Dealing with Debt

Introduction

Credit is very easy to obtain these days. Banks, Building Societies, Insurance Companies, Finance Companies, Mail Order Firms, Credit Unions and small moneylenders all want to lend us money. At one time or another, many of us need credit for something - a mortgage to buy a house, a loan to buy a car, video, colour TV, furniture etc. Credit is buying something and being given time to pay for it. We also pay for the credit in the form of interest. People borrowing money should check on the "Annual Percentage Rate" (APR) to get the cheapest deal.

It is very easy to borrow more money than you can repay. The result is DEBT. Another way of putting it is that CREDIT is debt under control - DEBT is credit out of control. Often people borrow more money in the hope of clearing existing debts, thus leaving one large debt to pay off. This is not a good move. People with a debt problem often have multiple debts, for example:

• House - Mortgage overdue - result: Repossession and homelessness
• Council Tax - Not paid/overdue - result: Bailiffs, or worse
• Gas - Overdue, is the Electricity - Overdue and or the Telephone - Overdue - result: Cut off
• Car Payments - Overdue
• TV/Video/Hi-Fi - Overdue
• Furniture - Overdue
• The "Catalogue" - Overdue
• Holidays (Fly now - Pay later) - Overdue

Debt can ruin your life and your family's life. It is frequently a contributing cause to marriage breakdowns. The golden rule is DON'T BORROW MORE MONEY THAN YOU KNOW YOU CAN PAY BACK.

Practical Advice

For the benefit of those who have debts which are causing them problems and also for the benefit of those who may be approached for advice, the following brief guide may be useful:

1. Obtain expert assistance
   This can be from your Regt. Admin Officer or The UK Insolvency Debt Advice Service on call 0800 074 6918
2. Is the money really owed?
   A debt can only exist if there is a valid contract either on one's own behalf or as guarantor for someone else, or if one is obliged by statute. eg Income Tax or Council Tax.
3. Take off the pressure
   Deal with emergencies and any harassment by debt collectors. Examples:
   
   1. The Gas/Electricity is about to be cut off
   2. Non-payment of mortgage has resulted in eviction proceedings
   3. Failure to pay a court fine resulting in another summons or even arrest
   4. Court appearance in connection with debt
   5. Bailiffs due to call soon to seize goods or repossess something
4. Harassment of debtors
   This is a criminal offence in England and Wales (Section 40 of the Administration of Justice Act 1970). Illegal practices by debt collectors which cause alarm, distress or humiliation can be reported to the police.
5. Making a list
   List all the debts and what action has been taken about each one. DON'T LEAVE ANY OUT - THIS IS CHEATING YOURSELF.
6. Work out a priority order
   Work out the priority order of each debt. For example:
   Priority ONE - those debts which will run the risk of eviction from home, disconnection of Gas/Electricity or imprisonment
7. Some debts may not be pursued
   
   1. The person with the debts is under 18 years of age
   2. The debt has remained unpaid for a long time - say six years
   3. A spouse is the person who owes money. Usually, husbands and wives are not responsible for each others debts.
   4. The money has been borrowed from an unlicensed credit broker
   5. The contract is invalid
   
   NOTE: These possible legal outlets must not be interpreted as condoning a debtor's moral obligation to repay what has been legally borrowed.
8. Is the amount being asked for correct?
   i.e. Have the payments been miscalculated?
9. Can the amount be reduced?
   The amount owed can sometimes be reduced, for example:
   
   1. Money owed on goods which are faulty - compensation can be claimed for faulty goods
   2. Credit agreements at extortionate rates of interest are illegal and courts can reduce the interest
   3. It may be possible to get an income tax rebate if the correct allowance was not claimed.
10. Is the debt recoverable?
    It may not be possible for the debt to be recovered because:
    
    1. The person owing the money does not have enough assets to make legal action worthwhile
    2. The lender may be unwilling to spend time establishing the identity and permanent address of the person who owes them money, especially if they have moved.
    3. The debt may be too small to justify the legal costs of recovery
11. Negotiate with the creditor
    Write a holding letter saying that you are working out the financial situation/debts and will write soon making an offer of whatever repayment can be afforded. In the meantime, ask the creditor to suspend interest (freeze the account). Work out a repayment proposal. This is done by calculating how much income is left after deduction of essentials such as food. Remaining income is then used to pay priority debts such as mortgage, gas, electricity, council tax. If there is any money left after that, it should be divided up to pay off non-priority debts.

Disclaimer
The above information is only a guide. A person in financial trouble should SEEK EXPERT ADVICE SOONEST from the Regt Admin Offr, Citizens' Advice Bureau or The UK Insolvency Debt Advice Service on call 0800 074 6918. Take ALL agreements, contracts, bills, letters etc. relating to ALL your debts with you when seeking advice/assistance. THIS IS ONLY A GUIDE TO HELP ALLEVIATE FINANCIAL DIFFICULTIES - NOT AN ESCAPE FROM RESPONSIBILITIES. THE MESSAGE IS "DON'T BORROW MORE THAN YOU KNOW YOU CAN REPAY".

*Please NOTE:

IF YOU ARE LIVING IN SCOTLAND there are certain differences in Scottish Law relating to debt that you need to be aware of. In particular these relate to Sequestration and Trust Deeds as regulated under the Bankruptcy ( Scotland ) Act 1985 (as amended) and Diligence which is the part of Scottish Law relating to formal debt enforcement as regulated under the Debtors ( Scotland ) Act 1987. In addition, with regards to court procedures, in Scotland a Sheriff Court Decree will be issues rather than a County Court Judgement. When calling the HelpLine, it is important that you make it clear that you are calling from Scotland and you will then be given the appropriate advice.