• There are many reasons for looking to work from home. This article deals with one of the more contentious reasons: DEBT

• When faced with mounting debts and increased pressure from creditors, the usual 'knee jerk' reaction is to look for ways to earn extra money, quickly, and with as little disruption to our life as possible. It is, therefore, not surprising that home working is one of the first options we think of (the most popular option is to borrow money, more of this later).

• Let's look at the rationale behind choosing home working as an answer to debts:

  Thought:	I can start earning from home working immediately
  Fact:	Unless you are working for yourself in a business that has customers with orders (and cash) you will not earn in the short term
  Thought:	I will work twice as hard as others who work from home and earn more money
  Fact:	Working twice as hard is a standard requirement of everyone who works from home
  Thought:	I will find a home working job that requires no up front costs from me
  Fact:	Setting up your own home working business does not need to be costly, but will have a degree of cost, and it is not only the less reputable home working employers that will want up front fees/costs

• What the above three examples are saying is that if you are looking to work to pay off debts it is more reliable and practical to work (for instance) in a supermarket stacking shelves: be that day or night time.

• If you are determined to work from home as an answer to debts, you must know in advance: what work you have to do, what you will earn, when you will be paid and how you can earn more money. If you are not satisfied with the answers you should look elsewhere. Having debts, stress and a punishing home job is not expected of you or the rest of us.

• When we have debts we are extremely vulnerable to 'get rich quick' opportunities. Naturally, we want to believe all that we hear or see. Some would say, 'the bigger the opportunity, the bigger your loss will be'. The important action to take if you are involved in such a venture is to get out immediately you suspect a scam (and add another one of life's experience to your list).

• The above notes have been designed to give you an objective view about home working as an answer to debts. The majority of current home workers have settled into a routine and are aware of the financial implications, and benefits, that home working brings them.

• When you have many debts the world can seem very intimidating. The feeling of loneliness and helplessness can be over-powering. Professional debt counsellors and creditors know that the likelyhood of a debtor (the person in debt) being able to sort out their debts without professional help is slim. Creditors want you to offer a fair payment plan or contact a debt counsellor in order to arrange a payment plan that is acceptable to both sides.

• If you feel that you cannot deal with payment negotiation and (most importantly) you are committed to resolving your debts there is an answer.

• In the UK, the Consumer Credit Counselling Service (CCCS) "is a registered charity providing free, independent counselling to help you solve your debt problems, avoid bankruptcy and learn to handle money".
  The CCCS Code of Ethics:
  "The Consumer Credit Counselling Service is dedicated to providing confidential, professional counselling and money management assistance to financially distressed families and individuals regardless of race, creed, colour, sex, social position or financial status and to fostering education on consumer money management and the wise use of credit."

  To talk to a counsellor or to make an appointment with a local counsellor contact the CCCS on FREEPHONE 0800 138 1111. [They are not yet on-line]

  The CCCS will give you advice (if that is sufficient for your needs) or they will take control over your debts, arrange a payment plan with your creditors, and deal with all administration. The amount you pay your creditors will be agreed with you (this figure will be fair to both parties). You will pay a weekly/monthly amount to CCCS who will then distribute the funds amongst your creditors.

• If you maintain the arranged payments, and you do not enter into any further credit you will be able to put this experience behind you.

• Everyone you owe a debt to will want you to pay off their debt first. Whatever your creditors (the one’s you owe the money to) want you to do, and whatever you would like to do, you must prioritise your debts. You must do this for three reasons.

  1)  To maintain the basics of life: electricity, gas, water, a ‘roof over your head’ etc.

  2)  To avoid legal action, in particular, criminal legal action: an unpaid TV licence and/or court fine can (and will) lead to imprisonment.

  3)  To avoid removal of your chattels (removable possessions) by County Court bailiff or High Court sheriff.

• Your priority debts are:
  • Gas, Electric and Water Rates
  • Rent Arrears
  • Maintenance (ex-partner and children)
  • Court Fines
  • Vat, Income Tax, National Insurance
  • Television Licence
  • Hire Purchase (goods on hire purchase cannot be repossessed without a court order if you have paid over a third of the total amount payable under the HP Agreement. If you have paid at least fifty percent, and there are no arrears (or you pay the arrears) you can hand back the goods without further payment. The goods must be in a ‘reasonable’ condition.

• All other debts will have an equal rating. It is not uncommon for debtors (the one who owes the debt) to maintain full payment of a non-preferential debt in an attempt to keep open a line of credit, or pay a threatening creditor ‘or else’. If you do pay a non-preferential creditor in such a way you will not receive the support of your other creditors (which is crucial), and bankruptcy could follow. We will deal with an Income and Expenditure Statement in another article however the following is a brief outline concerning priority debts.

