letters that are sent out are poorly worded and threaten legal action and further steps that may not be applicable. Some letters will say they are pre-legal or pre-court but they are NOT legal documents. They are simply stating the creditor s intention (which is not always acted upon) to take action if full payment, or a reasonable offer, is not made. A default notice is a genuine pre-legal document which most creditors must issue before they can take any steps to recover the debt in the county court. It is important to note that at this stage it is still possible to make an offer of payment, as shown above. The default notice also contains a paragraph that advises you to seek help from a Citizen s Advice Bureau or law centre. Debt Collectors Many creditors appoint debt collectors to recover money owing to them. Even if a debt is being collected by a debt collector they are still only entitled to ask you for reasonable repayments which should take into account your ability to pay. Page 10 of 22 Issue 7

11 Debt collectors can be negotiated with in exactly the same way as set out above. They have NO legal powers to enter your home, or take goods. They do not have the rights of bailiffs and cannot use bailiffs without a court order. Complaints about creditors and harassment Creditors letters, telephone calls and visits can sometimes create a strain upon a person in debt and there may be occasions where these can become intrusive. If you are taking responsible steps to deal with your debts and you are still getting letters and calls, you may wish to make a complaint about the creditor or collector. If this is happening to you, take the following actions: write to the creditor, explaining the steps you are taking to resolve your debt problem if you feel you are getting too many letters or calls, ask the creditor to send only essential communications in writing if the problem carries on, keep any letters and keep a log of calls, including the date, time, who the call was from and what was said there is a big difference between creditors just being persistent and them actually being guilty of harassment, which is a criminal offence. If you want to make a complaint or you feel that you are being harassed, get advice at once The Office of Fair Trading has issued guidelines showing how debt collectors should and should not behave. These can be seen on or your local CAB or advice centre will be able to advise you on the guidelines. Loan Sharks - All credit lenders must be legally licensed; a lender who is not, and who ignores the rest of the rules, is often referred to as a loan shark. No matter how bad your debts seem, never borrow from an unlicensed lender, they may demand extortionate payments, randomly increase the debt and enforce payment by illegal means, including threats and violence. It will be impossible to negotiate with a loan shark - seek help if you are being harassed. County Court The county court is a civil court and most large towns have a local court. A large number of debt actions are dealt with by the county court, and all matters under the Consumer Credit Act 1974 (which covers much of the unsecured credit discussed above) must be heard by the county court. If a creditor does not accept your offer of payment (or you have not made one) they are entitled to issue a claim form (formerly known as a summons ) via the county court. Page 11 of 22 Issue 7

12 This will outline the sum they are claiming from you, the reasons for their claim and their court costs. The papers will also include an acknowledgement of service, an admission form and a form on which you may enter any defence or counterclaim you may wish to make against the creditor. If you wish to enter a defence or counterclaim, seek advice. If you admit the debt, you must return the admission form, which is in essence a financial statement form, on which you may make an offer of repayment. You have 14 days to return this form or judgment may be entered against you. You may also incur extra costs if you have to make another application to the court. If you return the acknowledgement of service form this allows 28 days, but only to send in a defence or counterclaim, or to dispute the court s jurisdiction. The admission form is sent back to the creditor (not to the court) and the court will make a judgment and set a rate of payment if an agreement cannot be reached. Most debt matters of this sort are dealt with on paper by court staff and NOT at a court hearing. You will not have a criminal record from being taken to the county court. County court judgments Once a judgment has been made, a copy will be sent to you showing the details of the claim, the costs and the total sum owing. It will also state the rate at which you must repay the money. If you are unable to pay at this rate, you may request a reconsideration of the order if there has been no hearing. You apply (by letter or by using court form N244) within 14 days. There is NO cost for this. Otherwise, you can apply to the court on form N245 to request that the payment instalment be reduced. A fee is payable for this, unless you qualify for help with court fees see below. For more details on how to reply to court proceedings, see the court service leaflets available from your local county court. Enforcement of county court judgments If you fail to pay as ordered the creditor might seek to enforce payment by one of various methods. See below for information about court bailiffs. Attachment of Earnings - money taken directly from wages Third Party Debt Orders (previously known as Garnishee) - e.g. seizure of savings or capital in bank accounts. Page 12 of 22 Issue 7

