The Debt Advice Online Blog

Do you have to make installment payments which you can no longer afford? Are you tired of the ever increasing balance on your debts? Are you worried that your debts will never get paid off?

Well there are ways by which you could manage to pay off your debts. Unsecured loans are dished out at a very high interest, since they do not require you to put any collateral against the borrowings. The installments are high, and if you default in paying, there are penalty interests put on to the outstanding balance, and late fees added. The outstanding of your debts bloats up and up, till it becomes hopeless. Unsecured debts, especially credit card unpaid balances, attract high APRs, and it is said that credit card APRs are one of the highest in the UK, if not the highest one.

People legitimately run into financial problems, and the effect comes directly on to the monthly installments for their debts. Illness in the family is one where you would incur expenses. If you are in the UK, you are somewhat lucky. There could be many instances where you would need money to be spent immediately, and you default on your debt payments. The result is that, you land up in a financial crisis, and your debt has grown by that time, becoming totally unmanageable. You are bewildered as to how you should handle your debts, and you become overwhelmingly stressed. You need a way out.

If you are cast strapped, you might go and consult a credit counsellor. You need to have an open discussion with him, letting him know your actual financial situation. The counsellor may advice you to go for debt consolidation, and sign for a debt management plan. He can also advice you to go in for IVA, which is the short form of Individual Voluntary Arrangement. Credit card dues could be written off, though not entirely, in certain circumstances. But this involves checking on the legal aspect of the dues that you have. So, armed with so many choices, you just might manage your growing debts.

Let me explain more what I have said above.

If you are considering debt consolidation, you ought to seek advice from a credit counsellor. The counsellor’s job is to look at your financial position, take an account of your outgoings from what-ever you earn, take into consideration of other financial factors, and advise you how to go about managing your debts. If found suitable, you may be advised to visit a credit agency who deals with debt management plan (DMP). Here again you need to open your cards and have exhaustive discussions regarding your financial matters. If your case is found suitable you shall be given an option of debt consolidation.

Under DMP, your matters regarding your creditors are taken up by the credit agency. They discuss matters with your creditors and try and reduce your debts by waiving off fees, such as the late fees charged on outstanding balance, bring down the interest rate, and also try and waive off some part of the debt balance. After having done all that, they let you know, and it is wise for you to check with your creditors the facts. The agency now goes for consolidation of your debts, and you sign on a DMP with the main understanding that you shall be paying one amount per month to the agency, who would distribute that money to your debtors.

The debt against your UK credit cards could be written off. Balances of Credit cards bills, where the credit cards have been issued before April, 2007, under some legal circumstances, could actually be written off. Legally speaking, the credit card company has to have the original papers of contract when claiming dues. If the credit card company does not have the original document, the claim is not valid. It is a six year rule. If the company does not claim within this period, the so called claim becomes non-existent. The thing that you should not misunderstand is the fact that, the debt that you have does not get wiped off. It simply means that your debt remains, only it becomes un-enforceable. This ACT came under force as from 1980, when this six year rule was introduced.
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Debt management program and a Scottish Church Deed are two separate things, and should not be confused with each other. The trust takes a more informal approach, and provides a conclusive step to let the creditor have his payments from his debtors over what-ever time it takes for the debtor to pay off his borrowings. This is a Protected Trust Deed, and is based on the proposal made by the debtor to re-pay the money that the debtor owes to his creditors.

Scottish Trust Deeds are applicable to the people living in Scotland, and this trust is taken to be an equivalent to the Individual Voluntary Arrangement (IVA). The trust is regulated by the bankruptcy act of Scotland formed in the year 1985. The Protected Trust provides a means to the debtor to pay off his loans, instead of facing seizure of property. The Trust applies to those debtors who are passing through bad financial crisis, and do not have enough disposable assets to liquidate his loans with. On signing the Trust Deed, all the loans as of that day are frozen and consolidated, after which a Trustee is appointed to look into the debtors re-payment matters. The appointed trustee then takes up the matter with the creditors, providing them with proposals in writing.

Scottish Trust Deed is a means to enable a debtor, who is suffering heavily from financial difficulties overwhelmed with unmanageable debts, to write a proposal for re-payment to his creditors. This proposal is distributed to all the concerned creditors, and in case the debtor owes no more than 1/3 of his total debt to any single creditor, vote to reject the proposal by any of the creditors becomes invalid. The Trust Deed then becomes legally binding to all the creditors who have been circulated with a copy of the proposal.

The Trust prepares a debt consolidation of all the debts of a debtor into a single debt, and provides a means for an affordable monthly re-payment over a period of 36 months. The debtor pays off his borrowing at the pro-rata rate as fixed by the Trust. The Trust itself goes into minute calculations in setting up such re-payment amount, after going into the details of the debtor’s financial matters, including his assets and liabilities. More-over, the trust looks into the debtor’s income, and the cost of living, and then works out an amount which the debtor is required to pay against the consolidated debt. The Trust especially looks into the affordability of the debtor in paying off the loan in the manner set out in the proposal. The debtor’s payment amount is so arranged, where the debtor has less possibility in being delinquent again, considering his commitments towards other priority payments, for example, his mortgage or rent, his car loan re-payments, utility and council tax payments, and more.

As and when the proposal is accepted by the creditors, the interest on the balance amount is stopped, and the amount gets fixed from that day onwards, with the creditors becoming legally bound by the Protected Trust. The debtor, on the other hand, has to maintain his part of the Protected Trust terms, and the final amount to be settled becomes the full and final settlement of the debt. If there is any outstanding balance, it has to be written off.

The debtor usually takes the help of a licensed Insolvency Practitioner known as a trustee, and this trustee could be the one appointed by the Protected Trust. The trustee has to perform with all honesty in preparing the draft bearing in mind the debtor and the creditors as well. The drafted proposal has to be realistic from both points of view, and should not be one sided. The draft is given to the debtor to be approved, and when done, the trustee makes the final trust proposal before circulating it to all the creditors.

When the Trust proposal is received by the creditors, they have the right to either accept or reject the proposal, or even ask for modifications and amendments before acceptance. Here again, the modifications and amendments, if any, could only be done with the debtor’s consent. If there are no replies received from the creditors, the proposal is deemed to have been accepted.

As the Trust Deed becomes protected, the appointed trustee acts as an observer, who looks into the progress of the deed and ensures the proper maintenance of the terms and conditions set in the Trust Deed. On successful completion of the payment, the debtor will be considered debt free. No matter what the amount was before, the sum settled in the deed would become the full and final settlement figure.
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