MONEY WORRIES? A SELF HELP GUIDE TO DEALING WITH YOUR DEBTS Contents 1
Introduction page 3 Checking that the money is owed 4 Working out your budget Income Expenditure 4 Negotiating with Priority creditors 4 Rent arrears 5 Council Tax arrears 5 Fuel arrears 6 Hire purchase 6 Magistrates Court Fines 6 Social Fund / Benefit overpayments 6 Water Rates (and arrears) 6 Negotiating with non-priority creditors 7 Calculating pro rata offers 7 Token offers 7 Court action 8 The income & expenditure / budget form 10 Some sample letters Requesting a copy of credit agreement If the debt is statute barred 11 Pro rata offer letter Token offer letter Refuses offer 12 Request to freeze interest Telephone harassment 13 Other options available DMP/ / IVA 14 Bankruptcy / Administration Orders 15 Debt Relief Order 16 National / Local Organisations 16 Student advice and help 17 Other websites 18 2
Getting some perspective: Many people, when in debt, feel that they are the only ones in this situation. This is made worse by not knowing what can be done to resolve the problems. This guide will hopefully give you some insights into what to do next, but first, to get some perspective, here are some statistics, provided by Credit Action: Total UK debt at March 2010 was 1 460 billion 126 properties were repossessed every day in 2009 390 people a day went bankrupt in the last quarter of 2009 244 landlord possession claims will be made today Citizens Advice will deal with 9 500 debt problems today 378 000 loan accounts are in reportable arrears at the end of 2009 Total credit card debt in March 2010 was 30.4 billion 1 000 people are seeking some form of debt rescheduling every day Average household debt in UK is 8 796 (excluding mortgages) New students will leave University with average debts of 21 200 This is a short guide to help you deal with your debt problems A number of options have been outlined; including informal debt management plans to bankruptcy. However, as this is only a short guide, we have provided the website addresses of sites which could be useful to you and the name and addresses of local organisations which provide free debt advice. There is a lot of FREE debt advice out there, please do not pay for a service which you can get for nothing. See pages 15-17. The steps. 1. Check you owe the money. Just because you receive letters does not mean you owe the money or the amount you owe is right. 2. Work out what you need to live on so you can see how much you have left to pay the debts, there is a budget sheet on page 9 for this. 3. Make offers to the priority creditors first see page 5. Some debts are more important than others. 4. When you have arrangements with the priority debts, you can then deal with the non-priority debts. 5. Don t panic if Court action is being taken. You may be able to stop this or make an offer via the Court. Don t allow the threat of Court action make you offer more than you can afford. See page 8. 3
The steps in more detail: Step 1. Do You Owe the Money You only have to pay a debt if it is in your name (Council Tax being the main exception). You are not liable for other people s debts, including your partners, unless the credit was taken out in joint names. Creditors normally have a time limit of 6 years to take Court action for a debt. If you have not heard anything for a long time and then get a letter, seek further advice, as you may not be liable to repay the debt. If you receive a letter about a debt you do not believe you owe. Speak to a debt adviser prior to contacting the creditor. You also have the right to request copies of the agreement and statements, see sample letter below. Step 2 Work Out Your Budget A budget sheet is enclosed on page 9. Box 1 list all money coming in. You may want to check that you are receiving all the benefits you are entitled to. Citizens Advice can help or if you have internet access; www.entitledto.co.uk. If you want a tax credit check you can phone the Tax Credit helpline on 0845 300 3900. Box 2 list all expenses you need to live on. It may take some time to complete this, as it is not easy to allow for expenses such as clothing or food. Do not list any loan repayments here, or money you pay to clear arrears. ** Fill in the budget sheet either on a weekly or monthly basis. To change weekly figure to monthly, multiply by 52 and divide by 12 To change monthly figure to weekly, multiply by 12 and divide by 52 It is important to take everything into account, as you need to know exactly how much you can afford to arrears and credit debts. It is very important that the budget sheet is a true reflection of all your income and expenditure as it is only when you have worked out what you need to live on every week / month, that you are able to see what you can afford to repay. The money left is called your surplus income. Your budget sheet may also need revising every so often to ensure it reflects any changes in circumstances. Creditors may also request this every 3 6 months. Step 3 Negotiate with Priority Creditors Once you have completed the first two sections of the budget sheet, you can deduct total expenditure from total income. This will show you what money you have left, (if any) which can go towards clearing the debts. 4