• There are two ways to approach the payment of these debts:

• First way – be in control, be prepared.

• In advance, work out how much you will pay to each priority debt (you may have a small amount of money set aside for non-preferential debts). However, this figure should only represent a token gesture. Priority creditors will not agree to any significant amounts being paid to, say, maintain a telephone (unless you need this for an acceptable reason like health), a car on hire purchase (again, unless you have a real need). In fact, a preferential creditor would expect you to sell the car and/or any other substantial property that had equity (equity is money you have left after selling your property and paying off the credit company).

• The amount you offer each creditor should reflect an obvious and relevant payment structure i.e. paying £12 per month on your TV licence will not impress the court that you are trying to offer £2 per month. Send each creditor a list of your debts, how much you will pay each of them, and list your income and expenditure. Tell them you need a chance to correct your situation and that you are completely committed to paying your debts. And that you will increase the payment as and when you can (i.e. when you pay off one creditor, you will have the discipline to increase the amount paid to the other creditors: recommended).

• Second way – one problem at a time

• You need to evaluate which preferential creditor/s pose the most immediate and/or biggest threat to your basic needs and/or liberty. At this stage there is no point in worrying about any other creditor. You must contact that creditor and agree the lowest amount they will let you pay. If you resolve the most serious problem, move on to the next creditor/s and again get the lowest payment arrangement you can get, and so on…

• If one particular creditor is being uncooperative, offer what you think is fair, start paying that amount and tell them, that if after arranging payment with the other priority debts you have some money left, you will increase their payment.

• Finally, priority creditors are set up to deal with debt problems. Talk to them, most will give you advice, all will give you a first chance. If you make an arrangement: stick to it. Make sure you only commit yourself to what you can afford. There is little point in calling a creditor and telling them you cannot make this month’s payment: you may not get a second chance

• The Consumer Credit Licensing Bureau (a government department with teeth) deals with consumer credit licensing matters. All companies that supply credit to consumers (not companies) must have a licence. The licence is the ‘life blood’ of any lender, retailer etc. The bureau will take effective action against those who do not act within the rules: if they are informed. All moneylenders must have a licence.

• If a creditor is threatening you, you can either write to the licence bureau, or in a bodily harm threat, contact the police. If a creditor knocks on your door every week, or telephones you constantly at work, at night, and you ask them not to: they are harassing you. The creditor must take legal action or write off the debt.

  Office of Fair Trading
  Consumer Credit Licensing Bureau
  Craven House, 40 Uxbridge Road
  Ealing, London W5 2BS
  Tel: 020 7 211 8000
  

• The biggest problem with debts is to have to face up to them! Most people with debt problems adopt a form of amnesia. The same human ability that stops us from remembering a 'serious accident', seems to take over when we have 'serious debts'.

• An alcoholic has to face up to reality, take stock of their situation, and then take one day at a time. Debt problems are very similar. You have to admit (if only to yourself) that you have commitments beyond your control. You have to face up to the reality that they will not go away. You need to take stock of your entire financial position, and finally you have to deal with it: not 'one day at a time', but, just deal with it!

• The first thing you need to do is to prepare an 'Income and Expenditure' form. By working out what you have to spread over your creditors (however thin) you can begin to control your finances and future. See article on 'Income and Expenditure'

• Next you have to write or telephone all of your creditors (letters are preferred, as they are a true account of your negotiations). You need to state your current personal and financial position. It can help to explain why you find yourself in this position if the reason is helpful to your case (telling your creditors that you lost lots of money betting will not endear them to your cause, further, your creditors may decide to take legal action as you are likely to return to gambling at some stage). You need to state what you can pay and when this will happen. You should request a written acceptance of your offer, and that they will stop interest accruing on your debts.

• The mood of your letter should be that you had a problem, that you cannot get out of it overnight, and that you need their help and understanding to achieve a satisfactory solution for all. Creditors do not need to accept your proposal. Some may agree to, say, a three or six month arrangement, then review. Others will accept easily, and a small number may refuse (with the latter, you need to plainly express that you offer something for everyone, or nothing for all).

• Answer creditors letters promptly; be open and fair; never be bullied or bullish. As a debtor you will get intimidating letters and telephone calls, they will 'want this now', and 'that by then' or 'we will do that'. Creditors believe that 'the louder you shout (at debtors), the more you will get paid' (and it works). By showing your creditors that you are in control of your debts and your future, you will stop them shouting and get them to start listening!

