Contents Debt Solution Overview 2 Debt Management What is a Debt Management Plan? 3 What are the benefits of a Debt Management Plan? 3 How does it work? 3 What debts can be included in a plan? 4 What debts cannot be included in a plan? 4 Guide to changing bank account 4 How does it affect credit rating? 5 How long will a plan last? 5 How does it affect my client s property? 5 IVA What is an IVA? 6 How much will client have to pay each month? 6 What happens to the payments? 6 How does a client qualify? 6 What are the alternatives to an IVA? 7 What are the advantages of an IVA? 7 What are the disadvantages of an IVA? 7 What if clients circumstances change during the IVA? 8 What about bankruptcy? 8 How does IVA work? 8 IVA procedure 9 Why should the creditors agree? 9 Who will know about the IVA? 9 My client is a homeowner; will this be safe? 10 My client owns other assets, what happens to them in an IVA? 10 How do I refer my client for an IVA? 10 Bankruptcy What your client will get with our service 11 Fees for petitioning for bankruptcy 11 What are the alternatives to bankruptcy? 12 How do the petition for their bankruptcy? 12 Where is the bankruptcy order made? 12 What will happen in court? 13 Who will deal with the bankruptcy? 13
OVERVIEW Debt Management Plan A debt management plan is a way for your client to reduce their repayments to unsecured creditors. It is an informal arrangement so can be set up in a short space of time. On average we are able to reduce client s creditor payments by half. We also negotiate with creditors to stop or reduce interest and charges. This debt solution is generally suitable for clients that have a lower amount of debt or those who cannot afford to pay much on a monthly basis to their creditors. Commission for a Debt Management Plan 70% of the client s first monthly payment (Ave 250 per month) + 4% of the ongoing monthly payment IVA An IVA or Individual Voluntary Arrangement is a formal agreement between a client and their creditors. Generally it is more suitable for clients who owe over 15,000 to three or more creditors and can afford to pay over 250 per month towards the IVA. The biggest advantage of an IVA is that payments are made over a fixed 5 year term, at the end of this term any debt that is left is written off by the creditors. In many cases clients end up with a discount of up to 70% off their debts. However because the arrangement is formal and legally binding, the client cannot miss or stop making payments as this may result in bankruptcy. There are also implications for the client if they own their own property or any other assets with equity as they can be asked to release the equity from the asset to be paid into the IVA. Commission for IVA case 500 per IVA case referred t Bankruptcy Assistance Bankruptcy is the most severe debt solution available to clients. If a client decides to go bankrupt they must have no or little disposable income. Our service will help clients fill in the relevant bankruptcy applications and advise them on how to best present their case at the bankruptcy hearing. Commission for a Bankruptcy Case 150 per Bankruptcy case referred
DEBT MANAGEMENT 1. What is a Debt Management Plan? A Debt Management Plan is a simple and effective way for a client to reduce payments to their unsecured creditors, down to a level they can afford. This reduction means they will be able to afford and maintain their payment towards their priority payments such as mortgage, rent, insurance, food and travel expenses. The client then makes one reduced monthly payment to Refresh and we distribute the payment out to all their creditors on a pro-rata basis. 2. What are the benefits of a Debt Management Plan? Your clients will find there are multiple benefits once they enter our Debt Management plan, they include: Reduction of payment to an affordable level We negotiate to get interest and charges on unsecured credit stopped or greatly reduced They only make one monthly payment towards the plan rather than to multiple creditors We deal will all creditor post and phone calls thus removing any stress from the client They will have a dedicated client liaison officer who will deal with their plan from start to finish thus building a personal relationship with the client We review our plans annually so we ensure the payment amount and solution is still suitable for the client 3. How does it work? Our advisors assess your client s suitability for our Debt Management plans by: 1. Calculating how much the client owes in total to their unsecured creditors and how much they are contracted to pay back to them on a monthly basis 2. Assessing their household income, this is any income which comes into the household, which is the clients net income plus any benefit income 3. Calculating the clients essential or priority expenditure which includes their mortgage or rent, any council charges, utilities such as electric, heating and telephone, food, and travel expenditure we keep this expenditure in line with what the creditors declare as acceptable expenditure amounts. Please note the expenditure amount does not include payment to unsecured creditors. 4. We then deduct the total essential expenditure amount from the total household income, this gives us the clients Disposable Income (DI). If this figure is less than what the client is contracted to pay to their creditors on a monthly basis, they are suitable for a Debt Management Plan. Net Income - Essential Expenditure = Disposable Income