It can be difficult to know who to pay first when you are in debt with several companies. You need to consider what action each creditor can legally take, as some are worse than others. The legal action priority creditors can take can be serious. It can mean losing your home, your liberty or being disconnected from services: Priority debt Rent Council Tax Gas / Electric Hire Purchase TV Licence Child Support Agency Action they can take Eviction Imprison / Bailiffs / Attach your wages Disconnection Repossession of Goods Fine Imprison / Attach your wages If you have any of these debts, you need to use the surplus income to make arrangements with them first. See box 3 on the budget sheet. If you are having difficulty negotiating repayment plans, do not give up, you can always seek further help from one of the companies mentioned in the further help section. RENT ARREARS If you owe rent arrears, you need to arrange a payment plan or you will face eviction. You should contact Southway Housing to arrange to pay the arrears to avoid losing your home (0161 448 4200). You will need to agree to pay the weekly rent due plus an affordable amount to clear the arrears. When you contact Southway, ask for an assessment for Housing Benefit, as you may be entitled to this and it can reduce the amount you have to pay. Southway have both a debt and welfare rights adviser to help you. If you need advice about rent arrears you can contact Shelter (a free advice service) on 0808 800 4444 or www.england.shelter.org.uk or phone Manchester Advice on 0161 240 5087 or 0161 240 5036 if you are facing Court action. COUNCIL TAX ARREARS If you do not pay your council tax, the first stage of Court action is for the Council to apply for a Liability Order. The Council will obtain a Liability Order if they can show that money is owed to them. There is a Court fee which will be added to your bill for this. After the Council get a Liability Order, they then have a number of options to collect the money, these include: attachment of earnings, bailiffs and attachment from benefits. If they are not successful in collecting the money, they can return to Court. At this stage, the Court has 3 choices: they can write the debt off, they can ask you to pay by instalments or send you to prison (but only if they believe you have deliberately not paid). Regardless of the situation, you are advised to contact the Council Tax department to try to negotiate a repayment plan (0161 907 9400). If the account is with the bailiffs, you may need to negotiate direct with them. You 5
can get further help from the organisations listed at the back of this booklet, if you need advice regarding this issue. The council tax unit will allow you to pay your current years charge over 12 months if payment is made by direct debit. This can be useful with budgeting your money. FUEL ARREARS If these remain unpaid, you face disconnection. Contact your supplier if in arrears. Any arrears can be repaid via a weekly or monthly budget scheme, by having a pre payment meter installed or by fuel direct payments if you are on qualifying benefits. Some gas and electric companies have Trust Funds to help people in financial hardship. Ask your supplier about this. HIRE PURCHASE If you have bought something on HP and do not make payments as per the agreement, the company may be able to repossess the goods depending on how much you have paid. If you have paid more than one third of the total owing, the company MUST get a court order to ask for the goods to be returned. You will need to contact the company and ask them to accept your contractual payment plus an amount to the arrears. MAGISTRATES COURT FINES These are usually Fines for driving offences or not having a TV licence. You need to deal with these as a priority as imprisonment is the ultimate sanction. At the Court Hearing, the Magistrates can set up a payment plan, which is affordable to you, so it is in your interests to attend the Hearing date. If you do not pay, then the account may be sent to private bailiffs, who will add charges and fees. This can increase the debt much more than the original Fine was. You will need to contact the bailiffs if it is at this stage to arrange payment. If you need further advice about this, contact one of the organisations at the back of this booklet. SOCIAL FUND / BENEFIT OVERPAYMENTS If you are on benefits, they can take any money outstanding direct from your benefits. If this leaves you in financial hardship, you should write to the office dealing with it and ask them to reduce the payments to one more affordable to you. If you are not on benefits, you can treat social fund debts like credit debts. When you have negotiated repayment plans on your priority debts, put the offers in box 3 of your budget sheet. You can then work out from this how much, if anything you can afford to pay to the non-priority creditors. WATER RATES Whilst you need to provide for your ongoing weekly charge, water rate debts are not a priority and any arrears can be treated like the other non priority debts. You cannot be disconnected for water arrears debts. United Utilities have several options for repayment including the arrears allowance scheme 6
