Unit 1 Topic 11 Flashcards
What’s an administration order?
A repayment plan arranged by county courts in England, Wales and Northern Ireland for people with less than £5,000 in unsecured debt and at least one country court judgement (CCJ) against them. They apply to the court to have an administration order issued, then pay what the court decides they can afford directly to the court each month, and the court makes repayments to their creditors.
What is bankruptcy?
A situation in which a person cannot repay their debts and is the subject of a court order that shares out their assets between their creditors.
What is a consolidation loan?
A loan used to pay off a number of different debts, meaning that there is then only one payment to make each month, to the loan company.
What is a CCJ?
County court judgement
In England and Wales, a judgement issued by a county court to a person who doesn’t respond to court action from a person or organisation to which they owe money. The CCJ affirms that the money is owed.
What is a creditor?
A person or organisation to which someone owes money.
What’s a Debt Arrangement Scheme?
A Scottish government-run programme similar to a debt management plan. It involves arranging to make payments via a debt payment programme.
Who are the DMC?
Debt management company
An organisation to which a person in debt (debtor) pays what they can afford each month. The DMC then deals with the organisations (creditors) owed money.
What is a debt management plan?
A detailed plan drawn up by a debt management company (DMC) and sent to an individual’s creditors (entities they owe money). It sets out an affordable monthly payment shared between the creditors.
What’s a DRO?
Debt relief order
An order a person in specific conditions can apply for it they cannot afford to pay off their debts. It generally lasts one year, during which time none of the people owed money can take action, and after which the listed debts are cleared. Granted by the Insolvency Service, a DRO works out cheaper than going bankrupt.
What’s a debtor?
A person in debt to an individual or organisation (creditor).
What’s a Guarantor?
Someone who undertakes to repay a financial obligation if the person who took on the obligation in the first place cannot or does not repay it. For instance, a guarantor might agree to pay rent or make repayments on a loan on someone else’s behalf.
What is an IVA?
Individual voluntary arrangement
A formal alternative to bankruptcy comprising a contractual arrangement with those owed money.
What is MAP?
Minimal asset process
Available in Scotland and similar to DRO. The MAP is the route into bankruptcy for people with less than £2,000 in assets.
Define ‘sequestration’
The term for bankruptcy in Scotland, which applies to people who owe more than £1,500, have not been bankrupt in the last five years and have had court judgements for payment made against them.
What is a trust deed?
Available in Scotland and similar to an individual voluntary arrangement (IVA). An insolvency practitioner helps people who are insolvent to make affordable repayments, and after three years any outstanding debt is written off.
Name 4 organisations that can offer free advice about debt
MoneyHelper
StepChange Debt Charity
Citizens Advice
National Debtline
Name 3 methods that may allow people to increase their income
Claiming all benefits they’re entitled to
Taking on more work
Selling an asset
Name 2 methods that can be used to make repayments more affordable
Changing their existing borrowing products for ones that cost the amount they can afford in repayments.
Negotiating with their existing providers to repay their debt at the level they can afford.
Name 2 factors to consider if considering extending the terms of a loan or taking out a longer term loan
There may be penalty fees for repaying the shorter loan early
There may be set-up or arrangement fees for the new loan
Name 2 factors to consider before taking out a consolidation loan
The overall cost of borrowing can be greater than on the individual borrowing products
Borrowers need to be very careful that they understand the full costs involved in the new loan; some loan providers charge very high interest rates
Name 3 advantages of a debt management plan
The person in debt makes one affordable monthly repayment to the DMC, which is easier to manage
The DMC arranges the plan with the person’s creditors and shares the monthly payment between them
The person in debt has longer to repay what they owe
Name 3 disadvantages of a debt management plan
Creditors may still contact the person who owes them money and ask for further repayments
Creditors don’t have to accept a debt management plan
The debt will take longer to clear because the monthly repayments are smaller
Name 2 advantages of an administration order
The person who owes money makes one monthly repayment that they can afford
Creditors are not permitted to contact debtors directly to ask for further payments and they are not permitted to add interest to the debt
Name 3 solutions to insolvency
Individual voluntary arrangements (IVAs)
Debt relief orders (DROs)
Bankruptcy
Name 2 advantages of IVAs
Debtors make affordable repayments
Creditors cannot add more interest charges to the debt
Name 2 advantages of DROs
Household goods and tools of the trade aren’t included in the asset calculation
Cheaper solution than bankruptcy for people who have very low incomes
Name 2 advantages of Bankruptcy
Debtors don’t deal with creditors directly
Debtors can be written off in 12 months
Name 5 disadvantages of bankruptcy
There are costs involved in the bankruptcy process
Debtors cannot apply for more credit whilst bankrupt
Debtors can only use basic bank accounts because they can’t go overdrawn
If the debtor owns a business, it is likely to be closed down and the assets sold
Details of the bankruptcy are published and may be reported in the media
Name 4 insolvency solutions available in Scotland
Debt arrangement scheme
Trust deed
Minimal Asset Process (MAP) bankruptcy
Sequestration
