Banks declaring bankruptcy seems to be a popular concern at the moment with major financial institutions in the US and UK either failing or being taken over. Obviously the answer people want to hear depends on whether they are depositors or debtors with the bank in question, with debtors wanting to see the bank and all record of their debt destroyed, and depositors anxious about getting their money. In most cases it is going to be debtors that don’t get what they want.
If you have a debt with a bank that fails then your debt will form part of the banks assets that will be sold off. It is very likely that you will have to continue paying your debt in exactly the same way that you have always done. There is a small possibility that if you were not on a fixed interest rate that you will have to pay a higher rate to the new owner of your debt. The only way that you are likely to benefit is if the debt was sold at below its face value. In this case the new creditor may be willing to accept a settlement figure lower than the face value (since they would still be making money).
If you are a depositor with a bank that fails then you will have to rely on the compensation schemes put in place by individual national governments. In the UK this applies to all deposits by individuals up to £35,00 (shortly to increase to £50,000). This is per individual so if you have a joint account the amount covered will be doubled to £70,00/£100,00. It is also per registered financial institution so it is possible to spread even very large deposits around a number of financial institutions to make sure that they are covered. Beware of seemingly separate banks that are actually registered under their parent owner (e.g. the Santander Group in the UK) as these will all count as a single financial institution.
In addition to the specific insurance schemes it should be noted that no government wants to see any depositors lose money in the current climate, as it would damage confidence in that country’s financial institutions. To date no individual has lost money in a major UK or US bank during the current financial crisis.
Tags: bank failure, Bankruptcy, banks, credit crisis, financial crisis
If you are experiencing overwhelming debt problems it would be sensible if all of the debt relief solutions available to you were free, after all it’s not as if you have a lot of spare money. Unfortunately not all debt relief is free. It depends on your situation and the solution that you choose. Debt relief can be categorized into informal (can sometimes be free), debt relief involving qualified supervision (almost never free, but can appear so), and full bankruptcy (never free).
The irony is that the debt relief solution that is most suitable for people with extreme financial difficulties (bankruptcy) is the one that is not free. Not only that, it requires you to pay an up-front fee.
Informal Debt Relief
There are a wide range of companies and charitable organizations offering informal debt relief solutions. These usually involve either persuading the creditors to accept a longer time period for the repayment of their debt (debt management plans) or persuading them to accept a figure that is lower than the debt owed (debt write-off). None of these solutions are legally binding on the creditors and so rely on the experience of the debt management/counseling company and the particular mix of creditors for their chances of success. With informal debt relief it is always possible to find debt charities that will work with you for no fee or companies that will only charge a fee if they arrange a successful resolution. In this way, if the fee is taken out of the settlement to the creditors then their services can be effectively free to you, the debtor.
Supervised Debt Relief
This includes Individual Voluntary Arrangements (IVAs) in the UK and Chapter 13 bankruptcy in the United States. These debt relief solutions require the services of a qualified person to setup and monitor the agreement (which typically involves paying back a proportion of the debt owed over an agreed period) and the involvement of the court to ratify it. The requirement for legally qualified advice and the involvement of the courts mean that these debt relief solutions are never free. In some circumstances they can be structured (in the UK) so that the fees are taken from the agreed monthly payments, meaning no up-front fees.
Bankruptcy
I’ll say it again, it seems very unfair that a debt relief solution that you would probably only select if you were in a financial crisis requires you to pay an up-front fee. Both in the US and the UK there are court fees to be paid to declare yourself bankrupt (in the US this applies to both Chapter 7 and Chapter 13 bankruptcy). The only hope of being able to declare yourself bankrupt if you cannot raise the court fees is to look for a local charity that will pay your bankruptcy costs. These do exist but you will probably need to do some local research to find them, and be prepared to justify why you need their help.
Tags: Bankruptcy, chaper 7 bankruptcy, chapter 13 bankruptcy, Debt Advice, debt assistance, debt management plans, debt relief, individual voluntary arrangements, IVA
A lot of people will regard their debt problem as a very private issue that they would much rather deal with on their own. So why is this a bad idea and why should people with debt problems definitely contact a debt relief/credit counseling charity or company to achieve a successful resolution to their debt problem?
Talking is Good
For so many problems from drink or drug addiction to debt it has been proven time and time again that it is very helpful to talk over your problems. This will significantly increase your chances of resolving the issue. This beneficial affect will happen almost irrespective of who you decide to speak to (as long as they are a sympathetic listener) because the process of ordering your thoughts and explaining your situation to another person helps your own thought process. This benefit is increased if the person that you speak to has expertise in you particular issues/problems.
What Benefits do Specialist Credit Counselors or Debt Relief Advisers Bring?
You will find a number of benefits from talking to an experienced debt counselor. They will not be surprised by your situation. You may be nervous about speaking to friends/colleagues about your debt problems for fear that they will judge you a foolish person or that your secret will be passed on to other people. A debt worker will have undoubtedly seen your problems before (and probably worse) and will be bound by a confidentiality agreements. You will therefore be able to discuss your debt problems with them in a non-judgmental atmosphere.
The most important attribute that a debt advisor brings is their detailed knowledge of debt law and (almost more importantly) current normal practice in debt resolution procedures. If they take on your case and represent you to your creditors they will do so on a more “level playing field” than you would be able to. They are also often able to speak to specialist departments within the creditor organizations that only deal with debt advisers, never directly with creditors. These departments will often have a much wider authority and remit to agree debt relief solutions than the departments that individual creditors get to speak to.
The reason why creditors are more receptive to reputable debt advisers is trust. They are told all the time by debtors that they are unable to pay, but often suspect that they are being duped. If a reputable debt advisor has taken on your case, looked at your budget, and is telling the creditor that their client cannot pay they are more likely to believe this. They also know that the intimidation tactics that some collection agents will employ against debtors just don’t work on debt advisers.
Conclusion
If you engage the service of a reputable debt advisor then you will be more likely to resolve your debt problem, with less stress along the way. So start looking for one now.
Tags: credit counseling, Debt Advice, debt advisors, debt assistance
