Frequently asked questions
Do I have to complete a financial statement?
It is unlikely that any creditor will accept reduced payments without one. If you are a Co-operative Bank customer and need help preparing one, call one of our advisers on 0800 0288 696.
What if my expenditure is greater than my income?
You should look to see if you could reduce your expenditure. If this is not possible, speak to your creditors to see if they will accept a 'good faith' token payment, or even write the debt off. They may offer to consolidate your debts so you pay less each month but for a longer period of time.
What if the creditor refuses to accept the pro-rata payment?
Pay it. As long as the financial statement is a true reflection of your situation and there is no excessive expenditure, you should keep paying the pro-rata payment, but ask the creditor to provide an explanation in writing as to why they will not accept this offer.
Once you receive this explanation you should seek advice. Your creditors will not want to take you to court unless they feel they would be awarded larger repayments through a judgment. You will know whether this is likely, given your financial situation.
Why should I include my partner's income in the financial statement if the debt is only in my name?
You do not have to include your partner's income - but it is in everyone's interest to have a full picture of your situation if you are to receive the right kind of help and advice. If you choose not to provide the information, you must adjust the expenditure details to exclude your partner.
Can they send the bailiffs around?
If your debts are unsecured, your creditors can apply for a warrant of execution (bailiff involvement) through a court. However, you must have already been taken to court for the debt and not adhered to the original judgment. If the debts are secured, they can only repossess the goods under the original terms and conditions of the agreement. You should check whether the original agreement is covered by the Consumer Credit Act and whether you have repaid enough of the debt to prevent repossession.
Will I be blacklisted?
There is no such thing as a 'blacklist'. Most people who have credit will have a file with the Credit Reference Agencies.
The information held on file is provided by the creditors and is mostly just data about how much you borrowed, how much you still owe and whether you have been late with payments. The majority of data is numerical and must be factual. No opinions are expressed as to whether you are credit-worthy.
When you apply for credit, a lender will access your file (but only with your permission) and decide, based upon the information provided, whether they are prepared to grant you further credit. Each lender will have their own criteria for what is acceptable or not and you may therefore be declined by some but accepted by others. Of course, the worse your payment profile, the less chance there is of being successful.
Details of any County Court Judgments or fraudulent activity are also held on your file.
How long is this information kept?
Information recorded at the Credit Reference Agencies can be held on file for up to six years after your payment has ended or after your account has been formally 'defaulted'. A 'Default Registration' occurs when the creditor feels that their terms under the original contract have irretrievably broken down. They must give you a minimum of 28 days notice before registering the account as defaulted with the agencies and you should also have been served with a Notice of Default giving you a minimum of 14 days to bring the account back in to order.
What is an IVA?
Individual Voluntary Arrangement (IVA). This is a legally binding arrangement between you and the creditors (of your unsecured debt) to repay the money you owe them. It is administered by a licensed Insolvency Practitioner (IP) who will help you draw up a repayment schedule. The IVAs normally last five years after which your liability to the creditors is fulfilled. If you have equity in your property, however, some creditors may only agree to the IVA if you are prepared to release some of the equity to pay towards your debts.
Depending upon your circumstances, some of the debt you owe may be written off by your creditors as part of the arrangement, but this is determined on an individual basis. Normal criteria for applying for an IVA is that you have at least £15,000 of unsecured borrowing. An IVA is not guaranteed to be accepted and the majority of your creditors (at least in terms of debt owed) must agree to it.
You should be aware that, if you decide that an IVA is right for you, you will be expected to maintain the arrangement as any missed payments could lead to you being made bankrupt. Additionally, during the arrangement you would not be able to take on more credit and your file at the credit reference agencies will be updated to register the IVA.
During an IVA, creditors will not be allowed to apply interest to the account and all communication should be channelled through your Insolvency Practitioner.
Should I apply for bankruptcy?
It is not recommended in most cases. If you make yourself bankrupt, you will have to pay the fees yourself (currently around £750 for both court fees and the administration of the bankruptcy). If you are a homeowner, then you may lose your home and any other assets that you have.
Bankruptcy can be a real solution for people who are in severe debt and see little chance, if any, of the situation improving. Your creditors are unlikely to make you bankrupt unless you have property or items that they feel can be sold off and the proceeds used to pay towards your debt.
Although the information registered at the Credit Reference Agencies will remain on your file for a minimum of six years, bankruptcy will normally mean that a person is free from their debts after one year, however, there are serious implications of undertaking such action and you should seek advice first.
Who can I get advice from?
There are three main sources of advice:
The lenders - they have an obligation to talk to you about any problems that you may be having in fulfilling your financial commitments. However, they may not be prepared to advise you on repayments to other creditors and may advise you to approach each creditor separately.
The organisations that offer free, impartial and confidential advice - such as the National Debtline, Payplan or the Consumer Credit Counselling Service. These organisations are a real lifeline for many people, but they are often over-stretched and under-resourced. Do not expect to get advice on all of your debts immediately, but be patient. It may be beneficial to telephone first and make an appointment.
The fee-charging companies - over the past few years there has been a significant growth in the number of companies that will act as a liaison between you and your creditors. Some offer to negotiate and administer payments to your creditors on an informal basis, some will include services such as IVAs. These companies charge a fee for such services, which is typically around 17.5% of your disposable income, and some will even keep your first two instalments as a deposit. You may feel that this money would be better used to pay off more to your creditors and potentially paying off your debts quicker. If you decide to sign up for one of these services, make sure you read the terms and conditions fully as there may be penalties if you change your mind further down the line.
Are there any helpful tips when speaking with my creditors?
- List all your creditors before calling
- Do a quick Budget Plan
- Have your statements and/or creditors letters to hand
- Make note of the advisor you were speaking with
- Take note of the time and date you called
What is a Debt Relief Order?
A Debt Relief Order (DRO) allows debtors who have no means of paying off their creditors to have the debts written off. It is available to debtors who meet the following criteria:
- Must have less than £15,000 qualifying debts
- Less than £300 of assets
- Surplus income of £50 per month or less
- Live in England or Wales
There are exclusions to who can apply for a Debt Relief Order:
- A debtor cannot have had a DRO in the last 6 years
- Cannot be a discharged bankrupt or subject to a Bankruptcy Restriction Order
- A home owner
- Cannot be in an IVA
If you apply for a DRO you have to pay a fee of £90. DRO's will be administered by Approved Intermediaries (ALs) who are debt advisors working for Competent Authorities (CAs). CAs includes CAB, CCCS, Payplan, Institute of Money Advisors and National Debtline.
The debtor will remain on the Individual Insolvency Register for the duration of the DRO (12 months plus an additional 3 months). Credit References Files will hold information on DRO's for 6 years in line with other information.
A DRO prevents creditors listed in the DRO from taking any enforcement action for the 12 month duration of the DRO.
