The first thing you should always do is to work out how much money you owe, and in which order you should pay your debts back.
As part of these initial considerations, you should also prepare a statement of your assets and liabilities, and a budget, detailing your monthly household income and expenditure.
If you are reading this, then it is possible that you are finding yourself under pressure to pay one or more debts, and the stress of even thinking about these initial considerations may feel overwhelming. If you find this to be the case, one of our specialists will be on hand to assist you in providing order and clarity to your financial affairs, should you need it.
Once this initial information has been compiled, you should initially consider the informal solutions available to you, which comprise:
- Reaching an informal agreement with your creditor(s) to pay off their debt(s), based upon the level of your assets and your ability to comply with this style of agreement. It is important to note that these types of agreements are generally not legally binding, so you need to ensure that any proposal you make to creditors is realistic and achievable; otherwise, you may likely need to revisit your options again at a later date if cash becomes tight.
- Obtaining an unsecured loan to simplify your debt structure and turn it into one manageable monthly amount. You will again need to ensure that any loan you secure is affordable, bearing in mind that a high street lender may not consider you suitable for a loan given your existing debt, and that the interest charged on any such loan may be costly compared to your monthly income and outgoings.
- If you own either a property or a high-value asset, it may be that a lender will seek to offer you a loan that is secured against that property or asset, rather than the loan being treated as unsecured. Their ability to offer that type of finance will depend upon the value of the property or asset and the existing borrowings against it. As with an unsecured loan, you should ensure that this option, if you elect to pursue it, is affordable bearing in mind your household income and outgoings. Any failure to service this loan may end up in you losing your home, so it is imperative that you ensure this solution is right for you due to the potential impact on you, as well as your partner and dependants.
- If you’re struggling to maintain payments on debts such as credit cards, loans and store cards, a debt management plan (DMP) may be right for you. Unfortunately, a DMP cannot address arrears that may have arisen for your mortgage or rent, gas or electricity, council tax or rates, magistrates’ court fines, arrears of maintenance payable to an ex-partner or children, income tax or VAT, or a TV licence. These are known as priority debts. In order for a DMP to be right for you, you must be able to service your priority debts from your monthly household income and still provide a surplus to make one set monthly payment to a DMP provider. The amount will be divided equally between your creditors, and the DMP payments will continue until you have paid all of your non-priority creditors in full. There are lots of DMP providers; however, if you are to select this option, we would recommend the following:
- that the DMP provider is registered by the Financial Conduct Authority (FCA);
- that you consider using a free provider, to ensure that the period that your DMP lasts for isn’t extended by their additional cost burden; and
- that you contact either your local Citizens Advice or National Debtline for a referral to a DMP provider.
It is not unusual to have considered all of the above options and found that none of them are suitable for your personal needs and affairs, particularly where your assets and liabilities are more complex and involve matters such as debts due to HMRC, or where you have assets of relatively significant value that are jointly owned and you want to protect your partner.
In those instances, it is possible that you will need to consider a formal insolvency process.
Dean Nelson, Nicholas Lee, Andrew Stevens and Michael Roome are all licensed in the United Kingdom to act as insolvency practitioners by the Institute of Chartered Accountants in England and Wales. They are bound by the insolvency code of ethics, which can be found here.
When acting as receivers, administrative receivers or administrators, they act as agents only, without personal liability, and when acting as administrators, the affairs, business and property of the company are being managed by them.