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LIBF Unit 1 > Topic 11 - Dealing With Debt > Flashcards

Topic 11 - Dealing With Debt Flashcards

1
Q

what are 3 reasons people fall into debt?

A
  • change in personal circumstances
  • loss of job
  • increase costs of mortgage
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2
Q

what are 4 things people should do when in debt

A
  • get free impartial advice
  • use a budget to work out what they can repay
  • negotiate with lenders amount affordable to repay
  • increase they’re income, selling an asset such as a car
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3
Q

What are 4 advisory organisations who may give free impartial advice on dealing with debt?

A
  • money advice service
  • stepchange debt charity
  • citizens advice
  • national debtline
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4
Q

how can one increase their income to repay debt?

A
  • taking on more work
  • selling an asset
  • claiming all the benefits they are entitled to.
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5
Q

After working out what they can afford to repay of their debt after creating more income, what should they do next?

A

negotiate with their lender

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6
Q

what are 4 ways people can change products in debt?

A
  • with a good credit rating can switch credit card debt to another provider that does not charge interest, may have handling fee
  • if struggling to pay off a loan could request an extension
  • take out a long term loan to pay off the shorter term loan
  • consolidation loan
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7
Q

what is a consolidation loan?

A

one loan taken out to pay all the debts

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8
Q

what should be considered before taking out a consolidation loan? (3)

A
  • full costs involved in the new loan
  • must be able to afford the repayments on the loan to clear debts
  • overall cost must not be greater than of the individual loan
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9
Q

how should one prioritise paying off their loans?

A
  • paying off the most expensive first
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10
Q

what’s the best method of resolving a debt when having multiple different debts?

A

setting up a debt management plans

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11
Q

where do debt management plans not apply?

A

mortgages and rents

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12
Q

what is a debtor?

A

someone who owes money

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13
Q

what is a creditor?

A

someone who is owed money

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14
Q

what is a DMC?

A

debt management company

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15
Q

what does a DMC do?

A

once paid for by the debtor, splits the money between the creditors

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16
Q

What is an administration order?

A

a repayment plan

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17
Q

who do administration orders apply to?

A

people who less the £5k in unsecured debt and at least one CCJ against them

18
Q

what is CCJ?

A

county court judgement

19
Q

what happens when an administration order is in place?

A
  • individual applied for it to the court
  • the court decides what the individual in debt can afford
  • individuals pay one monthly repayment of an amount they can afford to the courts
  • the court pays their creditor
  • creditors can’t contact debtors or add interest to the debt
20
Q

how can a person be insolvent?

A

if they can’t pay their debt because it is greater than their assets.

21
Q

what are some solutions for insolvency? (3)

A

IVAs
Debt relief orders
Bankruptcy

22
Q

what does an IVA stand for?

A

individual voluntary arrangements

23
Q

what occurs in an IVA?

A

people hav reduced, affordable repayments for 5-6 years and then their debt is written off

24
Q

who does an IVA apply to?

A

those with unsecured debts that are larger than their value of assets

25
Q

who negotiates an IVA?

A

an insolvency practitioner
- this is usually an accountant or lawyer

26
Q

What does DRO stand for?

A

debt relief order

27
Q

Who do DROs only apply too?

A
  • owe less than £30k in unsecured debts
  • are not homeowners
  • have no more than £2k in assets, excluding a vehicle worth up to £2k
  • less than £75 a month left over after having paid living expenses
28
Q

What occurs in the 12 months debts are frozen in an DRO?

A

creditors can’t add any interest
creditors aren’t permitted to contact the debtor to ask for payment

29
Q

what are 4 advantages of DROs?

A
  • the household goods and tools of the trade are not just clouded in the asset calculation
  • it gives the debtor time to change their personal circumstances if they can, by increasing assets eg
  • debtors won’t be pressurised to repay during the 12-month period as their don’t wont grow
  • it is a cheaper insolvency solution than bankruptcy for people who have low incomes
30
Q

what are 2 disadvantages of a DRO?

A
  • remains on persons credit history and public register thus difficult for them to borrow money during this time.
  • the cost of £90, although lower than other options can be difficult for people on very low incomes to pay
31
Q

What is bankruptcy?

A

A court order that means a persons assets are shared between their creditors who write off the remaining debt.

32
Q

How can one become bankrupt?

A
  • People can apply to become bankrupt themselves
  • One of their creditors can apply to make them bankrupt
33
Q

What are 5 advantages of going bankrupt?

A
  • debtors don’t deal with creditors directly
  • debts can be written off in 12 months
  • debtors keep certain possessions, such as a household goods, and an amount to live on
  • when over debtors given fresh start
  • creditors have to stop most types of court action to recover their money
34
Q

What are 10 disadvantages of bankruptcy?

A
  • costs involved in the process
  • can’t apply for more credit while they are bankrupt
  • can only use a basic current account because they can’t go overdrawn
  • record remains on credit history for 6 years after he start of bankruptcy, difficult to obtain credit for 6 years
  • assets have to be sold to repay their debts
  • barred from certain occupations thus may loose job
  • if debtor owns a business, likely to be closed down and assests sold
  • details are published and may be reported in the media
  • if deemed that the debtor was uncooperative or had no intention of paying their debt, the order can last for 15 years.
35
Q

What are the 4 insolvency solutions in Scotland?

A
  • debt arrangement scheme
  • trust deed
  • MAP bankruptcy
  • sequestration
36
Q

What is the debt arrangement scheme?

A

Very similar to the debt management plan but run by the Scottish government

37
Q

What is a trust deed?

A
  • similar to an IVA
  • make repayments debtors can afford and after four years any outstanding debt is written off
38
Q

What does MAP stand for?

A

Minimal asset process

39
Q

What requirements must you have to be eligible to apply for MAP bankruptcy? (6)

A
  • your on a low income
  • debts between £1.5k and specified higher amount usually £17k but raised temporarily to £25k due to Covid
  • not a homeowner
  • any vehicle owned is worth less than £3k
  • assets worth less than £2k
  • havnt been made bankrupt in last 5 years
40
Q

What is sequestration?

A

The term for bankruptcy in Scotland

LIBF Unit 1 (13 decks)

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