The dos and don'ts of dealing with debt
If you’ve had enough of debts controlling your life and never having any money left a week after payday, you might feel it’s time to sort your debt problems out.
According to one consumer group around 1,000 people are seeking some form of formal debt rescheduling every working day.
Some of these people wish to negotiate directly with the lenders themselves and bypass a debt management company, but dealing with lenders in this way can be a very stressful and emotional time.
To help you through this I’ve put together some simple tips on what to do and what not to do.
The first thing to do is to get a filing system going. If you have a few lenders then it is best to start with an index. You may think this is a bit over the top but trust me,- to be able to easily find letters and figures will be a great advantage and reduce further stress in trying to locate lost papers with their telephone numbers and references.
The do list
• Keep copies of all correspondence to and from lenders.
• Reply to letters from creditors promptly and enclose any documentation that supports the case, such as a doctor's certificate if signed off work or a redundancy letter etc.
• Reply to any court summonses promptly.
• Attend court hearings with all documentation and if possible have someone who is qualified to represent you.
• Think about how creditors are going to be paid. If a cheque bounces then you could well be charged around £30 or more by the bank for returning the cheque. Consider sending postal orders, (these cost additional money though) which are available through the Post Office. Or perhaps use a repayment book issued by the creditor. Creditors prefer regular payments, even if they are small compared to larger irregular sums.
• Above all, be realistic and accept there is a problem which will only go away if something is done about it, either by dealing with it yourself or with the help of agency such as those illustrated in our Moneywise support team.
The don’t list
• Don’t be intimidated, threatened or bullied into making an offer or promises that cannot be kept.
• Don’t give up. If a creditor refuses the offer or refuses to stop interest, reaffirm efforts and get them to give up.
• Don’t borrow more money to pay creditors without professional advice to the contrary.
• Don’t ignore the problem hoping it will just go away.
• Don’t be frightened to ask for specialist help and advice, see who can help.
You may also find my five steps to dealing with debt guide helpful.
Generally speaking, insolvency is to businesses what bankruptcy is to individuals. A company is insolvent if the value of its assets is less than the amount of its liabilities, or it is unable to pay its liabilities (loan payments) as they fall due. It’s an offence for an insolvent company to keep trading, so the main options available to an insolvent company are: voluntary liquidation, compulsory liquidation, administration or a company voluntary arrangement.
A person (or business) unable to pay the debts it owes creditors can either volunteer or be forced into bankruptcy – a legal proceeding where an insolvent person can be relieved of their financial obligations – but loses control over their bank accounts. Bankruptcy is not a soft option. Although it may wipe the financial slate clean, it is extremely harmful to a person’s credit rating (it will stay on your credit record for six years) and will adversely affect your future dealings with financial institutions. Bankruptcy costs £600 paid upfront.