Helplessness

I remember feeling that there was nothing that I could do. I had lost my great salary in the IT industry and I couldn’t see how I was going to get it back. My debt repayments were far in excess of what I could afford even though I had cut out all the spending that I could.

If you are feeling like this you need to start to try and take control. Make a budget and see how close you can get to being able to pay your debts. Get some advice on the debt solutions that are available to you.

Shame/Remorse

It’s OK to feel regretful about the decisions that have led you to a debt crisis but do not overdo it. Blaming yourself too much might lead to depression and inaction. This is the last thing that you need. Try and remember that although you may have made some financial mistakes that does not make you a completely bad person. You still have good points!

Stress

If you have started missing debt repayments you will (or you very soon will) be receiving calls from debt collection agents. Their tone is aggressive and their mission is simply to get you to pay them as much money as they can. They have no concern about whether you can afford to feed your children.  If you have serious debt problems then they are not going to be solved by speaking to debt collection agents. My advice would be to ignore their calls while you select your debt solution. Try and create some space for yourself to make this important decision without interruptions.

Isolation

Debt is a very isolating thing. You may feel that you do not want to discuss your problems with anyone. As usual, keeping things to yourself doesn’t help. Find someone that you can share your problems with in confidence. Either a family member or a friend, a priest or a counselor. Try looking up any debt help groups in you area. It really will help you to deal with your debt problem

Conclusion

If you’re in a debt crisis then you will probably have a whole range of negative emotions. If it is too much to sort them all out at once then take one thing and change it for the better. When you have done that then move onto the next thing. If you are feeling stressed and alone then try posting a message here – you will get a sympathetic response.

3 years on and I have resolved my debt crisis.  I am looking forward to the future and am remarkably still married.  The process of working through my debt crisis  wasn’t easy, but the tough decisions I took then are starting to pay off now.

What is your debt story?  Write a reply here, you might find that just writing it down helps you to come to terms with it/see what needs to be done to fix it.

Good luck!

Debt Fraud Prosecution – How Likely Is It?

In the UK, prosecution for debt fraud is only likely in the most extreme of cases (e.g. applying under someone else’s name or saying that you earned 100,000pa when you actually earned 5,000).  Even some quite extreme cases don’t come to court.  Therefore if a debt collection agency is threatening you with a fraud prosecution they are almost certainly lying.

Ignore the threats and concentrate on working towards a solution to your debt problem.

Reasons For Debt

Each person’s circumstances will be unique of course, but I think it is possible identify some overall categories:

1. Debt caused by events. Perhaps your finances were OK until you lost your job or faced crippling medical bills.

2. Taking on someone else’s debt. Perhaps your partner ran up large debts without telling you and/or forced you to sign for joint loans. If they managed the finances you could be liable for any debts that they run up on things like joint accounts.

3. Spending to make yourself feel better. Many people use money and spending to compensate for some other lack in their lives. This will almost always lead to financial problems and will not cure the underlying problem.

4. Spending to make other people happy. Closely related to the above point, some people believe that they can only have a relationship/friends if they lavish gifts on people.

5. Just being stupid with money. This is the category that some people seem to think all debtors fall into. It would be foolish to deny that they exist but there is usually some other reason why people behave in this way.

Curing the Disease, Not the Symptoms

A lot of information on getting out of debt seems to focus on the detail of budgeting/paying off debt etc. Although this is valuable it ignores the real root of the problem. Unless your debt problems have been caused solely by unfortunate circumstances/the actions of others then you would be well advised to try and sort out the cause of your debt/spending addiction. If you don’t it will eventually repeat itself.

In the UK there is almost never any need for the removal or sale of a person’s goods as a result of bankruptcy.  You must remember that by entering the bankruptcy process you have joined a court/legal led process that is designed to produce the maximum reasonable return for your creditors.  The insolvency service have no interest in the threats and intimidation that are employed by debt collection agencies.  For normal people (i.e. if your house isn’t stuffed with valuable antiques) then the insolvency service will have no interest in the contents of your house because the amount that they would raise at auction would be less than the cost of collecting/selling it.  Just indicate on the bankruptcy form that you don’t have anything of value in your home and in almost all cases your home will not be visited by court officials.

