5.6 - Comparing Different Solutions for Individuals in Debt Flashcards
What does a consolidation loan do?
Provides enough money to pay off all of the other debts
Are consolidation loans secured or unsecured?
Secured
What will Citizens Advice advise debtors to do?
Make a list of income and current expenses, which should be put into order of priority
What payments class as high priority?
- Secured loans
- Payments that if missed could result in vital services being cut off
- Mandatory bills e.g. income tax
- Car insurance/running costs if debtor needs a car
Two main ways in which a debtor can make arrangements to pay extra each month to pay off arrears:
- Informal payment plans
- Debt management plan
What happens in informal payment plans?
The debtor contacts the banks and credit card companies to which they owe money, and explain the situation and what repayments they can afford to make.
Who runs DMPs?
Organisations such as StepChange
How do DMPs work?
The organisation will contact the debtor’s creditors and agree affordable monthly payments to each credit. The debtor then sets up a single monthly payment to the DMP manager, who passes it on to the creditors.
In what situation would creditors pass debt to a debt collection agency?
If an individual builds up an unsustainable amount of debt, but does not recognise the problem
What happens when a debt collection agency takes a debtor to court?
- The court decides how the debt should be repaid after the debtor explains their side of the story.
- If the debtor’s unsecured debts amount to less than £5,000 and the court accepts debtor cannot repay the debt in full, either the debtor or creditor can ask the court to impose an administration order under which the court will make arrangements for the debtor to pay their debts in monthly installments
Do CCJs and administration orders incur court fees?
Yes, these can be added to total debt
What situations can result in an IVA, DRO or bankruptcy?
- The debtor’s creditors may not agree to a DMP
- The debtor might fail to keep up the agreed monthly repayment required under DMP or administration order
- The debtor may have a number of CCJ’s against them
- The debtor’s outstanding total owed may amount to over £5,000
What is an individual voluntary agreement?
A formal agreement between debtor and creditors
Creditors representing what percentage of the total debt value have to agree to the arrangement for it to become legally binding?
At least 75%
Who sets up and supervises an IVA?
A licensed insolvency practitioner
Creditors will often agree to an IVA only if what?
The payments that they receive amount to at least 30% of the money owed