13 Charging Order - secures a sum owed against an owner-occupied property and thus turns a non-priority debt into a priority debt. The creditor may also request you to attend court to give evidence on oath about your income, expenditure and assets. This is called an order to obtain information from judgment debtors (or information order). It was previously known as oral examination. You are allowed a chance to respond to each of these actions and to ask the court not to impose the enforcement measures. If you fail to respond to the court papers, further action may be taken against you. In certain cases, failure to respond to court documents may result in you being held in contempt of court, for which you can be imprisoned, although this is rare. Never ignore the courts, always respond to court papers and seek advice if you are worried. The High Court The High Court is a part of the Supreme Court. It is based in London and has District Registries in larger towns. This can make this court less accessible than the county court. Debts of over 15,000, and some county court judgments may be commenced or enforced via the High Court. The procedures involved in issuing claims and enforcing judgments in the high court are now similar to those in the county court. Bailiffs (properly known as enforcement agents ) All creditors except for Her Majesty s Revenue and Customs (HMRC) must obtain a court order before using bailiffs. Debt collectors, counsellors or advisers are not bailiffs and have no legal powers Local authorities must send you a letter giving 14 days notice of a proposed bailiff visit to collect council tax/poll tax. County court bailiffs must issue a warning notice allowing 7 days for you to pay A bailiff must be legally authorised to collect the debt the authority is usually known as a warrant ( warrant of execution if they are county court bailiffs) You can ask the bailiff to show identification or authorisation if they call at your door You usually do not have to let the bailiff in but from 18th July 2005, enforcement agents acting for the magistrates court may enter and search any premises for the purpose of pursuing unpaid criminal fines - providing this action is reasonably required. The new rule adds that an authorised officer may use reasonable force if necessary. A bailiff s visit will add fees to your debt Bailiffs may NOT usually break in to your home unless they have already been let in peaceably. In very rare cases HMRC may obtain permission to break in. A bailiff may Page 13 of 22 Issue 7

14 gain entry by walking through an unlocked door or open window, so long as they do so peaceably. Bailiffs may legally seize goods to be sold if they have followed the correct procedure. Bailiffs (except bailiffs acting on behalf of the magistrate's court - see below) cannot seize the following goods. tools, goods, vehicles and other items of equipment necessary for use by you in your employment, business or vocation clothing, bedding, furniture, household equipment and provisions as are necessary for satisfying the basic domestic needs of you and your family Bailiffs acting on behalf of the magistrates' court cannot seize the following goods: clothing, beds and bedding tools of the trade Basic domestic needs of the family would normally include fridge, cookers, freezers, but may not include video recorders, second TV's, jewellery, washing machines, stereos or microwave cookers. If you fail to pay a county court order, the creditor can request that county court bailiffs visit your home to seize goods. It is possible to apply to the court to have this action suspended If you owe council tax, your local council may obtain permission from the magistrates court to use bailiffs to seize goods The magistrates court itself uses bailiffs to collect unpaid fines (on a distress warrant ) Bailiffs may also be used to collect unpaid maintenance/csa payments Some landlords can use bailiffs to collect rent arrears however this may be abolished This area of law is very complicated. Our website has further details, including how to complain about bailiffs. There is a set of National Standards for Enforcement Agents (NSEA) which set out bailiffs conduct, including when they can visit; this is a voluntary code you can get copies from the bailiffs or from creditors or Page 14 of 22 Issue 7

15 Administration Orders If you have at least one county court judgment and unsecured debts of under 5,000, it may be possible to place all these debts on to one court order called an administration order. This can assist in controlling debts and simplifying repayments as a single payment can be made to the county court every week/month. This payment is set by court staff according to your ability to pay. You can apply on form N92 (with guidance notes, N270) available from your local county court or online at Form N92 asks for some basic personal details, a full list of creditors, addresses, account numbers and how much you owe. You will also have to list weekly income and outgoings List all credit debts, such as credit and store cards, personal loans, bank loans and catalogue debts. You should also list arrears of rent, mortgage, fuel, council tax, magistrates court fines and child maintenance on the application form Courts can exclude certain debts. These are more likely to be those which can be enforced in another way, e.g. by evicting you or cutting off your fuel supply. If you have already agreed to repay these creditors, it is likely they will be left off the administration order and you will have to continue to pay them separately. Even so, you must still list them on the application form Monthly payments will generally be set to clear your debt within three years If you cannot pay within this time, the court can let you pay a percentage of your overall debts. This is called a composition order. For example, if you owe 3,500, you would need to pay nearly 100 per month to pay this off in 3 years. A composition order of 50% would mean you would pay 50 per month and at the end of 3 years the other half of your debts would be cancelled Court staff cannot give you a composition order, only a district judge can do this. If you ask for one, you will probably have to go to a court hearing (see below) When you have filled in the form, take it to your local county court with a copy of your court judgment. Some courts will want to see copies of any letters from your creditors. Your application is dealt with by court staff over the counter. They will ask you to read a short statement swearing the truth of the details you have given You do not have to pay a fee up front - The court takes its costs from each of the monthly payments that you make. This is currently 10p for every 1 you pay. For example, if you pay 20 a month, 2 will be taken by the court and 18 will be divided between your creditors You may have to attend a court hearing to decide if the order can be made Payments may be made by attachment of your earnings unless you tick a box on the N92 objecting to this Page 15 of 22 Issue 7

