Are your debts getting you down?
| Published: 30th January 2008 11:35 |
- Mr & Mrs Jones
This couple were referred to me by local financial advisor. Upon visiting them I found that they had the following debts
First mortgage with Platform of £90k. This mortgage was on interest only basis
Second mortgages (including charging orders) on the property of 55k
Total Mortgages - 145k, payments to mortgages over £1500 per month
Mortgages were 2-3 months in arrears
Value of house - 120k, so house was in negative equity by 25k
Individually they both had debts of 50k - 70k which were built up to help fund a limited company, which had now ceased trading, of which they were both directors. This was the cause of their debts with the business folding due to many circumstances out of their control
Mr Jones was now employed as a HGV driver who worked 13 days out of 14 on the Continent. His wife, having just returned to work after a long illness, was working as a care assistant. Mr Jones was working longer hours than allowed as a HGV driver and as he only returned home 1 Sunday per fortnight, Mrs Jones had to deal with the creditor's telephone calls, visits to the home and threatened bailiff action. She was on medication for stress and in tears regularly due to the debts
Their income was approximately 2.5k per month but their outgoings including debts were over 3.0k even on agreed reduced payments with some of their creditors.
They had already tried to agree a payment plan with a debt management company which had failed and also they attempted to enter into an Individual Voluntary Arrangement (IVA) which was rejected, having paid fees of 4K as an attempt which was never returned to them
Basically they had no life and could not foresee any way out of the situation. Mr Jones was suffering from diabetes and by continuing working these long hours was seriously affecting his health. Their credit rating was already in tatters
My solution was to stop paying the mortgages on their property and short term use the money that they paid to secure a house to rent. Once moved in to this house they returned the keys back to the mortgage lender who then sold the house. The remaining mortgages then became unsecured debts which would then allow them both to petition for bankruptcy clearing all outstanding personal debts also.
But the most important factor for me was that Mr Jones was able to change his job and work locally allowing him to spend time with his wife. They are thrilled to be living in their new property which is on a long term lease and Mrs Jones is now off her medication.
The outcome of the bankruptcy is that Mrs Jones has to pay an income payment order over a period of three years which she is happy to do as this is affordable within her income and expenditure.
As a summary when I saw this couple they were in an absolutely desperate situation, they would never own their house due to the large negative equity, both had serious health issues due to the debt problems and did not have any time together as a married couple.
Now being debt free all this has changed, they can now enjoy the rest of their lives together
2. Mr Knox
Mr Knox was referred to me by a mortgage broker who could not help.
Mr Knox used to work for a high street bank until a serious injury to his back prevented him from working. This resulted in him losing his job and received a long term sick pension which together with disability allowance is his only income. He had a property worth 150k but fortunately no mortgage
There was a possibility of him returning to work but after several operations later the Doctor concluded that this would not be possible as further operations could cause paralysis and would not be risked.
When he left his employment Mr Knox already had debt issues due to a Divorce and these were compounded by him having to use credit facilities to repay minimum payments to his creditors. He had hoped that if he could return to work he could mortgage his property to clear the debts and the payments would therefore be affordable. Obviously this did not happen and over the course of time his credit facilities were exhausted leaving over 120k of unsecured debts.
He approached several mortgage brokers but they were unable to reschedule his borrowing onto a mortgage due to the low level of income and also affordability on this size of mortgage.
Mr Knox faced losing his property and he did not wish to sell his house if necessary
The first solution I put in place was to set up a payment arrangement with his creditors. This allowed Mr Knox to repay them what he could afford to for a period of 12 months until the final decision on his return to work was concluded. The Creditors agreed to freeze interest and charges so the debt did not increase over this period and by proportioning the monthly payments based on the percentage of the debts, the creditors could see that they were receiving a fair payment. Regular updates were given to his creditors regarding the health issues
When it was known that he could not return to work I arranged with Mr Knox to agree a mortgage advance of 50k which was realistically the maximum he could afford
Then by approaching his creditors individually I offered them a full and final settlement. This is a process where creditors will accept a reduced lump sum (in lieu of accepting reduced payments indefinitely) and effectively will allow the rest of the debt to be written off. It does mean that Mr Knox's credit file would be affected for 6 years
After 6 months of negotiations Mr Knox has no credit card liability and has a smaller mortgage than first thought necessary with the payments affordable on a monthly basis.
As a summary Mr Knox built up debts on the premise that he would be able to return to work. When this was not possible he faced losing his home, but with constant dialogue and contact with his creditors I was able to keep Mr Knox in his home and satisfy the creditors with reduced monthly payments initially and by an acceptable reduced lump sum.
3. Mrs Whiteman
This lady was referred to me by a local solicitor. Mrs Whiteman was presently going through a divorce. There were no children involved so she was not in receipt of any maintenance. The marital home had sold but due to 10k of estate agent fees Mrs Whiteman received just over £600.
She had however left the marriage with personal debts of 60k. The reason for borrowing this money was to fund her husbands business during the time they were married. Her husband was unable to gain any credit so she found herself borrowing against loans and credit cards for this purpose.
The business was doing extremely well and after they agreed on a 2 year plan to repay the debts he announced that he wanted a Divorce. This business ceased trading and he set up another company as she was a co-director in name only on the previous one. This came as a shock but after a while she agreed, the split was originally amicable with Mrs Whiteman agreeing to move out of the marital home. By doing this Mr Whiteman agreed that he would continue to pay the mortgages on the property and also her personal debts.
Mr Whiteman then moved out of the home but invited Mrs Whiteman to call and collect any belongings she would like. Upon doing so she found the property empty. Mrs Whiteman has not spoken to her ex husband since and they only communicate via email. She was however shocked to find out when completing the Divorce that he had not repaid any of her personal debts as promised for at least 6 months. This left here with serious arrears on her loans and credit cards and with no assets from the marital split unable to repay these arrears. She had an income of £1200 per month but outgoings of £1150 and was getting constant calls from her creditors as she had started to investigate the depth of her debt issue
She was emotionally very upset over the Divorce and being let down by her husband over the payment of her debts. Now she also had to deal with the pressure form her creditors which led to her struggling with her job. Within 2 years she had gone from a homeowner, married to a husband with a successful business to living in rented accommodation, no assets and 60k of debt with no hope of repaying it
The solution was bankruptcy which has now led to Mrs Whiteman being debt free. Whilst she cannot forget the events of the previous two years she is now able to come to terms with it without the pressure of the debts hanging over her
For free advice on your debt issues please contact Neil Rogers, debtDr on 07809 110376. Alternatively please email Neil at neil.rogers@debtDr.co.uk
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