Dealing with non-priority debts

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1 This information is an extract from the booklet Managing your debt, which is part of our financial guidance series. You may find the full booklet helpful. We can send you a free copy see page 11. Contents Identify non-priority debts Negotiate with non-priority creditors If you can t afford to make an offer If you have terminal cancer If you have debt problems, there are 5 steps to dealing with them: Step 1 Increase your income. Step 2 Reduce your expenses. Step 3 Create a financial statement. Step 4 Deal with priority debts (debts that need to be paid first and most urgently). Step 5 Deal with non-priority debts. Following these steps can help you sort out the most important problems first. Identify non-priority debts Non-priority debts are less important than priority debts. You should still try to pay them what you can afford, but only after you ve paid any priority debts. The consequences of not paying non-priority debts are likely to be less serious. Questions about cancer? Ask Macmillan Page 1 of 11

2 Debt collection agencies Creditors can employ debt collection agencies to collect debt on their behalf, or they may sell your debt to these agencies. This means debt collection agencies may contact you about money you originally owed elsewhere. Collection agencies can also sell your debts to one another, which can make it even more confusing for you. It can be difficult, but you need to keep track of who each debt is owed to. It s important to remember that debt collection agencies are not court officials and don t have the same power as bailiffs. JARGON BUSTER Priority debt Important debt with serious consequences for non-payment. These need to be at the top of your list for payment. Non-priority debt A debt that should be paid but has less serious consequences for you than a priority debt. These debts are paid only after you have met your priority debts. Some of these agencies can make you feel threatened. They may even be connected to a firm of solicitors, which makes them sound very official. This doesn t give the agencies any extra authority or make their debts a higher priority. Whatever they want you to believe, these agencies have no greater powers than the original creditor. If you feel harassed by debt collectors, you can make a complaint. Call the Citizens Advice Consumer Helpline on for further information. Be careful to treat all of your creditors the same. It s essential to pay them all a fair share from the money you have available. Don t make a big payment to just one or two creditors. If any creditor feels they are being treated unfairly, they may be less ready to make an agreement with you. Page 2 of 11 Questions about cancer? Ask Macmillan

3 You can use the table below to make a list of your debts. Remember to update it regularly. Amounts can go down if you make regular payments that are large enough. Likewise, your debt can actually go up if you make smaller payments (for example, if they don t cover the accruing interest) if the interest rate increases or if you re charged for late payments. Debt (original creditor) Type of debt (priority or nonpriority) Amount owed Agreed payment (weekly or monthly) Transferred to (if your original debt is sold on to collection agencies) County Court Judgments Many creditors may threaten county court action if you fall behind with payments and are unable to pay the suggested amounts. If the debt is pursued through the county court, the financial statement will be very useful for you to identify your available income. In most cases, you won t have to attend a court hearing and it will be dealt with through the post. The court will write to you and order you to pay an amount. This will be based on the financial statement you ve completed and any requests made by the creditors. If you can t afford the amount you ve been ordered to pay, you must get advice from organisations such as StepChange Debt Charity (visit stepchange.org or call ) straight away. Questions about cancer? Ask Macmillan Page 3 of 11

4 Negotiate with non-priority creditors Keeping your creditors updated on your circumstances can help them discuss potential problems with you. However, if you have long-standing debt and have not heard from your creditors for a number of years, it may be worth seeking advice before contacting them. It s important to remember that you should only negotiate with non-priority creditors once you have dealt with priority debts. Once you have reached agreements with your priority creditors, you can start to follow the steps below. If you can t afford to make an offer to your non-priority creditors, see page Send holding letters to non-priority creditors It s a good idea to send these to your non-priority creditors while you re trying to reach agreement with your priority creditors. See sample letters on pages 4 6. Sample Holding letter Name of creditor Address/postcode Dear Sir/Madam, Re: Account No Name and address of account holder Date I regret that [I/we] [am/are] unable to maintain [my/our] current monthly payments because [explain your reasons]. Suggested reasons: I have been diagnosed with [type of cancer] and I m currently receiving treatment [type of treatment/add details]. The treatment is expected to last for a period of [add details] months, during which I will be unable to retain any form of employment. Therefore, I will be unable to maintain [my/our] current payment level. Page 4 of 11 Questions about cancer? Ask Macmillan