So, if: Disposable Income Less than Monthly contractual payment to creditors = Suitable for a Debt Management Plan 4. What debts can be included in a plan? Unsecured credit Personal loans Overdrafts Credit cards Store cards Catalogues Family debts (as long as the client is aware they will be contacted) Disconnected utility bills Repossessed vehicle (shortfall) Business debts Previous property arrears Over payment of government benefits Pawn brokers Repossessed property (shortfall) Disconnected mobile bills 5. What debts can t be included in a plan? Any Debts with a Guarantor Secured Loans Mortgage Mortgage Arrears Current Rent Arrears Hire purchase Present utility bills and arrears Court fines Speeding fines Parking fines 6. Guide to changing bank account We advise clients starting a debt management plan to change their bank account if they bank with the same bank as they have credit with. For example if a client banks with Bank of Ireland and is including a Bank of Ireland credit card in their plan we will advise them to change bank accounts. Why? Right to Set Off banks can access current account & remove funds We advise to open new basic account we provide list We advise to let employer/ benefits office know so they can pay to new account
We advise to switch over any direct debits which will remain in place e.g. mortgage, rent We advise to cancel any direct debits to creditors which are being included in the plan 7. How does it affect credit rating? The client needs to be aware that by entering a Debt Management Plan their credit record will be affected. This may make it harder in the future to obtain further credit or a mortgage. Clients should also be aware that if they are not currently maintaining monthly payments to their creditors their credit rating may already be affected. 8. How long will a plan last? A Debt Management Plan will last until the clients debt has been repaid in full. We can only approximate the term of a plan because while we always endeavour to get interest and charges stopped completely there are occasions when creditors will only reduce the interest. We calculate the approximate term of our plans by dividing the total amount of debt by the monthly payment. A client isn t contracted to remain on plan until the debt is repaid in full, because the plans are informal they can cease payments to the plan at any time. 9. How will it affect my clients property? A Debt Management Plan will not affect your clients property in any way. The plan is purely based on your clients income and expenditure and does not take assets into account. We will sometimes recommend a Debt Management Plan over an IVA or Bankruptcy if the client has a large amount of equity in their property because this would be taken into account in those solutions.
IVA Even though the number of bankruptcies in this country continues to rise, many people who cannot afford to pay their debts (often through no fault of their own) want the opportunity at least to act honourably. The alternatives are clear borrow more money, perhaps incurring additional costs and certainly incurring interest or offer a repayment schedule to creditors. At Refresh we assist your clients to achieve a brighter financial future through a government backed legal procedure called an Individual Voluntary Arrangement. So what exactly is an Individual Voluntary Arrangement? An Individual Voluntary Arrangement (commonly known as an IVA) is a legally binding contract between your client and their creditors, whereby they pay an agreed sum of money each month, usually for a period of 60 months. The total that your client pays is then divided up between their creditors, who accept this sum in full and final settlement of all that they owe them. IVAs were introduced in 1986 as part of Government legislation in order to provide people in financial difficulty with a second chance. Before 1986 the choices available to individuals were fairly stark in so much that they either muddled on as best they could by whatever informal procedures were available to them or they opted for the only real formal procedure available, i.e. they declared themselves bankrupt. At the time, the government realised that there had to be some middle ground in the form of a procedure that was formally recognised by one that did not carry the same stigma as bankruptcy. Indeed the rescue culture that was prevalent at the time felt that not only should such a procedure seek to avoid the stigma of bankruptcy it should go further and provide individuals with a number of positive benefits. As a result, IVAs are today regarded as a positive alternative to bankruptcy came into being and by entering into an IVA your client can legally protect themselves from the effects of bankruptcy. How much is the client required to pay each month? That depends upon their circumstances. Their monthly payment is calculated from their income and expenditure and so will be affordable to them. They will make these payments by standing order to their IVA account. What happens to the payment? The payments made will be distributed on a regular basis to the creditors. In return for making a commitment to what they can reasonably afford the creditors will agree to be bound by the arrangement. The IVA has added powers to a simple contract. Even creditors who have not agreed or bothered to vote for the arrangement will be bound by its terms. How does a client qualify for an IVA? Providing they are struggling to pay their debts as-and-when payments fall due they may be able to apply for an IVA. This involves completing a questionnaire and returning it to us. Based upon the information that they give us, we will assess their financial circumstances. If their circumstances meet the criteria, then we will prepare an IVA proposal to be presented to their creditors for their consideration.
