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3 At Crosslight we understand that finding yourself in debt can be a frightening and bewildering experience. That s why we re here to help you navigate your way through the routes out of debt and advise you on how to best resolve your financial situation. Everyone s journey out of debt is different and there are various ways of taking charge of your debt. This guide will provide you with a simple overview of the options which may be available to you, although not all of them may be appropriate for your individual circumstances. Find the best path page 04 A. Repayment Plan page 05 B. Debt Relief Order page 08 C. Individual Voluntary Arrangement page 10 D. Administration Order page 12 E. Bankruptcy page 14 Working with Crosslight page 16 3

4 Find the best path If you choose to work with Crosslight, we will help you decide which of the options contained in this guide will be right for you. That may be one option only, or a combination of several options the best route will vary from situation to situation. In all cases however, our first task will be to help you deal with any urgent or important debts. We call these Priority Debts, and they will include those debts for which the consequences of non-payment are the most severe, such as rent or mortgage arrears, council tax, gas or electricity arrears, or debts which involve bailiffs. The best option for you will depend on many things, including: Your personal and family circumstances Any long-term health issues you may have How much you owe The nature and extent of any Priority Debts What type of other debts you may have How much you can afford to repay after paying your basic living expenses Any assets you might have, for example a property, vehicle, savings or investments Your future prospects, for example if you intend to start working or change jobs 4

5 A. Repayment Plan Making arrangements with your creditors to repay them over a period of time is the most common way of dealing with your debt. Crosslight can help by negotiating on your behalf to try to have interest and charges stopped and arranging an affordable repayment plan between you and your creditors. This is an informal method of dealing with your debt and does not involve any courts or contracts. It also allows you to renegotiate the repayment amounts should your circumstances change in the future. Automatically free of debt? Length of time? *Fee? No No fixed time, but the debt may take a long time to be repaid if the amount you can offer is small No, but interest could still be added Which debts are excluded? Impact on assets? Impact on employment? Credit rating affected? None, but creditors may not agree to the offered amount if it is too small None, but you would need to keep making payments on any secured debt e.g. mortgage Probably not Yes * Crosslight itself does not charge any fees ever. 5

6 Repayment Plan cont d. There are several options when considering a repayment plan, and the right option for you might involve a combination of one or more of the following: Payments from income: Any money that is left after your monthly expenses and essential costs, is know as disposable income. This is used to repay your creditors. We will help you work out how this should be divided amongst your creditors with priority being given the things like rent, council tax and utilities. Crosslight will carry out an assessment to see how you can maximise your income through applying for additional benefits or tax credits. You may consider seeking work or increasing your hours. If you have any non statutory dependents living with you, could you ask them to contribute toward the living expenses, or could you consider getting a lodger if you have the space? Payments from lump sums: Some creditors will agree to write off part of your debt if your are able to pay a lump sum towards what you owe. This may be an option if you have savings, receive a bonus at work, are given an inheritance, or have assets. However, if you have disposable income after your monthly expenses, some creditors will ask that you make payments from that despite offering a lump sum. Token payments: If you do not have any disposable income, it may be appropriate to offer a token amount to your creditors. This could be as little as 1 a month and may be offered for a short period of time to allow you to get back on your feet. 6

7 Writing off the debt altogether: If you have exceptional circumstances such as very serious health issues or difficult family circumstances, it may be possible to ask your creditors to write off what you owe. This is rare and a strong case will need to be made for a creditor to consider this course of action. Managing your own affairs (self-help) You may decide that you would prefer to handle matters yourself by speaking to your creditors and making your own arrangements to repay what you owe. You will still need to create a budget in order to work out what you can offer and you should take care not to be pressurised into paying more than you can afford. For detailed information and guidance we recommend you visit where you can access factsheets on a whole range of topics as well as create your own budget. Debt Management Plan (DMP) A DMP is an alternative to the repayment plan which Crosslight can help you put in place. Essentially it works in the same way as a repayment plan, but instead of you making the payments yourself to individual creditors, you would pay a single amount to a debt management company who would distribute the payments on your behalf. Some companies charge a fee for this, although there are also a number of charities and other organisations which do not. Crosslight can refer you to a free debt management company who will help you to set up a DMP if you would prefer this option. 7

