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Debt advice
Ten golden rules for dealing with debts
- Don't ignore the problem. It won't go away and the longer you
leave it, the worse it gets.
- Get in touch with your creditors straight away and explain your
difficulties. Get a contact whom you can go and see or phone or
write to using the sample letters below.
- If the person you speak to is unhelpful, ask to speak to
somebody more senior who may be able to agree to what you
want.
- Make sure you tackle your priority debts first - the debts which
can mean losing your home or having your gas or electricity cut
off. This page tells you what these are. You can't go to prison for
most types of debt.
- Fill in the reply forms to court papers and let the court have
all the facts. You should supply a copy of your financial
statement.
- Attend court hearings. Take a copy of your financial statement
with you. Don't think that going to court makes you a criminal.
It's not that kind of court. Most hearings take place in
private.
- Don't borrow money to pay off your debts without thinking
carefully. Get advice first. This kind of borrowing will usually
make matters worse.
- Always answer creditors’ letters or phone calls. Don't give up
trying to reach an agreement even if they are being difficult. Be
persistent.
- Remember the council is here to help at each stage with letters
and forms and it can explain what to do if you are asked to go to
court.
- Don't give up and don't panic.
What are priority debts?
The law gives different creditors different ways of getting
their money back. Therefore, some debts are more important than
others. Here is a list of kinds of debt and the action that may
result if you cannot reach an agreement.
| Debt |
Action |
| Mortgage or rent arrears |
Repossession of your home or eviction
from your home |
| Second mortgage or secured loan
arrears |
Repossession or eviction |
| Council Tax arrears |
Bailiffs action or imprisonment |
| Gas and electricity arrears |
Gas and electricity cut off |
| Unpaid fines |
Imprisonment |
| Maintenance or Child Support
arrears |
Imprisonment |
| Tax and VAT arrears |
Bailiff action |
| Telephone arrears |
Disconnection |
These are priority debts. It is important to use your available
income for all creditors to make agreements and settle these debts
first. Don't make offers on your other debts until you have
negotiated instalments to pay these priority creditors.
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Money going out: expenses
Work out how much money you have to pay out each week and month
on the basic living expenses on your financial statement. At this
stage don't include any debts, arrears or any credit payments.
Council tax
Check whether you are entitled to Council
Tax Benefit and/or a discount and
see if you can pay in weekly or monthly instalments. Many councils
ask for the amount paid over 10 months rather than 12. If this is
the case, put down the amount you have to pay every month.
Water charges
Water companies may accept weekly or monthly payments rather
than half yearly.
Gas and electricity
Work out the cost of your bills over the year. Divide by 12 if
you are budgeting monthly. You can ask to pay by budget scheme or
have a meter installed. Ask your local council about home
insulation grants. If you are on Income Support or Job Seekers
Allowance (JSA) you can pay for your arrears by Fuel Direct.
Food and household items
For food, put down the amount you spend on your weekly shopping,
the milk bill and the cost of extra items you might buy during the
week. You should also include the cost of household items, for
example, washing powder, soap, shampoo, toothpaste, sanitary towels
and disposable razors. If you are not sure exactly how much you
spend on food and household items, allow about £20 per week for
each person who lives with you. However, if you or anyone else who
lives with you needs a special diet (for example, a diabetic) or
has other special needs, you will need to increase this amount. You
should explain this on any letter you write to your creditors.
TV or video rental
You should include the monthly cost of renting a TV and/or a
video. Most of your creditors will accept that expenditure on these
items is essential.
TV licence
Consider buying licence stamps from the Post Office to save up
for your next one. You can also pay by direct debit in 12
instalments.
Other housekeeping items
In this section, you should include your leisure expenditure
such as the cost of trips to the cinema, alcohol and cigarettes.
You may find that some of your creditors will ask you to justify
this area of expenditure or insist that you get rid of it
altogether. See if you can cut down but be realistic.