If they did visit then the list of exclusions to what they can take is long:.  Things that you need for day-to-day living like fridges, chairs, 1 TV.  Things that are jointly owned or not owned by the debtor personally (children’s toys etc. etc.).

The type of things that you might lose are cars (unless the debtor can prove that it is needed for their job)/boats/caravans if they are owned by the debtor.  If large assets like this are owned jointly then they would need to be valued and half their value would need to be paid into the bankruptcy.

If you and your partner are staying together you should consider whether there is any possibility of removing the family home from the ownership of the debtor before they declare themselves bankrupt.  To do this it is not necessary to change the name on the land registry entry or any details of the mortgage.  All that is required is to transfer the “beneficial interest” that the debtor has in the home, which for most couples will be half the value of the equity in the home over and above the mortgage and any secured loans. E.g:

If a couple own a home valued at £250,000 and have a mortgage of £200,000 then the beneficial interest of each person would be £25,000.  Note that a genuine valuation (obtained by averaging valuations from 3 estate agents) needs to be used.  You cannot get away with under valuing your home.

In this instance the partner that is not declaring bankruptcy would need to pay the one that is £25,000 for their beneficial interest in the home (you need to get some documents drawn up by a solicitor to do the transfer properly).  This money could either come from the partners own money, or from relatives, or from a loan or re-mortgage in the sole name of the non-bankrupt partner.  This last option used to be very popular with the ready availability of self-cert mortgages but has become rather more difficult to arrange at the moment.  Consult a specialist mortgage broker (don’t even bother approaching a main-stream lender) to see what is available.

If you there is too much equity in your home for you to be able to afford to buy out your partner then you might consider trying to delay the bankruptcy until house prices have fallen further.  Lastly, if you are in negative equity and you are sure that you and your partner will be able to afford to continue to pay the mortgage then you will be able to buy your partner’s beneficial interest for a notional sum of £1.  It is important to consider whether you and your partner are really committed and able to pay the mortgage, since if you have the house re-posessed after your partner has been declared bankrupt then you will both be saddled with a new debt called a “mortgage shortfall”.

If the beneficial interest is transferred as described above then the administrators of the bankruptcy will not be able to force the sale of the family home.  It is also worth noting that most holders of unsecured debt will be more willing to accept “full and final” offers to settle debt once they know that the debtor does not have any major assets. 

If your partner has debt problems then you need to know about it, because sooner or later it is going to affect you.  Not opening their mail, or other odd behavior relating to things that are mailed can be a sign that someone is experiencing debt problems.  If someone in your home is not opening their mail then it may be because they don’t want to face up to the problems that they have.  Of course it could just be that they are not very organized!

Other mail-related signs include rushing to get the mail so you don’t get a chance to open it or see it or if you stop seeing statements that used to be left for all to see.

Another give-away is your partner receiving a lot of mysterious calls at home.  When asked they might say that it was “just a salesman” or a wrong number.  Very like the behavior that you might expect from someone with a secret lover!

If you suspect that your partner has a debt problem then the only solution is to ask them about it.  They may be reluctant to speak about it but bringing the issue out into the open (or proving that there is no problem) will be the best thing for your relationship.

Who Should You Talk to About Dealing With Your Debt Problem?

At first it doesn’t really matter who you talk to, just find someone that you know will be a sympathetic listener and let it all out. If there isn’t anyone that you feel comfortable talking to then try an online forum or blog to start with.

If you are hiding your situation from your partner/immediate family then you will really have to tackle this soon. Unless you are confident of being able to pay off your debts with no affect on your credit history then your situation WILL have an impact on your partner. The knowledge that they will find out sooner or later about your situation should help you to be brave and tell them now. The later you leave it the bigger the problem and its impact on your relationship.