16 If you do not pay and do not contact the court to explain why, the order can be cancelled (revoked) There are further details about administration orders on Bankruptcy Bankruptcy is one method of dealing with the financial affairs of someone who cannot pay their debts. Bankruptcy can free the debtor from an overwhelming situation, enable them to make a fresh start and make sure that any available resources are fairly distributed among creditors. However bankruptcy can have wide implications for a debtor s home, job, future credit and reputation. Some debts still have to be paid even when someone is discharged from bankruptcy. It is therefore important to consider personal circumstances before deciding whether bankruptcy is an appropriate option. Anyone considering bankruptcy should seek advice as there are fees to pay for the bankruptcy petition as well as additional costs during the bankruptcy and the possibility of the loss of assets such as the home. The bankruptcy rules have been reformed from 1 April From this date there are new rules relating to automatic and early discharge, bankruptcy restriction orders, income payment agreements and the bankrupt s home. If you have received a statutory demand seek advice at once. You have, in practical terms, 18 days to take action to avoid a bankruptcy order. There are possible alternatives to bankruptcy in some circumstances, which would also require advice. The Insolvency Service provides a range of leaflets explaining bankruptcy available from Debt relief orders Debt relief orders were introduced in April 2009 and are similar to bankruptcy but for people with debts under 15,000, assets under 300 and spare income under 50 per month. In order to apply for a debt relief order you need to have seen a specialist debt adviser at an organisation like the Citizens Advice Bureau, Consumer Credit Counselling Service or National Debtline. More information about debt relief orders can be found on the Insolvency Service website Page 16 of 22 Issue 7

17 Help with court fees Fees can be payable for various applications to the court, such as to vary county court orders or suspend bailiff action. If you are on income support/income-based jobseeker s allowance/income-related employment & support allowance/guarantee credit part of pension credit or working tax credit with no child tax credit then the fee is waived. You may have to show proof that you are receiving these benefits. You can also be exempt from the fee if you have earnings below a set level. This depends upon the number of children you have and whether you are single or part of a couple. The table below gives more information. Single: Number of children Total gross income couple: Number of children Total gross income For additional children add an extra 2,735 for each child to the gross income figure for 4 children. The court can also remit part of the fee if it would cause you financial hardship. These figures might increase - more information can be found in leaflet EX160A, at or from your local county court. The Magistrates Court For the purposes of this guide, this court deals with arrears of *fines, council tax and maintenance/csa. Similar proceedings can apply for recovering court costs and compensation orders. Magistrates courts have the power to make deductions from income support, pension credit and certain other means-tested benefits for outstanding fines. If these remain unpaid after bailiff action, proceedings may be taken to compel you to attend a court hearing to answer detailed questions on oath concerning your income, expenditure and assets. If you are summonsed to such a hearing, you must attend, as failure to do so can result in your arrest. Page 17 of 22 Issue 7

18 In order to attend a hearing, you will need to prepare income and expenditure details, show evidence of your income and bills, and you will need to explain your reasons for non-payment as well as offering a new payment to pay off the arrears. It may be helpful to seek advice before such a hearing. This is the start of a process which can lead to committal to prison. However, the court can only impose a prison sentence if it is satisfied that you are guilty either of wilful refusal to pay, or of culpable neglect (e.g. you had the money but spent it recklessly on something else). The court also has the power to set new payment arrangements, or even to write off part or all of the debt if there are good reasons for doing so. The court cannot write off compensation orders. In the long term Debt repayments can go on for a long time, and creditors will want to be updated regularly, just in case your circumstances have changed. It is wise to keep your financial statement updated, and if things improve you may be able to offer a higher rate of repayment to your creditors. Always bear in mind however that you do not have to offer increased payments if your situation has not improved! There may be circumstances in which long-term repayments are not a realistic idea, and it may be better to ask the creditor to consider placing a long-term hold on the account, or to write off the debt. Seek help from an adviser. Further Help Citizens Advice Bureaux: for details of your local CAB see or contact the Customer Services centre at Hertfordshire County Council (HCC) on or if you are calling from an or number National Debtline: (call charges at local rates) Business Debtline: Monday-Friday 10am to 4pm (24 hour ansaphone) For legal help and information, and details of other advice agencies in Hertfordshire, contact the Community Legal Advice helpline on Mon - Fri 9 am pm (8pm from July 09) /Sat 9 am pm or visit the website at The Financial Services Authority s website, features a number of interactive money management tools including: A budget calculator for working out income and expenditure A mortgage calculator to check what repayments might be if interest rates change Page 18 of 22 Issue 7