5 My surgery is scheduled for [date], which will then be followed by [add details] months of treatment. Throughout this period of [add details], I will be unable to work supplementary hours, which will affect my overall income. The [surgery/treatment] is expected to take [approximate length of time]. Therefore, I will be unable to maintain [my/our] current payment level. I am currently caring for my [husband/wife/partner/child/parent/ relative/friend] due to their diagnosis of [type] cancer and have temporarily stopped work to care for them. Therefore, I am unable to maintain my current level of payment. I am expecting to be off work for a period of approximately [add details] months. I am writing to all [my/our] creditors requesting details of the balance outstanding on [my/our] accounts and would be grateful if you would let me know how much [I/we] owe you. Once [I/we] have obtained this information, I will contact you again with a pro rata offer for repaying the above debt. I have applied for [type of] benefit and will contact you again as soon as I start to receive it. Meanwhile, I would ask that during the above period you suspend all interest or other charges to prevent my debt from increasing. If you plan to return to work, you could use the following: I have been unemployed/sick since [date] because [explain reason for time off work] and am due to start/return to work on [date] and will contact you again once I have [started/returned] to work. I have been actively caring for my [husband/wife/partner/child/ parent/relative/friend] [explain reason why] since [date] and am due to [start/return to work] on [date] and will contact you again once I have [started/returned] to work. Meanwhile, I would ask that during the above period you suspend all interest or other charges to prevent my debt from increasing. I thank you in anticipation of your acceptance. [I/we] will contact you again in writing as soon as [I/we] have up-to-date information from all [my/our] creditors and [I/we] [am/are] aware of available income to make pro rata offers. Yours faithfully [Your name] Questions about cancer? Ask Macmillan Page 5 of 11

6 Sample Offer letter Name of creditor Address/postcode Date Dear Sir/Madam, Re: Account No Name and address of account holder Further to my letter dated [date], I am now able to make an offer to repay the above debt. I regret that I am unable to maintain my monthly payments at their current level because [repeat the reasons you used in your initial holding letter]. I ve worked out I can only afford to pay [suggested amount], which I will try to increase at the earliest opportunity should my circumstances change. I enclose a copy of my financial statement which shows I cannot afford to pay more than this. I look forward to hearing from you, in anticipation of your acceptance of the above proposal. Yours faithfully [Your name] 2. Complete your financial statement If you have agreed to make repayments to your priority creditors, you should complete your financial statement with these amounts. 3. Work out how much to offer each non priority creditor Calculate pro rata payments to creditors based on the disposable income you have. Pro rata means an amount that is in proportion to the debt you have with each individual creditor. This is how you would calculate a pro rata offer to your creditors: Page 6 of 11 Questions about cancer? Ask Macmillan

7 Individual debt x total disposable income total debt = payment arrangement for each creditor. Disposable income should have been worked out on either a weekly or monthly basis, and offers should be made on the same basis. The below example shows how pro rata offers would work. Calculating a pro rata payment In total, Linda s non-priority debts from credit cards and unsecured loans add up to 20,000. After she has paid her essential living expenses, her mortgage and outstanding taxes (priority debts), Linda has 100 a month left over. She wants to divide this up fairly to pay off at least some of the debt owed to her non priority creditors. Here s how Linda worked out a fair payment offer for a loan for which she still owes 3,500: 3,500 owed to an individual creditor x 100 disposable income per month 20,000 total debt = per month payment offer. When she writes to the bank about her loan, Linda can include a copy of her financial statement and explain how she worked out the pro rata payment offer. 4. Send offer letters to non-priority creditors You can use the sample Offer letter on page 6. Include a copy of your financial statement with each offer letter.this will show creditors how you reached the offer figure. Start making any payment you ve suggested in your offer and don t wait until they reply. Agencies like StepChange Debt Charity (visit stepchange.org or call ) or National Debtline (visit nationaldebtline.org or call ) will help you do this for free so that all the money you can afford goes to your creditors and not in fees. Not all creditors may accept your offer and they may ask you for a greater payment. If this happens, write back to them. Explain that you re treating all non-priority creditors the same and can t offer them more than another. Tell them about other creditors who have already accepted this arrangement. Questions about cancer? Ask Macmillan Page 7 of 11

