The facts

A paramedic owed £27,000 on credit cards and loans, and was able to meet her payments to creditors as her partner paid half the rent and utilities each month.

Unfortunately, the relationship broke down and her partner left, this naturally caused a severe cash flow problem as the client now had to meet the rent and other bills in full.

It had been some three months before this individual sought help, by now payments had been missed to the credit card companies, legal action was being threatened by creditors and naturally she was concerned and stressed.

Another anxiety for her was that at sometime in the future she would want to purchase her own home but could not do so with her burdening debt problem.

The Advice

After completing an income & expenditure form it was soon established that the amount of monthly disposable income, after accounting for the necessary household expenditure, was £490. The normal contractual payments to her creditors were around £830 per month.

If the debtor had proposed an Individual Voluntary Arrangement (IVA) which entailed monthly contributions over a period of 5 years then the total contribution would have been £29,400, (60 x £490), although this is more than what she actually owed (£27,000) the creditors would only have seen a return of around 71p in the pound due to the fees for the IVA which would have been taken from her contributions over the 5 year period.

In a bankruptcy scenario, creditors would still receive a low return due to the administration fees, the debtor would also be asked to make 36 monthly contributions by way of an income payment order, or agreement, from the date of bankruptcy, as apposed to 60 months in the IVA.

In this situation an insolvency route was not necessary as there was a far more suitable solution for both the debtor and creditors. I advised my client to enter into a Debt Management Plan with her creditors.

The Outcome

The debtor telephoned the Debt Management Company, DMC, and eventually was helped to set up an informal arrangement with her creditors, paying £490 per month. The creditors will be paid in full.

Although her credit rating is impaired, credit was, as in many cases, her downfall and it is probably helpful that she is not able to obtain further borrowing for the time being.

Only when she is back in control of her finances can she begin to plan for the future, which may well include that house purchase. Again guidance was given as to future money management with our much acclaimed budget wizard.

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