What are the alternatives? Take a look at the table below. This makes a simple comparison between the options available to your clients. You will see than in many respects, an IV does compare favourably. IVA Loan DMP Bankruptcy Will the debt be cleared in an agreed period? YES yes no yes Will interest be frozen? YES no yes yes Are the creditors likely to accept less than the clients owe? YES no no yes Will they be able to avoid selling their home? YES yes yes no Are they protected from their unsecured creditors? YES no no yes Will it be seen to be trying to do the right thing by their creditors? YES yes yes no Will they retain control of the situation? YES yes yes no Is it a confidential procedure? YES yes yes no Will they avoid the stigma of bankruptcy YES yes yes no Will the procedure be administered by a licensed Insolvency Practitioner? YES no no yes Can creditors be forced to accept the chosen course of action? YES no no yes Are there any other advantages with an IVA? Yes there are. We will help your client to calculate their offer of payment to ensure that this is entirely affordable to them. Not all of the creditors need to support their proposal. However, if the requisite majority is reached (75% in value of those who chose to vote) then all of their unsecured creditors have the chance to vote are legally bound, regardless of whether they voted for, against or not at all. This means they can no longer pursue them for repayment. As long as over 75% in value of creditors who vote are in favour of the IVA then all of the creditors will be bound by the IVA. Once bound, creditors cannot change their minds and are required to liaise directly with the Insolvency Practitioner rather than with the client. This means that any threatening letters or telephone calls that they have been receiving will stop. Providing they keep up their repayments and comply with the other terms of their proposal then at the end of the set term they have no further obligations to their creditors, who must write off any amount that they still owe. Are there any downsides? As part of the IVA, they are required to give a comprehensive proposal to their creditors but do not worry, we will draft their proposal for them based on the information that they give to us. They are required to make regular monthly payments over a fixed period, usually 60 months. This will however be budgeted for in their income and expenditure and will be affordable. There are fees involved. However, these are paid from the IVA account rather than directly by the client. Our fees are agreed and approved by their creditors so all they have to do is concentrate on is paying the agreed monthly sum.
What if their financial circumstances change during the IVA? They should tell us immediately. We will reassess income and expenditure accordingly. If the change in situation is permanent, then in some cases we can work out what they can realistically afford and, if necessary, ask the creditors for a lower payment. There s no guarantee they will say yes so when setting up an IVA, it is crucial that the agreed payments are set at a realistic amount. What about bankruptcy? The Insolvency Service provides a booklet: http://www.insolvency.gov.uk/pdfs/guidanceleafletspdf/guidetobankruptcy.pdf and this will explain explains bankruptcy and its probable implications in further detail. In addition, it is possible to contact the local County Court for additional information. In brief terms, bankruptcy means that all of their assets (subject to some exceptions) may be sold to pay their creditors. They may also be asked to make payments from their income over a period of time. If they own their own home, the Trustee in bankruptcy may force them to sell it. Their bankruptcy will be announced in the local paper. Subject to the nature of their employment and the terms of their contract, their job may be affected. Their financial affairs may be investigated. Ordinarily, their bankruptcy would last for twelve months. So how does and IVA work? John Brown and his partner owed a total of 51,000. The debt was made up of 6 creditors, a mixture of credit cards, personal loans, catalogue debts and a bank overdraft. The amount they need in order to keep their repayments on these debts up to date is 1270 per month which at a push, they are managing to do. However, when John and his partner split up, finances suddenly became very tight indeed. As a consequence, John started to fall behind on his payments to creditors. John earns 1,050 per month and the household expenditure (rent, bills, food etc.) total 565 per month. To begin with, he contacted his creditors in an attempt to negotiate reduced monthly payments with them. He was successful and the amount he was required to pay was reduced from 1270 per month to just 455. For a while everything seemed fine until one day he received a statement from one of his creditors. This showed that as the amount that he had been allowed to pay had reduced; he was now paying less than the amount of interest being charged. As such, his debt was actually going up rather than coming down. On instruction, we calculated that with his current payments, even with the very low rates of interest it would take John 15 years to pay off his debts. This did not seem fair to anyone. We looked at all of John s finances with him and recommended an IVA. Within days the IVA proposal was drafted and sent to his creditors. The offer was as follows: 455 to be paid monthly into an IVA account for a period of 5 years, a total of 27, 300. The proposal was presented to creditors, who accepted it. Within weeks of first contacting us, everything was sorted out John has saved making payments for 10 years and just pays back a realistic and affordable amount for 5 years. All John has to do now is keep making his monthly payments for the five years after which he will be totally debt free. Tell me a little more about the IVA Procedure There are essentially four steps to a debt free future through an IVA.