• An Income and Expenditure Statement is similar to the form you probably completed to get the very debts we all face today. The purpose of the form is twofold:
  a)  For you to calculate how much money you need to live on.

  b)  To indicate how much money you can set aside for your creditors.

• The form has four parts:

• When you are completing an Income & Expenditure Statement, and you have worked out how much you need to live on, you need to distribute any amount left over between your creditors.

• The first step is to judge how many of your creditors you can pay something to. To do this, make a list of all of your priority creditors (Example 1) and another list of your non-priority creditors (Example 2) from your Income & Expenditure Statement.

  Example 1 - Priority Debts
  	Amount Owed	Monthly Payment
  Mortgage Arrears	£3500.00	£35.00
  Gas Arrears	£550.00	£5.50
  Maintenance Arrears	£1200.00	£12.00
  Council Tax Arrears	£750.00	£7.50
  Total	£6000.00	£60.00

  Example 2 - Non-priority Debts
  	Amount Owed	Monthly Payment
  Credit Card	£2000.00	£2.00
  Hi-fi Hire Purchase	£800.00	£1.00
  Catalogue	£30.00	£0.00
  Unsecured Bank Loan	£1750.00	£2.00
  Total	£4580.00	£5.00

• From the Income & Expenditure Statement obtain the figure for 'Money for Creditors' (figure 'C' on the statement). We will assume this figure was £65.00 for our example.

• We now need to attempt to create a 'moratorium' with your creditors. Being, a delay granted by your creditors in the repayment of the debt, and all of your creditors refraining from debt recovery action: if you maintain your side of the agreement.

• As we only have £65.00 per month, and your priority debts will only receive a small payment, it does not look possible to pay any amount to your non-priority debts (in our example). However, you can decide to pay your non-priority debts a token figure until you can increase the payment. In this example, I have used £5 of our money to pay three creditors a small amount each. You will note that one creditor with a £20 debt has no payment: with respect to all creditors, this small amount cannot justify even a token payment (let alone the cost to the creditor to process any payment). A letter needs to be sent to all small creditors asking for them to write off the debt, or at least for them to do nothing as there is little, or no, likelihood of payment (see Example 3).

• We now have £60 for priority debts. A system exists and is accepted by most creditors. The amount is worked out as a ratio of amount of debt to payment available. One debt at a time is calculated as follows:

  Amount Available	x	Amount of Debt		÷	Total Debt	=	Payment
  £60	x	£3500	Mortgage Arrears	÷	£6000	=	£35.00
  £60	x	£550	Gas Arrears	÷	£6000	=	£5.50
  £60	x	£1200	Maintenance Arrears	÷	£6000	=	£12.00
  £60	x	£750	Council Tax Arrears	÷	£6000	=	£7.50
  Total						=	£60.00

• Remember you need your creditors support, large and small alike. Being sued for £60 is no less stressful that being sued for £6000.

• If one of your creditors decides to ‘go it alone’ and take legal action, you need to consider one of the forms of personal insolvency. This ranges from getting the courts support and protection for a moratorium (as above), to the extreme of personal bankruptcy. In such circumstances either contact (in the UK only) the Consumer Credit Counselling Service on 0800 138 1111 or your accountant.

• Still communicate with, and make offered payments to all creditors regardless of their ‘chest beating’, most will soon accept the inevitability of your payment arrangement.

• When we have many debts our senses develop a pessimism and defensiveness that can be far from reality. We believe that every creditor wants every penny ‘NOW’! That they will turn into monsters and descend upon us inflicting financial destruction and many years of darkness, and as such we will ‘fight them on the beaches’… Well, this need not be the case.

• Creditors initially look for the answer to one question to determine how to deal with individual debtors:

• ‘Can the debtor pay, but won’t’ or ‘can’t the debtor pay’. Otherwise known as ‘can’t pay, won’t pay’. If the creditor is of the opinion that all you say and do is reflective of a ‘can’t pay’ you should have little to fear.

• If you do not contact the creditor to arrange an alternative payment arrangement the creditor will probably start legal action quickly. If you contact the creditor in good time, you have the opportunity to negotiate. In this day and age of easy credit, the creditor has a responsibility to those debtors that fall on hard times. No creditor should take legal action where a debtor is genuine, in contact, and playing fair (holidays in the Mediterranean whilst paying your creditors £1 per month is not playing fair and you should expect a call from the debt collector).

• The Income & Expenditure Statement is part of the creditor assessment of the debtors financial position, together with the knowledge and experience of the debtors collection staff. It should be noted that what seems like a great reason for you not to pay sounds like another excuse to the collection staff (whether true or not). Collection staff have to sort out the ‘won’t pay, can’t pay’ debtors by pushing all debtors to the limit of reasonable stress. If they could not sort out whom was who they would have to sue everyone as the only real alternative.