8 B. Debt Relief Order A Debt Relief Order (DRO) is a formal legal arrangement where your debts (with some exceptions) are frozen for a period of 12 months and then written off. It is intended for those with a low level of debt and a low income with little or no assets. A DRO allows you to make a fresh start after one year and prevents those creditors listed in the DRO application from taking further action against you without the courts permission. You do not need to go to court to apply for a DRO. Crosslight is an approved intermediary who will submit the online application on your behalf. Automatically free of debt? Length of time? Yes, except debts that are excluded from the DRO 12 months *Fee? 90 Which debts are excluded? Court fines, CSA obligations, student loans, secured debts, damages, personal injury, Social Funds crisis or budgeting loans, and fraud Impact on assets? None, but assets need to be under vehicle worth less than 1000 Impact on employment? Credit rating affected? Some employers may reserve the right to terminate a contract, but this is quite rare Yes, for 6 years * Crosslight itself does not charge any fees ever. 8

9 Am I eligible? you owe less than 20,000 you have less than 50 a month surplus income after essential expenses you have less than 1000 worth of assets and/or a vehicle worth 1000 or less you ve lived or worked in England and Wales within the last 3 year you haven t applied for a DRO within the last 6 years How do I apply? You cannot apply for a DRO on your own. You will need an organisation like Crosslight to submit the application on your behalf. We will ensure you fit all the criteria and are given the appropriate advice before submitting a DRO application. In some instances we may be able to secure a grant toward the application fee. What else do I need to know? If your financial situation changes within the first 12 months, the DRO may be cancelled and your debts reinstated. This could be if you break any of the conditions of the order, or you have more than 50 a month of surplus income (after essential expenses), or you acquire more assets. The DRO is entered into the Insolvency Register which is a public record. It is removed three months after the DRO ends You will not be allowed to borrow more than 500 without telling the lender about the DRO You cannot act as the director of a company, trustee of a charity, school governor, or solicitor during the DRO period 9

10 C. Individual Voluntary Arrangement An Individual Voluntary Arrangement (IVA) can be a way of dealing with your debts without losing assets. It is a legal agreement with your creditors to pay a negotiated amount over a period of 5 to 6 years, after which any remaining debt may be written off. Unlike a DRO, you will need to have significant monthly surplus income to enter into an IVA. An IVA can only be setup by a licenced Insolvency Practitioner (IP). Automatically free of debt? Length of time? Yes, when you have completed the terms of the IVA No set term, but usually 5 or 6 years *Fee? Which debts are excluded? Impact on assets? Impact on employment? We will refer you to an IP who will not charge a service fee. Court fines, CSA obligations, student loans, secured debts, damages, personal injury, Social Fund crisis or budgeting loans, and fraud If you own a property you may have to release some of the equity as part of the IVA i.e. increase your mortgage Some employers may reserve the right to terminate a contract, but this is quite rare Credit rating affected? Yes, for 6 years * Crosslight itself does not charge any fees ever. 10

11 Am I eligible? You owe debts to more than one creditor You have a significant monthly surplus income (usually more than 100 a month) or a lump sum to enable your Insolvency Practitioner to negotiate acceptable terms of the IVA with your creditors How do I apply? Crosslight will refer you to an Insolvency Practitioner (IP) who will facilitate the IVA and who will not charge you any service fees. However, the IP will take a percentage of the monthly amount you pay the creditors to cover the cost of the IVA. The IP will negotiate the terms of the IVA with your creditors and prepare the proposal. Once you have entered into an IVA you will make one monthly payment to the IP who will administer and distribute it amongst your creditors. What else do I need to know? An IVA can only proceed if 75% of creditors (by amount of debt) agree to the IVA If your financial circumstances change and your IP cannot get the creditors to accept the amended terms, the IVA might fail. You will then still owe the creditors the full amount and may be made bankrupt On completion of the IVA the balance of what you own will be written off The IVA will be listed in the public domain 11

12 D. Administration Order If you have a County Court or High Court judgement against one or more of your creditors an Administration Order is a way of dealing with your debt. Under an administration order you will need to make weekly, monthly or quarterly payments to the court who will share it among your creditors. Automatically free of debt? Length of time? No, but if the debts will take a long time to repay, it may be possible to ask the court for an order to write off a part of the debt Until last payment is made *Fee? No upfront fee but court will take a 10% admin charge from monthly payments Which debts are excluded? You can attempt to include any debt, but most priority creditors will object Impact on assets? Impact on employment? Credit rating affected? No, but you ll need to keep paying an secured loans e.g. mortgage No Yes * Crosslight itself does not charge any fees ever. 12

13 Am I eligible? You owe less than 5000 to more than one creditor You have a court judgement against you and you are unable to pay the amount in full How do I apply? Crosslight will assist you to fill in the necessary court forms. You will then need to take the forms and supporting documents to the court. The court will then set a hearing date to decide whether or not to grant an Administration Order. What else do I need to know? None of the creditors listed in the Order can take any further action against you once it is in place Interest and other charges are stopped You will make payments to the court who will distribute it to your creditors If you fail to make payments, the Order can be revoked and the creditors can take action against you again If your circumstances worsen you can ask for your payments to be reduced If the court makes an attachment of earnings order, your employer will be notified of your situation 13

