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- I have a debt manager and am being charged an admin fee each month. Is this a normal procedure or should they not be charging for this?
- All fee charging Debt Management Companies charge a monthly management or administration fee of some sort. This should have been clearly explained when you set up the Debt Management Plan (DMP). There has been considerable publicity on this on 28 September covered by Debt Management Today. Several ‘not for profit’ organisations offer DMPs where there is no monthly management fee and they are funded through an alternative method called ‘fair share’ where your creditors pay the equivalent of a debt collection commission (generally 12% to 12.5% of your monthly contribution to the respective creditor), though 100% of the payment you make is taken off the outstanding balance and marked as such on the credit agreement on your credit file. Monthly administration fees can vary dramatically, but as a rule of thumb they range from a minimum of £20 to an upper ceiling of £100 per month. Some are based upon a percentage of your disposable income (the amount you pay to the Debt Manager each month), which may range from 15% to 19%. Others fees are tiered based upon the number of creditors you have for the Debt Manager to administer. The latter model is slightly more logical as it is based upon the amount of work they do – the more creditors you have the more correspondence and negotiation is required. Some providers cap the total number of payments you make and/or the total fees payable, after which all your disposable income is disbursed to your creditors. The fee structure should be in the Debt Management Agreement that you signed.
- I have gone into a debt management scheme. If I can’t pay all my debts off will they be written off, or will I have to remortgage later on?
- The basis of a Debt Management Plan (DMP) is that you will repay the principal balance of your unsecured debts (that you have asked the Debt Management Company to act upon) in full and that interest & charges on these debts will be frozen, though this cannot be guaranteed. Most Debt Management Companies charge a monthly management fee, which you need to deduct from the monthly payment you make to them to determine what you are paying back to your creditors every month. They divide this monthly payment into the total debt balance [which will have been confirmed by your creditors]. This gives the duration in months. Divide by 12 and you have the number of years to clear your unsecured debts. Some Debt Management Companies cap their fees at a total value and/or a total number of payments, after which all your monthly contribution is disbursed to your creditors accelerating the time period to clear your unsecured borrowing. In some circumstances your creditors will consider writing off your debt. This may be after a long(ish) period of contributions or if you are in severe financial hardship which is well defined in the Lending Code. What is a bit woollier is the definition of ‘vulnerable’. One of the areas that is reasonably well defined is that of ‘Debt and Mental Health’, where your debt manager should be able to present the required Evidence Form to the creditors for them to consider the most appropriate resolution, which may include writing off the balance of the debt. Full & Final settlements are a common way to bring your Debt Management Plan to an earlier conclusion. Releasing equity from your property through a re-mortgage used to be very common when house prices were rising and there were more mortgage products on the market. Both will recover in time. Creditors are prepared to negotiate on debt adjustments where a lump sum is available to settle a debt and update your credit file accordingly. You may look to do this for all your debts or just those that you have sufficient funds to target. Levels of write off vary, but a write off of 50% of the outstanding balance is not unrealistic. Obviously, it is important to take proper advice when considering turning unsecured borrowing into a secured loan. Your Debt Management Company should be able to advise you on this both as part of the on-going review process of your DMP and on request by you.
- What is a Debt Relief Order or DRO?
- Debt Relief Orders (DROs) were introduced by the government in April 2009 and are intended to provide debt relief for vulnerable people in England and Wales who are unable even to pay relatively low levels of personal debt.
Qualifying requirements:
•You owe £15,000 or less to your creditors
•You are not a home owner
•Your total gross assets do not exceed £300
•Your disposable income, following deduction of normal household expenses, must not exceed £50 per month
There are additional restrictions on who may enter into a DRO. A Debt Relief Order will lead to the debts being discharged after one year. During the year that a Debt Relief Order is active, the applicant will be protected from their creditors and subject to similar restrictions to bankruptcy. If the applicant's financial circumstances change during the order, then they will be expected to make arrangements to repay their creditors. There will be civil and criminal penalties for anyone abusing this system.
