Topic 11 Flashcards
What are some factors to consider when changing the terms of a loan extending them or taking out a longer term loan to repay the shorter one
Repaying over a longer term will reduce the monthly repayments but increase the overall cost of the loan
There may be penalties for paying the shorter loan early
There may be set up arrangement fees for the new loan
Debt management plan
People contact a debt management company people will pay the dmc what they can afford each month and the dmc divides this payment among the organisations that are owed money this means the person in debt doesn’t deal with the organisations
These are offered free by some charities such as stepchange and pay plan most other organisations charge a fee
Administration orders for England wales and Northern Ireland . Apply to who?
They apply to people who have less than 5000£ in unsecured debt and at least one county court judgement against them. Then they pay what the court decides they can afford to the court once a month
An advantage is that creditors are not permitted to contact debtors for further payments
And if the debtor cannot repay the debt in a reasonable time the court can set an end date for the admin order . Creditors must write off any debt that is still outstanding after this time
A disadvantaged is that the court will decide what the debtor can afford to repay and this may mean that the debtor has to live on a very tight budget
What does it mean to be insolvent
People cannot repay what they owe because their debt is greater than their assets or they cannot meet their financial obligations in a reasonable time
Insolvency solution in England wales and Northern Ireland
Ivas ,debt relief order and bankruptcy
What is a individual voluntary arrangement Iva’s
People make reduced ,affordable repayments for five or six years and then their debt is written off .ivas are legally binding arrangements
Ivas apply to people who have unsecured debt that are larger than the value of their assets an insolvency practitioner negotiates the arrangement with the persons creditors as long as the creditor that holds 75% of the value of the debt agree the Iva can proceed if they do not agree
An advantage is that creditors can not add any more interest or charges to the debt and creditors cannot take any court action against debtor and ofcource outstanding debt is written off
DRO debt relief order
Enable people to write off their debt if they’re unable to repay them after 12 months DRO ONLY APPLY TO PEOPLE WHO:
Owe less than 30000£ in unsecured debt (DRO don’t apply to student loans)
Are not home owners
Have no more than 2000£ in assests can own a vehicle up to 2000£
Have less than 75£ a month left over after they have paid their living expenses
Debtors must pay 90£ for a DRO THEIR DEBTS ARE FROZEN FOR 12 months so creditors cannot add any interest or charges. Creditors also cannot contact the ask for payment during this time if the debtors ability to repay has not changed after 12 months, their debt is written off
Advantages are that DRO households goods and tools are not included of the trade are not included in the asset calculation
It gives the debtor time to change their personal circumstances for example finding work
Debtors will not be pressured to repay during the 12 month period and their debt will not grow
It is cheaper insolvency solution than bankruptcy for people who have very low incomes
And disadvantages are that it stays on a persons credit history and a public register and will make it difficult to borrow money
And it cost 90£
Bankruptcy
Bankruptcy is a court order that means a persons assests are shared between their creditors who write off the remaining debt and official receiver is appointed who can sell the persons assets and use any savings and the income to repay creditors people can apply to become bankrupt themselves or a creditor can make them bankrupt
Bankrupt facts
It cost money to go bankrupt in England and wales there is a cost of almost £700
And in Northern Ireland the fee is slightly lower people on low income and benefits are charged between 100£ to 150£ less in England wales and Northern Ireland because court fees are waived
Advantages are that
Debtors do not deal with creditors directly
Debt can be written off in 12 months
Debtors keep certain possessions such as household goods and an certain amount to live on
When bankruptcy is over debtors have a fresh start
Creditors have to stop most types of court action to recover their money
Disadvantages are that there are cost involved
The record stays on the record for six years on their credit history
If the court feels that the debtor never intended to pay or didn’t cooperate they can be issued a bankruptcy restriction order that lasts 15 years