8 JARGON BUSTER Holding letter This is a letter that requests more time to sort out your debt plan. It explains your situation and asks creditors to temporarily stop any action against you. Always ask them to freeze the interest and stop any penalty fees so your debt doesn t get worse. Pro rata payment A payment that s in proportion to the size of each debt. For example, if you owe 1,000 to one creditor, their payment will be twice the amount you offer to a creditor owed 500. Unsecured loan These loans are not backed by property such as your home or car, so your property can t be repossessed for non payment. If you can t afford to make an offer Once you have entered details of your agreed priority debt repayments, your financial statement may show that you have no disposable income left to pay your non-priority debts. You should contact your creditors and make them aware that you have no disposable income, and ask that they withhold any further action on your account for 3 6 months (see sample letter on page 9). You ll also need to request that your creditors don t add any further interest or charges to your account during this period. Page 8 of 11 Questions about cancer? Ask Macmillan

9 If you have terminal cancer If you have terminal cancer and treatment isn t an option, you may be able to discuss this with your creditors. At this stage, it may be a good idea to suggest to your creditors that they write the debt off immediately, as the possibility of your future earnings may be limited (see sample letter on page 10). Your creditors may never formally agree to write off a debt, but they may decide to take no further action. Sample No offer letter Name of creditor Address/postcode Dear Sir/Madam, Re: Account No Name and address of account holder Date I regret that I am unable to pay my current monthly payments because [repeat the reasons you used in your initial holding letter]. I am enclosing a copy of my financial statement, which gives details of [my/our] income and expenses. You will see from this information that [I/we] [am/are] unable to make you an offer of payment at this time as [I/we] [am/are] on a low income, dependent on [Income Support/Jobseeker s Allowance/incomerelated Employment and Support Allowance/Pension Credit, etc], which is a subsistence benefit only intended to cover [my/ my family s] basic needs. [I/we] request that you hold action on [my/our] account for [add details] months and suspend interest to prevent [my/our] debt from increasing. [I/we] will contact you again as soon as [my/our] financial circumstances improve. [I/we] thank you for your cooperation. [I/we] look forward to hearing from you in anticipation of your acceptance. Yours faithfully [Your name] Questions about cancer? Ask Macmillan Page 9 of 11

10 Sample Write-off letter Name of creditor Address/postcode Date Dear Sir/Madam, Re: Account No Name and address of account holder I regret that I am unable to maintain my current monthly/weekly payments because [explain your reasons]. Suggested reasons: I was diagnosed with [type] cancer on [date]. I have had treatment, but unfortunately the cancer is still present and a terminal prognosis has now been given [enclose supporting medical evidence to back this up]. I was diagnosed with [type] cancer on [date] and have had surgery to remove a tumour. Unfortunately, the surgery and subsequent treatment has left me with various health problems [outline the problems] and my future earning capacity is extremely bleak. It is very unlikely that I will ever return to work, and therefore my income will never increase above that of the [means-tested benefit/ limited income] I receive. Given the above extenuating circumstances, I therefore request an immediate write-off of my debt. I acknowledge this is an exceptional request, but if further recovery action is taken, the financial outcome would be the same, since I have no disposable income or assets. I look forward to hearing from you, in anticipation of your acceptance. Yours faithfully [Your name] Page 10 of 11 Questions about cancer? Ask Macmillan

11 NEXT STEPS Make a list of all your non-priority debts and send a holding letter to each creditor while you get advice. Contact the Macmillan financial guides or one of the organisations such as StepChange Debt Charity (visit stepchange.org or call ) or National Debtline (visit nationaldebtline.org or call ) for advice or help negotiating with creditors. Work out how much you can afford to offer each non priority creditor and send a letter to each one (see sample letters in this information). More information and support More than one in three of us will get cancer. For most of us it will be the toughest fight we ever face. And the feelings of isolation and loneliness that so many people experience make it even harder. But you don t have to go through it alone. The Macmillan team is with you every step of the way. To order a copy of Managing your money day to day or any other information from our financial guidance series, visit be.macmillan.org.uk or call We make every effort to ensure that the information we provide is accurate and up to date but it should not be relied upon as a substitute for specialist professional advice tailored to your situation. So far as is permitted by law, Macmillan does not accept liability in relation to the use of any information contained in this publication, or thirdparty information or websites included or referred to in it. Macmillan Cancer Support Registered charity in England and Wales (261017), Scotland (SC039907) and the Isle of Man (604). Registered office 89 Albert Embankment, London, SE1 7UQ REVISED IN JUNE 2015 Planned review in 2016 Questions about cancer? Ask Macmillan Page 11 of 11