You will usually be allowed to keep a car if it is worth less than £1,000 or it has been adapted for you because you have a physical impairment that has a substantial and long-term adverse effect on your ability to carry out normal day-to-day activities.
Atlantic Financial Management may advise you to contact a 'competent authority' with a trained 'intermediary' to deliver your Debt Relief Order, if this is the most appropriate debt solution. The approved intermediary will apply to the official receiver for the DRO. They provide a low cost access to debt relief for those overwhelmed by relatively low levels of debt. The cost is £90.
Currently, if someone has a pension that is over £300, they are not eligible to apply for a Debt Relief Order. This is currently under consultation.
Debt Relief Orders will therefore only be available to a very restricted category of debtors. An Atlantic Financial Management team member will discuss this with you if you meet the criteria above. - Can a debt management plan help with council debts?
- Council debts are priority debts and would not be specifically included in the Debt Management Plan (DMP), however, the Atlantic Financial Management team should make provision in your income & expenditure (or statement-of-affairs) for both payment of on-going council payments and any arrears on these.
If you have sufficient disposable income then a reasonable allowance will be made for a repayment arrangement to the Council and model letters are available to assist you present your circumstances following the visit or call with the debt adviser.
If there is disposable income (e.g. over £80) remaining after allowing for any repayment arrangement for priority arrears then a Debt Management Plan may still be suitable to deal with any unsecured creditors you may have. As a guideline, you would have over £3,000 of unsecured debt with more than 2 creditors, otherwise self-management may be a better option with some initial debt advice.
Local authorities can be aggressive at using bailiffs and other forms of enforcement (they generally do not use 3rd party debt collectors ), so taking advantage of the legal support services offered by leading debt solution providers can help immensely, as this can be very stressful and very few consumers fully understand the powers that enforcement officers have in relation to council and local authority debts.
Important points to remember:
•Whilst lenders are not obliged to freeze interest and charges, in 90% of the current cases we have referred to them they have done so*. Where a lender does not freeze interest and charges the amount you owe and the period over which you repay that credit account may increase, though we will continue to request interest and charges be frozen once several payments have been made to your DMP.
•Whilst entering into a DMP can adversely affect your credit rating it is our experience that those who approach us already have an impaired credit record. By entering into a DMP you will be showing your creditors that you are taking a responsible attitude to resolving your financial problems and this could help you in the future.
* Figure accurate at the start of January 2010. - What is a Scottish Trust Deed?
- A Trust Deed (more properly a Protected Trust Deed) is the Scottish equivalent of an IVA. It is a formal arrangement that is used in Scotland where a consumer grants a 'deed' in favour of the trustee which transfers their assets to the trustee for the benefit of creditors. It will normally stop legal action and protect you and your home. Provided certain conditions are met, the Trust Deed may be registered as "protected", thereby preventing creditors from petitioning for the debtor's sequestration.
The main disadvantage of a Trust Deed is that existing arrestments and other diligence may continue to be effective, home owners would require to release the equity in their home. The advantages are that the debt is frozen on the date the Trust Deed is signed and the balance of debts are legally written off once the Trust Deed is brought to and end.
Upon completion of the 36 month period any balance of debt is written off and creditors cannot pursue you for interest or the balance.
If you live in Scotland your Eurodebt Advisor will discuss this option with you at your meeting. - What is an IVA?
- An IVA is a formal agreement made between a debtor and his creditors about how the debts will be paid (either in full or in part). To enter into an IVA you need to apply to a court and an insolvency practitioner has to be appointed to supervise the arrangement. An IVA is an alternative to bankruptcy.
The insolvency practitioner will help you to put down your proposals to your unsecured creditors. If 75% (by value of debt) of your creditors who are represented at the meeting (in person or by proxy) vote in favour of the proposals, the IVA will be implemented. Once the proposal is approved it is then binding on all creditors. Whilst an IVA is in force, unsecured creditors cannot take any debt recovery action against you.
At the end of your IVA, typically in the fifth year, you may be required to release equity in your property to repay some or all of your outstanding debt.
Your Atlantic Financial Management debt advisor will discuss this option with you over the phone.
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