School teacher gets help in erasing his debts.   

The facts 

A school teacher sought help when he received a notice that legal proceedings had begun against him for a County Court Judgement, (CCJ).  The creditor was demanding payment of £7,556 on a credit card debt meanwhile the teacher also had another £56,500 outstanding on other loans and credit cards.

His current payments to his creditors amounted to £1,325 each month from a take home pay of £2,200. This left £875 each month for him to live on and to pay for rent, utilities, car costs and CSA payments. He was quite stressed and worried about his job future and was clearly insolvent and needing professional help fast.

After completing an income and expenditure form it was soon established that the true amount of monthly disposable income, after accounting for the necessary household expenditure and his CSA payments, was £450. It was obvious he could not meet the £1,325 needed each month to pay his debts and was actually increasing his debt by £875 each month. He was just borrowing more on each credit card just to make the payments to other creditors and his debts were spiralling out of control.

The Advice 

Consideration was given to the following options; a Debt Management Plan, (DMP), bankruptcy or proposing an Individual Voluntary Arrangement, (IVA). The DMP option was dismissed due to creditors’ lack of support as some creditors would still add interest and late payment charges thus making the overall debt increase. Also the debt would be paid back in full, in this instance taking a minimum of 12 years providing the creditors were to freeze interest.  This was unworkable and unrealistic for the teacher. He did not wish to go bankrupt, even though the payment term to creditors through the bankruptcy period would be for only 3 years. He had no assets apart from a vehicle, which was paid for and worth approximately £7,000.

The teacher decided to propose an IVA to his creditors as he was clearly insolvent. The proposal would entail monthly payments equivalent to his disposable income, £450 over a period of 5 years, and he proposed to sell the car, current value £7,000 and replace it with one for around £3,000. This freed up £4,000 in additional funding and was to be pledged into the IVA to boost the overall return to creditors. This act was seen by creditors to be a positive move by the debtor and demonstrated his desire to pay back what he could. Creditors were contacted immediately, advising them that the individual was seeking professional advice in order to address his financial problem, thus alleviating the debtor from the constant pressure from telephone calls and threats of Court action to recover the debts. 

The Outcome 

Approximately 10 weeks after the initial consultation, a meeting of creditors was held at which the individual’s proposal for an IVA was accepted. All interest and late payment charges could no longer be added to the debt.

Both the debtor and his unsecured creditors are bound by the terms of the arrangement and, providing the teacher continues to make the monthly payment to the Supervisor of his arrangement, who will then distribute the funds to his creditors, at the end of the arrangement his unsecured liabilities, will be deemed to have been legally discharged. It is not projected that creditors would have received much of a return in the event of the individual’s bankruptcy other than a percentage of the sale proceeds of the car, as this would be seen as an asset. In the IVA creditors will receive a return of circa 34%, i.e. 34 pence for every pound of their claim providing the IVA is completed in accordance with the terms. He will be reviewed on a regular basis, usually every 12 months, to see if he can increase his contribution to the IVA. The school teacher had no further contact with the creditors. 

The fees for the IVA will be paid by the creditors and not the school teacher as these are met from the contributions over the five years.

Although the individual’s credit rating is impaired, credit was, as in many cases, his downfall and it is probably helpful that he is not able to obtain further borrowing for the time being.  He is now back in control of his finances and getting back in control of his health. Guidance was given as to future money management.

Footnote

With debtwizard.com the fees for preparing a proposal for an IVA are not payable up front, instead they will be withdrawn from the funds paid into the arrangement. IVA's are only suggested as a way forward where it is considered as the most suitable option.

For more details on the pros and cons of using a debt management company including the fee structure, IVAs, bankruptcy, debt option comparison table, 6 option guide to getting out of debt and the Budget planning form.

This article is intended to afford general guidelines on matters of interest. Accordingly, the information in this article is not intended to serve as legal advice. Therefore, no responsibility can be accepted by debtwizard.com, for any loss occasioned by a person acting or refraining from, acting on the basis of this article. Users are encouraged to consult with professional advisors for advice concerning specific matters before making any decision.

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