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When a Police Support Staff member owed too much, debt expert Mike Thomas stepped in.
A police support staff member with unsecured debts of £35,000 on credit cards, loans and bank overdraft was referred to us by her welfare unit.
Payments to her creditors amounted to £930 each month from a take home pay of £1,125, leaving just £195 a month to pay for rent, utilities, motoring costs and living expenses. Her debts were spiraling and she was borrowing more on each credit card just to make the payments to other creditors.
She was not seen as a risk by her creditors as all payments were up to date but completion of an income and expenditure form revealed that after accounting for the necessary items of household expenditure, the actual amount of monthly disposable income was only £320. It was obvious therefore that the she could never meet the sums required each month to pay her debts - which were actually increasing by £610 each month (£7,320 in a year,) not including interest.
The Advice
The first thing was to open a new bank account, without credit facilities, at a bank that was not owed any money. This stopped the original bank from closing down the old account on their terms and prevented them from continuing to take their payments for any loans.
Consideration was then given to using a Debt Management Company (DMC), Bankruptcy or proposing an Individual Voluntary Arrangement (IVA). The DMC option was dismissed as in the majority of cases some creditors would still add interest and late payment charges, making the overall debt increase. Furthermore the debt would need to be paid back in full, perhaps taking up to 15 years depending on the interest charged. Our case did not wish to go bankrupt - even though under bankruptcy the payment terms would be for only three years - as she lived in rented accommodation and her only asset was the car worth £6,000.
The debtor decided to propose an IVA to her creditors as she was clearly insolvent and had no assets other than a two year old car, which was paid for. The proposal entailed monthly payments equivalent to her disposable income of £320, over a period of five years. She also proposed to sell the car, worth around £6,000 and replace it with one for around £3,000. This freed up £3,000 of additional funding, which was to be pledged into the IVA to boost the overall return to creditors. This act was seen by creditors as a positive move by the debtor and demonstrated her desire to pay back what she could.
Because the creditors were contacted immediately and advised that the individual was seeking professional advice in order to address her financial problems, she was spared the constant pressure from telephone calls and threats of court action to recover the debts.
The Outcome
About 11 weeks after our initial consultation, a meeting of creditors was held at which the individual’s proposal for an IVA was accepted. No interest and late payment charges can be added to the debt after this stage and both the debtor and her unsecured creditors are bound by the terms of the arrangement. Providing the debtor continues to make the agreed monthly payment to the Supervisor of the arrangement, who distributes the funds to the creditors, at the end of the arrangement her unsecured liabilities will be deemed to have been legally discharged. If the debtor had chosen bankruptcy, creditors were not projected to have received much of a return other than a percentage of the sale proceeds of the car. With the IVA creditors will receive a return of around 40 per cent, i.e. 40 pence for every pound of their claim, providing the IVA is completed in accordance with the terms.
The debtor had no further contact with the creditors and it is probably helpful that she is not able to obtain further borrowing for the time being. With some guidance as to future money management she is now back in control of her finances, though her credit rating is impaired.
More details on debt management companies, Individual Voluntary Arrangements, bankruptcy and our Debt Option Comparison table, 6 Option Guide to Getting Out of Debt and the budget planning forms can be found at www.debtwizard.com. For free access to the site you need only insert an email address and password. Because we carry no advertising or sponsorship we cannot be pressurised or influenced on the advice we give.
This article is intended to afford general guidelines on matters of interest. Accordingly, the information in this article is not intended to serve as legal advice. Therefore, no responsibility can be accepted by debtwizard.com, for any loss occasioned by a person acting or refraining from, acting on the basis of this article. Users are encouraged to consult with professional advisors for advice concerning specific matters before making any decision.
Mike Thomas head of www.debtwizard.com and his team provide advice on debt problems to Officers and support staff. He has clients in more than 80 per cent of the nation’s Police Forces as well as in the Prison Service, M.o.D., Fire Brigade, Ambulance Service and in other Public Service Departments. He regularly features on TalkSPORT and BBC radio as well as BBC television news.