14 E. Bankruptcy Bankruptcy is a legal process that will clear most of your debts. If you have assets they will usually be sold to help pay back your creditors, however you will be able to keep your personal belongings and essential household items. You may be able to avoid selling your home if your spouse or partner can buy your share of its value after any secured debts have been paid. Bankruptcy usually lasts one year, and once you have been freed (discharged) from your bankruptcy, you are cleared of your debts. Automatically free of debt? Length of time? *Fee? Yes, except debts that are excluded from the bankruptcy Usually 1 year 525 deposit and 180 court fee (if you have a low income you may not have to pay the court fee) Which debts are excluded? Impact on assets? Impact on employment? Credit rating affected? Court fines, CSA obligations, student loans, secured debts, damages, personal injury, Social Fund crisis or budgeting loans, and fraud The Official Receiver may require assets to be sold and used to pay back to your creditors Possibly Yes * Crosslight itself does not charge any fees ever. 14

15 Am I eligible? You own more than 750 You do not have enough disposable income to pay your debts over a reasonable period of time (usually 5 years) An IVA or DRO is not a more appropriate option How do I apply? Crosslight will assist you in completing the necessary forms. You will then need to visit your local County Court to petition for bankruptcy. In London, this is mainly an administrative process, so you will not need to appear before a judge. A Crosslight adviser can accompany you if you would like. What else do I need to know? Debts included are written-off when the bankruptcy order is made. However if you have surplus income you may have to make payments for up to 3 years Any business you have will most likely be closed and your employment might be affected. Certain professionals are barred from practising after bankruptcy You cannot act as the director of a company or be involved in its management unless the court grants permission If you act dishonestly or irresponsibly you can have a bankruptcy restrictions order invoked for 2 to 15 years If will be illegal for you to borrow 500 or more without permission from the court The bankruptcy is entered into the Insolvency Register and listed in the public domain 15

16 Working with Crosslight Although the exact level of support you may need will depend on your individual situation, at Crosslight we ll use the following process to advise and support you toward becoming debt free. Budgeting Debts Options We will review all your income and spending and help you create a realistic budget so that you can meet all your essential living costs We will look at all your debts and will prioritise the most important ones such as housing, council tax and utilities We will discuss all your options and help you make a decision on the best way forward Legal Action Fair Repayment Prevention We will help you navigate your way through any legal action and advise you on how to resolve the situation If appropriate, we will contact all those you owe money to and help you agree a fair repayment plan based on what you can afford We will talk to you about ways to live within your budget and manage your money so that you don t fall back into debt 16

17 What we promise you: No Fees Crosslight is a charity and does not make any charges for the advice it gives or services it provides. Your Decision While we ll advise you on your options and will recommend a course of action which we think is best for you, we will not make any decisions for you. It is always your choice. Ending the Advice You may end your relationship with Crosslight at any time in the process. In turn, we may also choose to end the relationship with you if you fail to keep to the terms of your agreement or it is felt that further advise would not be beneficial for you. What we ask of you: No More Debt While working with Crosslight we ask that you not take on any further debt as this may affect our ability to help you. Open and Honest We ask that you provide us with complete and accurate information about your situation and keep us informed of any changes to your circumstances. Full Co-operation We ask that you keep in regular contact with us during the process and work with us by attending all your appointments. 17

18 Other things to consider: In almost all cases, the options contained in this guide will affect your credit rating and may show on your credit record for up to 6 years Using any of the options could effect your employment. Depending on the terms of your employment, you may need to disclose your situation to your employer None of the options will have an affect on the rights of any secured creditors. If someone you owe money to has taken security over your home or other property (for example a mortgage, secured loan, or certain Hire Purchase agreements), they will still have the right to take possession of your home or goods if you do not repay the debt Most credit card debts, loans and store cards etc. are unsecured, meaning the creditor cannot automatically claim entitlement to your home or property if you fail to make payments. However if you are a home-owner, in some circumstances a creditor may be able to ask the court to secure the debt on your home through what s known as a charging order The people you owe money to are not obliged to accept reduced repayments or to freeze interest if it is being applied. Stopping or reducing payments to them may therefore result in the debt taking longer to be repaid or the creditor taking legal action against you 18

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20 HTB Brompton Road London SW7 1JA +44 (0) Crosslight Debt Advice is a collaboration between churches in west London and is a registered Charitable Incorporated Organisation (charity no ). Crosslight is a member of Advice UK and is authorised and regulated by the Financial Conduct Authority (authorisation no ). 20

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