Step 1 - Agreeing the clients proposals Once prepared, their proposal must be checked by the client, signed and returned to our office. Step 2 - Legal Protection Once signed, the Insolvency Practitioner will present their papers to their creditors and to the court. If they are under considerable pressure from a creditor, it is possible to apply for an Interim Order. Once, in place, this provides them with legal protection from their creditors while their proposal is put to their creditors. Step 3 - Meeting of Creditors Both the client and their creditors are invited to the meeting. In practice, it is rare to see a creditor at a meeting, as the vast majority prefer to vote by way of postal proxy. The clients meeting with take place at the offices of the Insolvency Practitioner and it typically last 15 minutes. They do not need to attend this meeting but they will need to be available by telephone on the day. The voting at the meeting of creditors works as follows: over 75% (in value) of those creditors who choose to vote need to support the proposal for it to be accepted. Essentially each creditor has one vote for every 1 they are owed. Not all creditors choose to vote however. Whilst we cannot guarantee that creditors will accept the proposal, we will only permit the application to proceed to a meeting if we believe that it has a strong chance of success. Step 4 - A Brighter financial future Your client will now be well on their way to a debt free future. Providing they abide by all the terms of the IVA, at the end of the agreed period, the remainder of all their debts are written off. Why should the creditors agree? In all cases, they will receive more than they would if the client were to go bankrupt. Chasing debts costs money. By entering into an IVA, creditors no longer need to actively pursue the debts, so they can save on costs. Generally, creditors prefer arrangements that are properly supervised by an experienced industry professional. IVAs can only be administered by a qualified, licensed insolvency practitioner. Who would get to hear about the IVA? The only people who find out about the IVA are the creditors and the Court with which the IVA documents are filed. When the IVA is approved it is registered with the Department of Trade and Industry which means that if anyone does a credit search against the clients name the search will disclose they have entered into an IVA. The client is a home owner; will this be safe in an IVA? When entering into an IVA a home will be protected from being sold. Creditors will no longer be able to take any court action. Before the end of the IVA it may be necessary to realise up to 85 % of the equity share of the home by arranging a re-mortgage or further advance. If they have difficulties doing this then the IVA can be varied with the agreement of creditors. This may mean that creditors will accept a reduced amount if that is all they can afford or creditors may agree that the arrangement shall be extended for up to 12 months and income contributions are paid in place of obtaining the re-mortgage. By comparison, if they were to be made bankrupt, they would very probably be required to sell their property.