Next Steps

Once you have broken your silence you should find it easier to talk to other people about your debt problem. You should definitely get some free debt advice from a charitable organization or company. Make sure that you do not pay anything for debt advice at this stage as there is no need to. Research the main different types of debt solution (debt consolidation, informal arrangement, debt management plans, IVAs and bankruptcy) and try and work out which would be best for you.

Conclusion

Keeping your debt problem hidden will often make sure it gets worse or doesn’t get resolved. Seek out the help and support that you need (both professional and personal) and you will start on the journey towards a debt-free future.

photo credit: Erik Charlton

It is my belief that if you have multiple debts problems then speaking to debt collection agents is not the answer to your problems. Some people will no doubt think that this advice is incorrect or irresponsible so I will explain why I say it.

If you have reached a debt crisis situation you need a debt solution that:

1. Pays your creditors what you can afford AFTER paying all your essential bills such as mortgage/rent/food etc.

2. Allocates the money that you have available fairly between all of your unsecured creditors.

Most agents working in collection do not care about the above points. The sole objective is to persuade (and that’s a polite term) you to part with as much money as possible. It is often no concern to them if you or your family go hungry because you’ve paid money to your creditors. They will also not care if you miss or reduce your mortgage payment for the same reason, pushing you down the road to re-possession/foreclosure.

It would not be fair to suggest that debt collection agents should be considering your other debts, if you have multiple debts they are in competition for your limited money with other commercial lenders. However their desire to increase the share that their company is getting will often create a lot of pointless (from the debtors point of view) pressure.

The best idea is to get independent advice on your debt situation from someone that can also represent you to your creditors. If you don’t want to do this then you can come to an informal arrangement with your creditors by preparing your monthly budget, and allocating the excess income fairly between your creditors. Update all of your creditors every few months or sooner if there are any significant changes and you will be fulfilling all of your obligations to your creditors without ever needing to speak to possibly threatening debt collection agents.

photo credit: hdaniel

People that are in debt are often scared of debt collectors, but in fact (unless you have borrowed money from a loan shark or the criminal underworld) they have very little to worry about. Debt collection protection laws exist in many countries (certainly in the UK) and actually give very little power to the debt collector and a lot of protection to the debtor.

The best idea if you are experiencing problems with debt collectors is to seek qualified advice since the range of rules per country/state are very complicated and depend on many factors. There are some general principles that apply to most debt collection protection laws:

1. Debt collection agencies are not allowed to harass debtors. Activities that constitute harassment vary from place to place but would typically include calling too frequently or at unusual hours.

2. Revealing the debtors situation to other people (employers etc.). Debt collection agencies are supposed to take all reasonable steps to ensure that their actions do not alert other people to the debtors situation. This would include speaking to your boss at work or someone that lives in your home.

3. Using abusive language. Deb collection agents have to deal with you in a professional manner. Petty insults and bad language are not tolerated.

4. Misrepresenting their powers or actions that they are going to take. Unfortunately debt collection agents will frequently imply that they are going to take money direct from your employer if you don’t agree to pay them. This is completely untrue and illegal since they cannot do this without further legal action.

5. A debt collection agent that visits your home has no right to speak to you and no right to enter your home. In the UK it is only bailiffs that can sometimes do this, and even they have no right to force entry into your home in most cases.

6. I’m not sure whether this last point is against the rules (this site is only based on my personal experience) but beware of debt collection agents that try to get you to stop/reduce priority debt payments (mortgage, rent, food, tax, fines) to be able to pay them some money. Some will try because they don’t really care what trouble you get into.

If you feel that any debt collection agent that you speak to has broken the rules then your first action (other than getting some professional debt advice) should be to write a letter to the collection agency involved stating what they have done and that you know that it is illegal. This will stop the activity in most cases, but if it does not then you really do need to get some qualified free debt advice.