Essential travelling expenses
These should include travelling to work, school and for
shopping. If you are running a car, include the cost of tax,
insurance, repairs, MOT and servicing as well as petrol.
Clothing
Look at your clothing expenses over a year. Only include
non-dependants if you pay for their clothing. Remember to include
school uniforms. As a rough guide, allow £5 per person per
week.
School meals
People on Income Support or JSA can get help with school meals.
Importance of the financial statement
This document is sent to creditors, so great care must be taken
to ensure that it fairly represents your financial circumstances.
Standard forms are provided for printing. To use these and the
other pdf files on this page, you will need Adobe Acrobat
Reader. If you do not have this on your computer please use our
advice
page.
- First complete the income (pdf 59KB)and expenditure (pdf 65KB)
sheets. Use either weekly or monthly figures, whichever suits you
best. Don't mix the two. Be realistic with your offers. Then
complete the financial statement in pencil.
- The financial statement also needs to list agreed payments for
priority creditors. This normal contractual spending (for example,
on rent or mortgage) or regular spending (for example, on fuel)
should be included in expenditure. It is only the arrears of these
items which should be listed under priority creditors.
- You are now ready to negotiate with creditors. If you need
advice, phone your money advice worker.
From the financial statement you will be able to calculate
whether or not there is any available income to make offers to
non-priority creditors.
How to pay priority debts
People to whom you owe priority debts must be offered payments
first. To settle these, write with proposals on how you aim to
do this. Remember to be realistic and do not offer more than you
can afford.
How to repay credit debts
After paying your expenses and making arrangements with priority
creditors, you will need to negotiate your non-priority debts
according to now much money you have left.
If you have nothing left, say so. Show your creditors by sending
them your financial statement and contact the council for further
advice.
If you have something left, this is how to divide it up. In this
example, the amount owed is:
| Hi-Fashion catalogue |
£463.00 |
| Armchair Loan Company Ltd |
£1,246.00 |
| Friendly Bank plc |
£825.00 |
| Eastern Financial Trust Ltd |
£2,801.00 |
| TOTAL |
£5,335.00 |
After paying the priority debts and living expenses there is
£30.40 per month left for other creditors.
When you have more than one debt you have to decide how to
divide the money for creditors fairly among them. The normal way of
doing this is called pro-rata distribution. This means the biggest
creditor gets the biggest share of the money.
This is how to divide the £30.40 fairly between the
creditors:
Multiply each individual debt by available income for all
creditors (in this case £30.40), then divide by the total amount
owed (in this case £5,335).
| Hi-Fashion catalogue |
£463 x £30.40/£5,335 = £2.64 |
| Armchair Loan Company Ltd |
£1,246 x £30.40/£5,335 = £7.10 |
| Friendly Bank plc |
£825 x £30.40/£5,335 =£4.70 |
| Eastern Financial Trust Ltd |
£2,801 x £30.40/£5,335 = £15.96 |
| |
(/ = divide) |
Use a calculator to work out your payments. You may find it
easier to round your offer down to the nearest 10 pence. Most
creditors are happy to accept this.
You can download the
following examples that will help you to compose letters to your
creditors:
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top)
Court action for non-priority debts
Owing money on credit debts is not a criminal offence. Action to
recover these debts will take place in the County Court. The County
Court is there to ensure that justice is done between borrower and
lender. It is not there to serve the interests of the creditor
alone.
Some debts, for example regulated consumer credit agreements,
may require a default notice to be served before any further action
is taken. This must be issued by a creditor for all debt regulated
by the Consumer Credit Act 1974 before court action can
start. You must be given at least seven days to carry out the
action required by the notice. If the notice is requesting payment,
it must contain a statement about time orders and about seeking
advice from a Citizens Advice Bureau
(CAB), solicitor or trading standards department.
If or before any court action is taken
- You will receive a default summons stating what your creditor
claims.