When calculating their income and expenditure, we take into consideration all payments towards secured liabilities. Remember, the IVA only deals with unsecured debts so any payments towards either a secured loan or a mortgage are made during the IVA and continue as normal once the IVA is completed. My client owns other assets, what happens to them in an IVA? If they have an endowment policy linked to the mortgage it s likely that this will be surrendered towards the IVA as will any shares or savings funds. If they have a car, but can show that it s needed for work, it s highly unlikely that they will need to sell it. If they are in the middle of paying the car off under a hire purchase deal, they can t include this debt in the IVA as the finance company could just repossess the car. Normally, they will be allowed to keep making the monthly payments towards the car, yet when the finance deal ends they will need to pay the extra money into the IVA instead. How do I refer a client for an IVA? You can contact one of our debt advisors on 0800 121 48 63 who will discuss the case with you and take your clients details. Our advisor will then contact the client and go through their income and expenditure and creditor details. If they find them to be suitable in principle for an IVA they will send them an IVA pack and requirements. You can also now submit your clients online via our dedicated introducer website www.refreshintroducer.co.uk
BANKRUPTCY What your client will get with our service: The service will assist in taking some of their concerns away; as we will be help them through every step of the process and providing technical as well as moral support in the run up to and the general period of the Bankruptcy. 1 years telephone support where they will be able to get advice on any issues with regards to their bankruptcy Their own dedicated Bankruptcy Consultant who will go through the whole process with them, including filling in the Statement of Affairs. We will contact all their creditors to advise them of the clients intention to petition for their own bankruptcy. This should help minimize the contact from their creditors during this transition. The fees for petitioning for bankruptcy: 345 Deposit This is the cost of administering their bankruptcy and goes towards paying the Official Receiver s costs 115 Court Fee This is means tested so may not have to be paid (assessed on an individual basis) 7 Affidavit if they swear the statement of affairs in the High Court or before a solicitor 500 Refresh Support Service Fee For assistance and advice when applying for bankruptcy *can be paid by instalments *Each married couple pays a separate fee
What are the alternatives to bankruptcy? The alternatives to bankruptcy are: Debt Management Plan - They could consider setting up a debt management plan which is an informal arrangement to repay their creditors at a lower rate, based on how much is owed to each creditor. Their Debt Management Company will also negotiate to have interest and charges stopped or reduced when they are on plan Individual Voluntary Arrangement (IVA) - This is a formal version of the previously described arrangement. They would need to apply to the Court with the help of an authorised insolvency practitioner. He or she would supervise the arrangement and pay their creditors in line with the accepted proposals. Administration orders - If one or more of their creditors has a court judgment against them and if their total debts are 5,000 or less, the Enforcements of Judgements Office (EJO) could make an administration order. Under the administration order, they make regular payments to the EJO, to pay towards their creditors. While they are paying the administration order, their creditors can't take any further action against them to get their money, without asking the EJO first. Also, they will not have to pay any interest on their debts. They will have to pay a fee for an administration order, but this will be added to the money they already owe and not charged separately. How do they petition for their bankruptcy? If they decide that bankruptcy is the best option available to them there are a number of forms that need to be completed. We will provide them with the necessary documentation and help them complete the following: The petition (Insolvency Rules (NI) 1991 form 6.30) - this form is their request to the Court for them to be made bankrupt and includes the reasons for their request. The statement of affairs (Insolvency Rules (NI) 1991 form 6.31) - this form asks them to list all their assets (anything that belongs to them that may be used to pay their debts) and all their debts, including the names and addresses of the creditors and the amount they owe each one. When they have completed this form they will be asked to make a sworn statement as to its accuracy and completeness before an officer of the court or a solicitor. It is therefore vital that they make a full disclosure of their assets and debts. Where is the bankruptcy order made? Bankruptcy petitions are presented at the High Court in Belfast. Once the bankruptcy order has been made, it is advertised in The Belfast Gazette (an official publication which contains legal notices) and in the Belfast Telegraph. In addition the Official Receiver will give written notice of the order to a number of organisations. What will happen at Court? The Court will either hear their petition straight away or arrange a time for the court to consider it. At the hearing the Court can do one of 4 things:
Stay (delay) the proceedings - often because the court needs further information before it can decide whether to make a bankruptcy order. Dismiss the petition - perhaps because an administration order would be more appropriate. Appoint an Insolvency Practitioner - if the Court thinks an individual voluntary arrangement would be appropriate. This will only be possible if their assets are more than 4,000; their unsecured debts are less than 40,000; and they have not been bankrupt and have not made an individual voluntary arrangement in the previous 5 years. If they do not wish to enter into such an arrangement, they should inform the Court. Make a bankruptcy order - They will become bankrupt the moment the order is made by the court. Who will deal with their bankruptcy? The Official Receiver, who is a civil servant in The Insolvency Service and an officer of the Court, will be responsible for administering their bankruptcy and protecting their assets from the date of the bankruptcy order. He will act as their trustee in bankruptcy unless the Court appoints an insolvency practitioner to take this role. The trustee in bankruptcy is responsible for dealing with their debts incurred before the date of your bankruptcy. The Official Receiver must also report to the Court any matters which indicate that they may have committed criminal offences in connection with their bankruptcy.