19 A debt test to check if you would be likely to have problems with borrowing over the next year Comparison information about the features and costs of various savings, mortgage and pension products. This information is for guidance only and is not an authoritative statement of the law PRODUCED BY THE MONEY ADVICE UNIT Page 19 of 22 Issue 7

20 DIY Financial Statement Income (per week/fortnight/month) Wages Wages (partner s) Maternity Pay/Allowance Child Benefit Tax credits Job Seeker s Allowance Income Support Retirement Pension Occupational Pension Other Pension Pension Credit Paternity/Adoption Pay Industrial Disablement Benefit Bereavement/Widowed Parent s Allowance Maintenance/CSA Statutory Sick Pay Disability Living Allowance Incapacity Benefit Carer s Allowance Boarder/Lodger Employment and support allowance Other Income Other Income Other Income TOTAL INCOME (per week/fortnight/month) Essential Expenditure (per week/fortnight/month) Rent (less Housing Benefit) Rent Arrears Mortgage Mortgage Arrears Endowment Policy Service Charges Council Tax (current year) Council Tax (arrears) Water Charges Poll Tax Arrears (to 1993) Electricity House Insurance Gas Life Insurance Other Fuel Childcare Costs Housekeeping School Travel Clothing/Shoes School Meals Maintenance/CSA Maintenance Arrears Travel Costs Car Costs Health Costs Disability Needs (see DLA) Fines County Court Orders Hire Purchase HP Arrears Rentals House Upkeep Telephone/Mobile Newspapers etc TV Costs (rental/licence) Other Family and Personal Other TOTAL EXPENDITURE SPARE INCOME Page 20 of 22 Issue 7

21 Pro-Rata Offer Total Debt = Spare Income = CREDITOR REFERENCE BALANCE OFFER SAMPLE LETTERS 1/ Contacting the creditor Dear Sir/ Madam, Re. Account Number: I am encountering financial difficulties and as a result of these, I am having problems in keeping up with payments on this account. I am having problems because (enter reason here). In order to bring matters under control, I am asking all of my creditors for the following information. It would be helpful if you confirm the following. The date and type of the original agreement. The rate and frequency of repayment. The current balance and level of arrears. Any current recovery action. Any insurance policy on the account and what it covers. The name and address of the person to whom I should send future letters Once I have received replies from all of my creditors I will contact you again with a financial statement and proposals for repayment. I would be grateful if you would take no further action for the time being and freeze any interest or charges accruing on this account, to prevent things from deteriorating further. Thank you for your help in this matter. Yours faithfully, Page 21 of 22 Issue 7

22 SAMPLE LETTERS 2/ Offer of repayment Dear Sir/ Madam, Re. Account Number: I am writing with reference to my previous letter. I am now in a position to enclose a financial statement, showing a list of creditors and pro-rata offers of repayment. As you can see from the financial statement I am not currently in a position to make full payment of this debt, as I do not have sufficient spare income. In view of this, I would be grateful if you could accept the sum offered and freeze all interest and other charges accruing upon this account. Please let me know what options you can offer to enable repayments to be made, such as standing order details, payment book or other method. As and when my circumstances change, I will review the offer of repayment Thank you for your help on this matter. Yours faithfully, SAMPLE LETTERS 3/ Change of circumstances Dear Sir/ Madam, Re. Account Number: I am writing to inform you that my circumstances have now changed. I am now back at work, but on reduced hours and pay. This situation may go on for some time. I have revised my financial statement and offer of repayment, as attached, and I would be grateful if you could accept the payment and freeze all interest and charges as before. Thank you for your help on this matter. Yours faithfully, Page 22 of 22 Issue 7