• If a creditor contacts you by telephone you must bear in mind that the companies that lend money are in the business of revolving cash. As such they will not give the debtor a comfortable experience. Collection staff are trained to find short term answers to your problems i.e. if you called them asking to miss one payment or they rang you because of one missed payment and you asked to miss that payment they would respond in this order:
  1. ‘NO’.
  2. ‘You have one week’.
  3. ‘Pay half now, and half in fourteen days’.

  (I will stop at No.3 in case I get in trouble from the finance companies collection departments)

• The point is clear, if you can just about manage the payment, pay it. If you cannot pay under any circumstances, you must say so and be very resolute. Making promises you cannot keep looks good on the collection staffs work report, however, it also means that you cannot stick to an arrangement. Breaking an arrangement is giving a finance company a legitimate reason not to make further arrangements and to sue you.

• For a finance company to consider a long-term arrangement you will have to have many debts beyond your financial resources. If your finances are ‘a bit tight’ you will be expected to meet all of your debts on time, and in full. That said, if you lost your job, or you are self-employed and sick (and you did not take out the finance company’s Job Loss/Sickness Insurance) and you complete an Income & Expenditure Statement and have been fair with your living expenses, your creditors (in the main) will give you a high degree of understanding (never expect their blessing).

• If you feel that you have a legitimate case and the person dealing with your request (be that by telephone or letter) is not being fair with you (as does happen) you should ask to talk to a supervisor, or write to the Collection Manager. Explain that you acted responsibly by contacting them (before they contacting you), that you have completed a fair Income & Expenditure Statement based on acceptable standards and that you have made/will make the first payment of your proposed arrangement, however, you are at an impasse with their colleague.

• When you have overcome the initial contact with a creditor you will enter into a payment arrangement period that can range from a month to an indefinite period. You may be told that they will accept a reduced payment for three months, then you will be expected to resume normal payment and reduce the outstanding arrears, or that your case will be reviewed in 6, 9, 12 months…

• You will be expected to increase your payments pro-rata when you pay-off creditors or if your financial circumstances improve. If you had debts due to unemployment and you get another job it could be tempting to leave the reduced payments ‘just for a while’. You run the risk of loosing the complete co-operation of all creditors.

• In serious situations the creditor will know that the debtor is unlikely to ever resume normal payment, or even repay the debt. Whatever the situation or arrangement, you will be expected to complete an Income & Expenditure Statement every six months (some creditors every three months). You must return these requests promptly, and factually. After a period these requests may seem more regular than they are. Accept them as a small price to pay (literally).

• Finally, never take out a loan when you are paying reduced payments to your creditors. This is not only unfair, but you run the risk of your creditors checking your up to date credit record and finding new credit details: if you do, again, expect the debt collector to call.

• In almost all debt situations the question of taking out a further loan to repay a debt will confront you. The advice you will receive from most debt counsellors would be an emphatic ‘NO’. But that is not always the most realistic answer to debt. Sometimes taking out a further loan can be a good long-term answer, as well as an obvious short-term solution.

• If you are in employment, and your position is secure, you need to work out your finances in a similar way to the Income & Expenditure Statement. If you find that taking out a five-year £5,000 loan at £120-130 per month will settle debts that cost, say, £300 per month at present, you should take out the loan (together with learning your lesson).

• If you have debts through weekly collected credit (supplied through door to door loan sales/collectors) the loan rates are normally (nearly always) too high to consider taking further loans to reduce a debt (whatever they may tell you). However, obtaining a loan through lenders with acceptable rates to pay off a door collector should be considered. Many weekly loan customers are of an acceptable standard to major loan services but they have never tried to get a loan as they carry on a family tradition of weekly loan credit.

• The two questions that you need to answer are:
  1. Is a further loan a long-term solution?
  2. Am I serious about getting out of debt?

• If you answer no to either question, avoid any further debt.

• There is much debate about credit repair companies.

• Can they remove CCJ’s?

• Can they get the money owed on a CCJ reduced?

• Lets start at the beginning.