(applied for through an advice agency) or you can request help via their Trust Fund. Contact United Utilities for a Trust Fund application form (0845 746 2034). Step 4 Negotiating with non-priority creditors If you have money left over at this stage, you can use it to make offers to the creditors in Box 4. The creditors in this section include: catalogues, bank loans and overdrafts, store cards and credit cards. The fairest way to divide this money is to make pro rata payments. You do this the following way: Making pro-rata offers Individual debt Total debt X Surplus Income = Offer So, if you have 50 per month surplus income and 3 creditors, it would be divided as follows to the creditors: CREDITOR AMOUNT OWED OFFER ABC Bank 1200.00 20.27 Credit Card 1500.00 25.34 Catalogue 260.00 4.39 TOTAL 2960.00 50.00 Using the above formula, the calculation for ABC Bank would be 1200.00 (individual debt) divided by 2960.00 (total debt) times by 50.00 (surplus income); this gives an offer of 20.27 per month. When you have done this, all the offers should equal the surplus income. Making token offers If you do not have any money available at this stage, you can ask the creditors to accept a token payment of 1 per month each or ask them to suspend payments for a short while if you feel the situation is likely to improve in the next few months. Sample letters are enclosed further on. Ensure when you write to the creditors that you ask them to freeze all interest and charges, otherwise the payments you make may not even cover these charges and you will want the payments you make to reduce the actual debt. Some of your accounts may be with debt collection agencies, rather than with the original creditor. Don t worry about this. They have no greater powers than the creditor and they are not bailiffs. Should they inform you that you are to receive a home visit, don t worry, as they have no right of entry into your home. 7
Both creditors and collectors have to abide by OFT Guidance on debt collection. These guidelines include: not being able to mislead debtors; not pursuing people who are not liable for the debt; not being able to contact you at unreasonable times and intervals and not being allowed to pressure you to increase payments when you cannot afford to. If they breach these guidelines, you can complain to them and to the Office of Fair Trading and the Financial Ombudsman Service (addresses can be found on the internet or in Yellow Pages). The creditors may not accept your offer. However, you are advised to start making payments as outlined on your budget sheet and write to them again. You should ask them to reconsider their decision and inform them that you cannot afford any more than the offer already made. You can inform them that they are not acting in line with OFT Guidelines. Hopefully they will accept or send the account to a debt collection agency. If they do transfer the account to a collector, you may need to start negotiating with them instead. Step 5 dealing with Court action Many people are frightened of Court action being taken. The Court is not there to judge you but to settle disputes about how to repay the debt. If Court action is being taken, most of the procedure is done by post, so you may not have to attend. You will receive a claim form, which you will need to complete and return to the address specified or complete online using the reference numbers provided. Any offer you make should be the same as the one already offered to the creditor and based on your budget sheet. Do not feel pressured to offer more than you can afford and that you have budgeted for. If you agree with the debt, then complete the Admission form. You can include a copy of your budget sheet and make an offer of payment. If for any reason, the Court does not accept your offer, you can ask the Court for a re-determination. There is no fee for this but it must be done within 14 days. The case will also be transferred to your local Court and you may be asked to attend a hearing. If you disagree with the debt on the Court order you will need to complete the defence. You may want to do this if you have requested a copy of the signed agreement and the creditor has not provided this. Court action should not go ahead if you have not received a copy of the agreement when you have requested it. If you already have a County Court Judgement (CCJ), and you cannot afford to pay it or are being threatened with further legal action, don t despair. The matter can still be resolved. You will need to complete form N245 available from the County Court or online at www.hmcourts-service.gov.uk The N245 enables you to do two things: reduce any payment plan (or set one up) and stop any enforcement 8
action being taken. There is a charge of 35 for this (correct as of August 2010), unless you are on qualifying benefits. These include Income Support and income based JSA. If you receive a qualifying benefit, complete form EX160. If on other benefits or low income, ask the Court if you qualify for remission of fees. Please be aware that this is only a brief guide and if you need further information or advice regarding your debt problems, please speak to one of the organisations listed at the end of this booklet. 9
BOX 1. INCOME (use all monthly or all weekly figures) INCOME & EXPENDITURE STATEMENT 10