Unit 1 Topic 11

Question 1

What’s an administration order?

Answer 1

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.

Question 2

What is bankruptcy?

Answer 2

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.

Question 3

What is a consolidation loan?

Answer 3

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.

Question 4

What is a CCJ?

Answer 4

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.

Question 5

What is a creditor?

Answer 5

A person or organisation to which someone owes money.

Question 6

What’s a Debt Arrangement Scheme?

Answer 6

A Scottish government-run programme similar to a debt management plan. It involves arranging to make payments via a debt payment programme.

Question 7

Who are the DMC?

Answer 7

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.

Question 8

What is a debt management plan?

Answer 8

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.

Question 9

What’s a DRO?

Answer 9

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.

Question 10

What’s a debtor?

Answer 10

A person in debt to an individual or organisation (creditor).

Question 11

What’s a Guarantor?

Answer 11

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.

Question 12

What is an IVA?

Answer 12

Individual voluntary arrangement
A formal alternative to bankruptcy comprising a contractual arrangement with those owed money.

Question 13

What is MAP?

Answer 13

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.

Question 14

Define ‘sequestration’

Answer 14

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.

Question 15

What is a trust deed?

Answer 15

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.

Question 16

Name 4 organisations that can offer free advice about debt

Answer 16

MoneyHelper
StepChange Debt Charity
Citizens Advice
National Debtline

Question 17

Name 3 methods that may allow people to increase their income

Answer 17

Claiming all benefits they’re entitled to
Taking on more work
Selling an asset

Question 18

Name 2 methods that can be used to make repayments more affordable

Answer 18

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.

Question 19

Name 2 factors to consider if considering extending the terms of a loan or taking out a longer term loan

Answer 19

There may be penalty fees for repaying the shorter loan early

There may be set-up or arrangement fees for the new loan

Question 20

Name 2 factors to consider before taking out a consolidation loan

Answer 20

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

Question 21

Name 3 advantages of a debt management plan

Answer 21

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

Question 22

Name 3 disadvantages of a debt management plan

Answer 22

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

Question 23

Name 2 advantages of an administration order

Answer 23

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

Question 24

Name 3 solutions to insolvency

Answer 24

Individual voluntary arrangements (IVAs)
Debt relief orders (DROs)
Bankruptcy

Question 25

Name 2 advantages of IVAs

Answer 25

Debtors make affordable repayments
Creditors cannot add more interest charges to the debt

Question 26

Name 2 advantages of DROs

Answer 26

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

Question 27

Name 2 advantages of Bankruptcy

Answer 27

Debtors don’t deal with creditors directly
Debtors can be written off in 12 months

Question 28

Name 5 disadvantages of bankruptcy

Answer 28

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

Question 29

Name 4 insolvency solutions available in Scotland

Answer 29

Debt arrangement scheme
Trust deed
Minimal Asset Process (MAP) bankruptcy
Sequestration