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Paramedic gets emergency treatment with her debts.

Here Mike delivers some emergency treatment for a paramedic.

A paramedic was under severe pressure from her creditors, several of whom were about to begin Court proceedings. Initially the lady thought she would have to go bankrupt and was surprised to learn that there were two other options available to her. Here, Mike details what these were and how one in particular suited both the client and her creditors.

The facts

The paramedic owed £27,000 on credit cards and loans but was able to meet her payments to creditors as her partner paid half the rent and utilities each month. Sadly, the relationship broke down and her partner left, leaving her to meet the rent and other bills in full. It was three months before this individual sought help in dealing with her cash flow problem and by then payments to the credit card companies had been missed and legal action was being threatened by creditors. She was naturally concerned and stressed and also worried that because of her burgeoning debt problem she would be unable purchase her own home at sometime in the future.

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

The Options

In addition to bankruptcy the options referred to previously were either to propose an Individual Voluntary Arrangement (IVA) or to enter into a Debt Management Plan.

In a bankruptcy scenario, creditors would receive a low return due to administration fees and 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 an IVA.

With an IVA, in this case monthly contributions over a period of 5 years would total £29,400, (60 x £490). Although this is more than the £27,000 she actually owed the creditors would only see a return of around 71p in the pound, as the fees for the IVA would have been taken from her contributions over the 5 year period.

A Debt Management Plan however is an informal arrangement whereby the parties involved agree monthly payments and the creditors are repaid in full.

The Outcome

In this particular case it was appropriate for our parties to agree a debt management plan whereby a monthly payment of £490 per month would eventually repay the creditors in full. Whilst our lady’s credit rating is impaired, as in so many other cases credit was, her downfall and it is probably beneficial that she is not able to obtain further borrowing for the time being. Guidance was given as to future money management, with the free use of our on line budget form, as only when she is back in control of her finances can she begin to plan for the future, which hopefully will include that longed for house purchase.

Example when not to use a Debt Management Plan

• If the repayment period is unrealistic due to the high level of debts and an IVA would reduce the term down to 60 months.
• If creditors refuse to freeze interest and stop associated charges whereby the level of debt is increasing.

Example when to use a Debt Management Plan

Although there are exceptions to this some debt management plans do not necessarily end up resolving the debt situation.

They can be useful when no other option is available or when a temporary solution is required until someone is able to sort out their finances for example to arrange a full and final settlement such as a consolidation loan or an IVA.

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.