Topic 11 - Dealing With Debt Flashcards
Why do ppl fall into debt?
- changes in personal circumstances
- lose job
- mortgage, food + energy costs may inc.
Actions ppl can consider when dealing w debt
- get free impartial advice
- use budget to work out what they can repay
- negotiate w lenders affordable amounts to repay
- inc. income e.g. sell assets (car)
Advisory organisations who may give free impartial advice on dealing w debt
- MoneyHelper
- StepChange Debt Charity
- Citizens Advice
- National Debtline
How may ppl inc. their income to repay debt?
- claim all benefits they’re entitled to
- take on more work
- sell an asset
How can ppl w a good credit rating change products to deal w debt?
- can switch credit card debt to another provider not charging interest on balance transfers
- stops original debt growing + gives time to repay
Factors to consider when ppl struggling to repay a loan extend term of loan
- dec. monthly repayments but inc. overall cost of loan
- maybe set up or arrangement fees for new loan
What is a consolidation loan?
- loan used to pay off several diff. debts
- monthly repayments made to loan provider
Considerations before taking out a consolidation loan
- full costs involved in new loan
- must afford repayments on loan if they are to clear their debts
- overall cost must not be > cost of individual loans
What to prioritise when dealing w debt
- most expensive debt 1st
What ppl set up debt management plans?
- ppl w many diff. debts
How do debt management plans work?
- person pays DMC each month who splits money between those the individual owes
- free from most charities
What is a debtor?
Someone who owes money
What is a creditor?
Someone who is owed money
Advantages of debt management plans
- easier to manage debt
- longer to repay what owed
Disadvantages of dept management plans
- DMCs only deal w non-priority debts
- creditors don’t have to accept plan
- debt takes longer to clear
What are administration orders?
- repayment plans
Who do administration orders apply to?
- ppl who have < £5,000 in unsecured debt + at least 1 CCJ against them
What do administration orders do?
- ppl can apply to court for them + court decides what they can afford to court monthly
- court pay their creditors
- creditors can’t contact debtors directly to ask for further payments + can’t add interest to debt
What does it mean if a person is insolvent?
- they can’t pay their debts
What are the solutions of insolvency?
- individual voluntary arrangement (IVAs)
- debt relief orders (DROs)
- bankruptcy
What does IVA stand for?
Individual voluntary arrangements
Who does an IVA apply to?
- ppl w unsecured debts > value of their assets
Advantages of IVAs
- ppl make affordable repayments for 5-6yrs then debt written off
- an insolvent practitioner (IP) negotiates w creditor on debtors behalf
- creditors can’t add any more interest or charges to debt
What does DROs stand for?
Debt relief orders
What do DROs enable ppl to do?
- write off their debts if they’re unable to repay after 12 months
Who do DROs apply to?
ppl who:
- owe < £30,000
- aren’t homeowners
- have no more than £2,000 in assets
- have < £50 after they’ve paid their living expenses
What is bankruptcy?
- a court order where a person’s assets are shared between their creditors who write off remaining debt
- fee of £700
Advantages of bankruptcy
- debtors don’t deal directly w creditors
- debts can be written off in 12 months
Disadvantages of bankruptcy
- record remains for 6yrs: difficult to get credit
- assets have to be sold to repay debts
- cost of bankruptcy
- debtors can only use basic accounts: can’t go overdrawn
- details of bankruptcy published
What are the insolvency solutions in Scotland?
- debt arrangement scheme
- trust deed
- minimal asset process (MAP) bankruptcy
- sequestration
What is the debt arrangement scheme
- run by Scottish gov.
- similar to debt management plan
What is a trust deed similar to?
- an IVA
What does minimal asset process allow you to do?
- write off debts u are unable to pay off in a reasonable time
- fee is paid + debt written off in 6 months
What must u prove to enable minimal asset process bankruptcy?
- ur on a low income
- debt between £1,500 + a specified higher amount (£17,000)
- u aren’t a homeowner
- owned vehicle < £3,000
- assets < £2,000
- not been bankrupt in last 5yrs
What is sequestration?
- bankruptcy in Scotland