1. You do not pay a bill, a loan, an invoice etc
2. You receive a formal demand for payment from the creditor *
3. You ignore the demand
4. The creditor sends you a ‘Claim Form’ (previously a Summons) demanding payment within 14 days or your defence in writing (following court rules)
5. You ignore the Claim Form
6. The creditor asks the court to enter a Default Judgment (the CCJ) **
7. The court send you the CCJ giving you 28 days to pay ***
8. You ignore the CCJ
9. When the 28 days expire, the CCJ will be on your record for 6 years ****

Notes:

*	The demand must say who you are, delivered to where you live (or work), who the creditor is, their address, how to contact them, what is owed, what it is owed for, when you must pay the amount by and what will happen if you do not pay i.e. “if you do not pay £100 by 12/11/99 we will take legal action”.
**	When the Defendant (debtor) does not reply to the Claim Form (previously Summons) the court enters a ‘Default Judgment’. The term Default means you defaulted on your opportunity to respond to the creditors claim.
***	If you pay within the 28 days the CCJ is not recorded if you contact the court
****	On the sixth anniversary of the date of the Judgment the CCJ will automatically erase from your credit record.

• Now back to the credit repair.

• The fundamental issue with all credit repair opportunities is did you receive the Claim Form (previously Summons). If you did, you cannot remove the Judgment. However, this is not the end of the matter with most (but not all) credit repair companies.

• If you are prepared to state that you did not receive the Claim Form (previously Summons), and you have a reasonable reason why you did/could not receive it, you have the grounding for a successful credit repair.

• You will complete a few forms with the credit repair company and make an application to set aside the ‘Default Judgment’.

• You cannot set aside a CCJ that you knew about, did not pay, but can pay now. However, credit repair companies may correspond with a company that secured a CCJ against you, say, 3 years ago, for £7,000 and offer them, say, £4,000 if they not object to a credit repair and application to set aside the Judgment Default of their CCJ.

• If you have paid off a CCJ that is 3 years old the credit repair company cannot use the leverage of paying the creditor some money not to object to the credit repair: the credit repair company relies on the creditor not being bothered to object.

• Credit repair companies are most effective if you have not paid any money towards the CCJ.

• If you settle a debt after the first 28 days, the CCJ will not be taken off the register. The file can be marked as ‘satisfied’, if you apply to the court.

• A further problem can exist on your credit record that is as destructive as a CCJ: a ‘Default’. If you miss two to three payments of an agreement (Hire Purchase, Lease) the creditor can send you a formal default letter. A CCJ and a Default are both regarded as serious information by lenders etc. You cannot pay or satisfy a Default: it is just there! An inexperienced clerk at a finance company can send a Default to you without any supervision or serious default.

  My Personal Summary:
  

• The credit repair companies are under immense pressure from government, credit counsellors, finance companies and institutions: and of course the main credit reference companies who rely on poor credit ratings to earn profits – at times it is difficult to see who the ‘goodies’ are!

• Should someone who went through a very difficult time in the past have the opportunity to correct his or her standing in life before a 6-year term? I know of many such cases where debt had very little to do with recklessness, and more to do with such things as poor health, redundancies etc.

• Banks and finance companies use computers to sort the good from the bad. With CCJ’s lasting 6 years (and the computer treating a 1-month debt the same as a 5 year 11 month debt) the punishment is out of proportion to the ‘crime’.

• The choice is a personal one: to use or not to use. Our peers (governments, Lords etc) have been making laws to abide by, and ethics to follow that they at times do not abide by themselves – do you think our peers would use credit repair?

  How to Check Your Credit File
  

• Firstly, if you have never checked your credit files do it now!

• There are two companies [in the UK] that supply 99% of all credit reference requests.

  Experian Consumer Help Service PO Box 8000 Nottingham N61 5GX

  Equifax (Dept 16) PO Box 3001 Glasgow G81 2DT

  Write to both companies with all of your addresses in the past 6 years (provide postcodes, go to www.royalmail.co.uk if you need them).

  If there are two of you, married or not, you will need two separate applications.

  Send each application with a £2.00 cheque, payable to the name of that company.

  The information will be sent to you in about 14 days. A useful booklet that explains what to look for and what to do if you see any problems will accompany the information you receive.

• Some credit repair companies charge an outrageous amount of money to get to this stage. Whether you use a credit repair, or not, you should get your own file from the credit reference companies and scrutinise the information.

• The two things you are looking for are:
  1. County Court Judgment
     Judgment, CCJ or however it is described
     The information will provide the date of the CCJ, case no., court name, value, defendant, and whether satisfied.

  2. Default
     Date and amount of default

     A Default is a formal demand for payment of some form of Agreement, say, a Hire Purchase Agreement that you have missed three payments of. A Default must contain a number of regulatory requirements. That it is served under the Consumer Credit Act, the demand must say who you are, delivered to where you live (or work), who the creditor is, their address, how to contact them, what is owed, what it is owed for, when you must pay the amount by and what will happen if you do not pay i.e. “if you do not pay £100 by 12/11/99 we will take legal action”, and finally that you should seek advice.