- If you do not agree with the amount claimed in the summons,
seek further advice from the council about disputing the amount
claimed.
- If you agree with the amount claimed in the summons, you should
return the form of reply (Form N9A) which is attached to the
summons. Use a copy of your financial statement to help you fill in
the form and send a copy with the form. If you have no money left
after paying priority creditors, please phone your money adviser
who will advise you further. Send the Form N9A to the creditor or
their solicitor.
- If the creditor accepts your offer, you will receive an order
to pay from the court called a judgement.
- If your creditor does not accept your offer, court officials
will decide the rate of payment and make a judgement. If you do not
agree with the amount ordered by court officials, you can request a
reconsideration and a hearing will be arranged with a District
Judge who will decide what you should pay.
- Monthly payments ordered by the court can be reduced if you
cannot afford them. You can apply for a reduction by using Form
N245 which is available from any county court office. There is a
fee, unless you are on Income Support or JSA.
Advantages and disadvantages of court action
If creditors start county court action to get their money back,
this can have advantages for you
- The court is likely to let you pay a monthly amount that you
can afford but it can only do this if you tell it about your income
and expenditure.
- After a county court judgment has been made, you might be able
to apply for an administration order. This is a way of putting
together many debts as a monthly payment to the court. The court
office then shares it out among your creditors. The amount you pay
each month is worked out by looking at your income and expenditure.
An administration order can only be used for total debts under
£5,000. If you are getting benefits, no court costs will be
incurred. It may be possible for part of the debt to be written
off.
If you want to apply for an administration order, please seek
further advice.
There can also be disadvantages if creditors take court
action
- Court costs are added to your debt and are fixed on a sliding
scale depending upon the amount owed.
- If a county court judgement is made and you cannot pay straight
away, your name will be put on a Register of County Court Debts for
six years and you will find it difficult to get credit. You can ask
for your name to be removed once the debt is paid.
- If you do not pay the monthly amount that the court has ordered
on the judgement, your creditors may take further enforcement
action against you. This action can be directed against your goods,
savings, earnings or property. So it is important to pay monthly
payments regularly or apply for them to be reduced by completion of
a Variation Order (N245). These forms can be obtained at the local
County Court. Please contact the council if you want to discuss
this further.
Please remember:
- That you have rights as well as your creditors.
- If you tell the court everything that you can about your
income, expenses and debts and attend court hearings when asked,
you should be allowed to repay the debts at a rate you can afford.
Attach a copy of your financial statement to any court forms and
take a copy to court proceedings.
- If your income goes up or down or your expenses increase, you
can ask the court to review your payments on Form N245.
- If you do have to attend a court hearing, your name will not
appear in the local papers.
- The county court is not a criminal court. It is not there to
punish anyone.
- The court staff and the District Judge who decide the cases are
used to dealing with people who do not have a solicitor. If you
receive a letter or form from the court that you do not understand,
take it to the court and ask for an explanation or contact the
council.
- You can always take someone along to court with you, for
example, a friend or interpreter.
- If a County Court judgement has already been made, a variation
order (form N245) can be obtained from your local County Court.
This allows you to apply for a suspension of a Warrant of Execution
or a reduction of instalment order.
- Section 40 of the Administration of Justice states clearly that
a debtor should not be harassed, humiliated or coerced into paying
more than they can afford. If you are persistently being harassed,
please contact the council's Trading
Standards service or a CAB.
Help from the Consumer Credit Counselling Service (CCCS)
CCCS is the UK’s leading debt help charity. The CCCS
website offers a wide range of free debt advice and an online debt
counselling service. Its Guide to Debt Management
Plans is available to download at:
www.cccs.co.uk/InfoCentre/EnglandandWales/Debtsolutions/Debtmanagementplan.aspx.
This guide gives free advice on debt management plans and
highlights the difference between fee-charging debt management
plans and the free plans offered by CCCS. It also discusses other
solutions to serious debt problems.
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