  A CCJ and a Default are both regarded as serious information by lenders etc. You cannot pay or satisfy a Default: it is just there! (Very, very unfair). An inexperienced clerk at a finance company can send a Default to you without any supervision or serious default.

• Debt has always had a high degree of shame attached to it (real or perceived). Admitting to having debt problems is like saying that you’re not experienced or knowledgeable enough to handle the real world. To make matters worse, you find out that unless you get immediate financial help you will loose your family home, the car you need for work, your business etc. You have been offered a loan at a very high interest rate and you are desperate. Do you take the expensive loan or ask your family for help?

• Firstly, (and I make no excuses at repeating this in these articles) are you serious about getting out of debt? If you are, you can consider your family as an option. If you are not serious about getting out of debt and you just want some ‘breathing space’, you risk losing your family’s support and their money!

• Asking relatives or friends for financial help is a tough decision, but can be the best option (at least for you). In most circumstances, a loan from such sources would be interest free, although I have known of cases where a token interest is paid if only to impress upon the borrower the gravity of the situation. It should be remembered that the money loaned to you was probably earning interest, and in some cases part of the yearly income of our parents.

• If your debts are that highs that a second mortgage would have to be taken out by say, your parents, you need to have a ‘cast iron’ repayment plan. If you have any doubts about your future ability to meet the payments you must not put your problems before the possible problem you may drop on others (life-long homes have been lost, a more common scenario than you may think).

• The amount of repayment is an important factor. If you have the opportunity to take an interest free loan, you should also take the opportunity to repay the loan at a rate you can maintain at 101% (this is crucial as falling behind with this type of loan can affect all of your family, and can cause wide and irreparable damage).

• Repayment of loans from people close to you is normally enough to regain your position in your family, and life. Take your friends or family out for a meal when you finally pay off the loan. This will be enough repayment to those that care about you but do not pay by credit card!

• If a shop, restaurant or trader asks you for a credit card and you say you don’t use one that’s when the funny looks start. This answer almost implies that you used to have one, but you had ‘the snip’ (no, the other one, where the credit card company tell you to cut the card in half and post it to them). Cutting your dearest friend in half is now the biggest serial killer of all time.

• Losing your cards is a double blow: you cannot use credit to buy, and you are now limited to where and what you can buy. Going on holiday in today’s world is unthinkable without your precious card (this does not stop the millions of British holiday-makers each year who only know cash and would not have it any other way).

• Accessing the Internet, until lately, was the realm of the cardholder: and certainly the realm of the bank account holder. Buying goods or services on the net is very much geared to the card user.

• The point that I am trying to make is that a credit card is a part of our daily life that gives you the widest choice of goods and services, and therefore, the most competitive price. And that it is too easy to criticise the down side of a card when you have a lot of debt, and also complain that the marketplace favours the use of credit cards: cash is dying and will become more expensive to obtain and use.

• If you have ‘lost’ your cards, and you are desperate to get one, there are a number of ways to increase your chances of getting one. One of these measures is not to use the companies that advertise, ‘lose all your debts, start afresh with a new bank account and credit card’: unless the Bank of Antarctica is an accepted card in your local supermarket!

  Disclaimer: Any similarity to the real Bank of Antarctica would be a surprise.

• The first option is to resurrect a card that you may be paying off at present. If you had a good relationship, up to a point, with your credit card company and your reasons for your debt problems are explainable (other than ‘I could buy lots of things I couldn’t afford’) then you have every reason to be upbeat. The first thing to do is to pay as much as you can for a sustained period, until you have a balance of at least half of your last card limit.

• Write to the company and explain:
  • what caused your problems (you may as well be honest),

  • what you have been trying to do to get the debt reduced (no new debt, no holidays, working hard),

  • what your situation is today (no other major debts, situation in control etc)

  • Why the situation is unlikely to reoccur (got rid of other half, have a good full-time job, older and wiser),

• They may reply,

  • that you need to reduce the balance further: ask how low,

  • they may say re-apply in six months: better than ‘no’, and a good sign,

  • they may want to only allow you a £500 limit, from an original £2500: that’s OK.

• Whatever conditions they set, you know that it’s a second chance and that you’re back in the real world.

• Another way to further your chances of getting a credit card is to start afresh with a new bank account and with a ‘reasonable’ deposit – this should ensure your acceptance. Do not apply for a card before six months: this is a banks usual minimum period for all customers, and you do not want to be seen to be desperate. If you are rejected at the six-month stage, go through the above scenario: I’m a changed person etc.

• A final option is to get married [!!] to a cardholder and have a joint card – it’s not the same as having your own card, but it’s a start.

• Remember that a credit card is a responsibility and a very useful tool if handled correctly. If you believe that cash keeps you sane, then forget the card and find ways to get the same goods/services that cards offer.

• The aim of most creditors (the one’s you owe money to) is not to make an individual bankrupt. Most bankruptcies have little in the way of compensation for unsecured creditors. The government services are more likely to petition your bankruptcy than, say, a trader you owe money to. It is also common for an individual to start a bankruptcy petition themselves: out of desperation to avoid the hounding of some overzealous creditors.

• The purpose of bankruptcy is to convert your possessions, and any wages you receive, into lump sum and installment payments for creditors. A debtors purpose to apply for their own bankruptcy is to form a moratorium (a group of creditors) to agree part repayment of all outstanding debts, and when the agreed repayment has been met, to have a ‘clean slate’.

• Individual creditors cannot take action against you. They must make a claim through the ‘trustee’ (the name of the person who controls a bankruptcy) or write off their debt. When appointed the trustee will advertise your demise in a number of newspapers to give all of your creditors a chance to make a claim against the bankruptcy. It is also the responsibility of the bankrupt to make an honest list of all creditors: as a bankruptcy is also a chance to start again the bankrupt should ensure every creditor is notified. Not that a creditor could make a claim against you after a bankruptcy, but it will get all your creditors of your back.

• If you own your home you would be fortunate to keep it. You can keep household ‘essentials’: bed, fridge, heating appliances etc. But not, TV’s, video recorders, computers (unless used for work, or used to get work). All ‘tools of trade’ are protected, but will be scrutinised (a new transit van is not a necessity – buying a well used second hand van would be a likely suggestion from the bankruptcy trustee).

• A bankruptcy will normally last until the third anniversary of the bankruptcy order. During this time you are not allowed to hold a public office, become a company director (or in all but name run a business) and you must not apply for credit over £250 without notifying the lender of your bankruptcy. Your credit file will show your bankruptcy for six years from the bankruptcy order.

• There is some talk of allowing some bankrupts to become company directors in as little time as three months from the bankruptcy order. The basis of the issue is: should an entrepreneur who started a business, a sound and well run business, but lost control of the company’s survivability through bad luck, ‘just a few more sales’, ‘a bit more backing from the bank’ etc. be allowed to try again once all matters have been explained to, and sanctioned by the trustee? This option gets my vote.

• In order for you to understand and deal with this situation, I will describe the background of the problem, and the ‘thinking’ of the lenders.

• Banks and building societies are resurrecting outstanding shortfall debts due on repossessed homes in the property slump of 1990-94. As many as 300,000 homes were repossessed with an average shortfall of £30,000 per home: some deficits are as high as £100,000. The reason for the resurrection is thought to be favourable economic conditions that leave the average worker with more disposable cash. Some of those workers are the targets of the banks and building societies; however, in order to find out who can start to repay their debts, every ex-borrower will be targeted.

• The issue that consumer bodies are raising is the unlimited time period allowed for lenders to take action against the debtor. Some house debts go back 12 years (being the maximum period in which a lender can claim against you), and the average is 8 years. The period for pursuing other debts through the courts is 6 years.

• After 6 years people start to build a new life and the demands for ‘written off’ debts are causing stress, hardship and as an absolute minimum is ‘unfair practice’.

  What can you do?

• The debt is payable under English law if under 6 years old and ‘possibly’ payable if between 6 and 12 years old: this does not mean that a court would enforce the whole debt, or even part of the debt. Many homes were sold far below market value (some sales were criminal, and many were negligent), further, lenders added contentious fees and interest. With the new court initiatives (favouring pre-court resolution) lenders would take a fearsome assault on their ‘good’ name from the courts – Halifax BS has 50,000 debtors! Resolution can happen in three ways:
  1. Pay the debt in full on demand

  2. Offer a sum in full and final settlement

  3. Make no offer due to current financial commitments and/or circumstances

  1. Pay the debt in full on demand
  If your circumstances allow you to settle your debt in full and you prefer to do so, you should ask for a ‘full and detailed’ breakdown of the debt (a fee could be payable). When you receive the breakdown, take the figures to your accountant for a second opinion (there is little point in paying add-on’s and the lender is unlikely to argue).

  2. Offer a sum in full and final settlement
  On receipt of the (usual) solicitor’s letter demanding payment, request a ‘full and detailed’ breakdown of ‘every penny’ of the claim and get an accountant to confirm the amount. Your concern at this stage is not to argue any add-on’s, but to get the overall figure as low as possible. When you have the lowest figure, offer 5% and be prepared to pay 10%. Stay in control and strong (not aggressive). Your offer is likely to be accepted on a long overdue debt as an alternative to court (especially since in almost every respect that the debt was a write off some time back).

  3. Make no offer due to current financial commitments and/or circumstances
  If your circumstances do not allow you to use a solicitor, and if you are in the UK contact your local Citizens Advice Bureau or the Consumer Credit Counselling Service on 0800 138 1111.

• Do not talk to a debt agency, solicitor or a representative of the lender on the telephone: tell them to send letters in future. You are unlikely to be an expert telephone negotiator, or remember the salient points of your conversation. If you send a letter, use a heading of ‘Without Prejudice’ this means the content of your letter can not be used against you in court, nor could any offer you make be considered as an acceptance of liability.

• Do not provide personal information to anyone connected to the lender. That includes an Income and Expenditure Statement: I have previously advised you to provide information and full co-operation to your creditors, however, this situation is not a standard debt scenario and providing information is much like providing the rope to hang yourself with.

• Finally, with this type of debt the lender (or solicitor’s) ‘bark is worse than their bite’. The property boom of the 80’s was always going to have casualties, the banks and building societies were always going to make money and losses were catered for. The resurrecting of shortfall debts is an immoral action in many cases and you should remember that if you receive one of their letters.

• Personally, and I do mean personally, I would throw the first letter in the bin, reply in horror at the second letter, and use option 2 or 3 on the third contact.

UPDATE 15 December 1999 The Halifax Building Society announced that as of 5pm, Tuesday 14th December 1999, all mortgage debts older than six (6) years will not be pursued. You should seek professional advice to establish your own position. It is hoped that other building societies will follow suit. The move by the Halifax does not change the above article.

PLEASE NOTE
Independent advice is always available through the Benefits Agency, Citizen's Advice Bureau, Consumer Advice Centre, Money Advice Centre and Social Services. Although much of the information on this page has a UK bias you may find this page to still be of help if you are outside of the UK.

• Overview of Utilities

  Due to the high importance of receiving constant utilities in our homes, the treatment of utility debt is somewhat different to that of, say, a credit card debt. Cutting up your card and suing you is not meant to deprive you of water, heat, safety or security. However, the utility companies can deprive you of their resources in some situations.

• WATER

  The water companies usually need a County Court Judgment before disconnecting your supply (we are awaiting a new law to stop the water companies having the power to disconnect bad payers). When they apply for the Judgment, you will be given ample opportunity to make reasonable payment arrangements. If you maintain the arrangements and you keep the present water bill up to date, you need not worry. If you do not maintain the present water charge, but you are paying the arrangement, the water company will have to return to the court for another County Court Judgment. In such a situation you may be ‘pushing your luck’ with the court.

• ELECTRICITY and GAS

  When you receive a bill from either the electric or gas companies, check that the bills are not estimated, and that the amount of usage seems correct. If you suspect the bill is wrong in any way contact the company for an investigation into your query.

• There are four methods to deal with utility debt situations (in order of preference):
  1. Budget Plan
     The company will average your bills over a year and allow similar quarterly payments. If your usage goes up or down, the amount will automatically change. This method is usually by direct debit and will also provide you with a discount because of the easy collection method.

  2. Instalments
     If you do not have a bank account, this is your first choice If you find yourself in a debt situation, call them immediately and offer a payment you can afford: under the electricity and gas code of practice, they should show a fair degree of ‘understanding’.

  3. Pre-payment Meters
     You must be offered a payment meter as a last resort before being disconnected (if it is safe to do so in/on your property). Meters have a higher standing charge, will stop if you have no money and are very inconvenient.

  4. Direct Payment
     Direct Payment by Income Support (IS) or Job Seekers Allowance (JSA) If you owe over a certain amount (call IS or JSA for figure, and there is one whatever they or the fuel companies may say to you) you can have direct deductions from your benefit. The good thing about this is that it gets paid. The bad thing: you have no control over your finances. Many people in debt need more money one-week, than they do the next etc. And, the amount of repayment will probably be higher than an Installment Arrangement.

• The Social Fund Loan (a loan that can be obtained if you are on IS or JSA) cannot be used for utility debts. So, do not ask for a Social Fund Loan for your utility debt.

• Finally, with utility debts, more so than any other debt, act fast and loud. Get the best arrangement you can get before committing yourself, and stick to it. If you need two years to pay-off a £400 bill: tell them so, show them your Income and Expenditure Statement that backs up your offer, and make a payment immediately.