If you’re saddled with debt in the United Kingdom, you can start rebuilding your credit profile by taking specific steps, seeking professional expertise and negotiating with lenders.
The government has enacted legislation aimed at supporting consumers who are coping with high indebtedness or financial turmoil, or are on the brink of bankruptcy or personal insolvency. In addition, creditors and banks have agreed to work with consumers and debtors if they are working with a third party debt management company.
The easiest debt solutions available in the UK include a debt management plan; bankruptcy; adding a debt to an existing mortgage, also known as re-mortgaging; and an IVA/individual voluntary arrangement.
Debt Management Plan
A debt management plan may be helpful to you if your financial situation has improved recently and you feel that you can pay off your liabilities within a period not exceeding 60 months, assuming that lenders froze interest and stopped fees and late penalties.
In a typical debt management plan, your existing loans are consolidated and you only have to make a single monthly payment, instead of the several – say, 5 or 10 – individual loan remittances you had to send before the payment plan. Further assistance in the UK comes from Consolidated Credit, who helps those looking for debt solutions.
If your lenders consent to a debt management plan, you must ensure remittances are properly sent to the appropriate lenders, month after month, until the debt maturity indicated in the plan. If you qualify for a debt management plan, you are considered debt-free and can start anew from a financial standpoint.
Bankruptcy
Don’t take bankruptcy lightly, as it will affect your life, and perhaps your financial status and employment prospects, for a long time. Consider bankruptcy only as a last resort. Ask yourself whether bankruptcy is the right option for you.
Things to consider include whether you have thought about other debt management options, and whether you would have a reasonable chance of starting anew and clearing your obligations. Contact an adviser or someone with experience in personal-insolvency matters before you embark on the bankruptcy bandwagon, because the process typically has legal implications.
You also can petition for your bankruptcy; contact the county court in your residence area for more information. You would have to remit the total fee of £700 per person, the average cost for a self-filed bankruptcy petition. A reduced fee or outright exemption is available if your income falls below a certain threshold or you are receiving benefits. The local county court can give you more information about the updated fee schedule.
Re-mortgaging
A re-mortgaging process enables you to clear unsecured liabilities by borrowing cash against your principal place of residence – that is, your home – or secondary abode.
The goal here is to pay off unsecured debt with secured debt, which a mortgage typically is. Contact your local bank for more information about re-mortgaging opportunities and to determine whether you qualify.Most reputable lenders would advance cash up to 65% of the fair market value of your property. That percent may be lower if you have an increasing number of adverse notices on your record, which ultimately would lower your credit score.
Before re-mortgaging your home, make sure the lender is properly registered with, and regulated by, the Financial Services Authority (FSA). Contact the FSA if you need more information about currently registered lenders.
Individual Voluntary Arrangement
If you owed more than £15,000 in unsecured loans, an individual voluntary arrangement may the preferred solution to fix your economic troubles. The arrangement is a legal agreement between you and your lenders indicating that you would make reduced payments towards a newly calculated debt, which is different from the initial amount owed. IVA’s are set-up and administered by Insolvency Practitioners.
Once you pay off that newly calculated loan, you are debt-free and lenders would forgive the difference between the original loan amount and the newly calculated obligation. Lenders freeze interest and late-payment penalties, but there may be an upfront fee to set up the individual voluntary arrangement.
You must also pay a supervisor fee, which will cover things like the maintenance and supervision of your individual voluntary arrangement from inception till the loan maturity date. These fees are a part of the payback to the creditors, there are no out of pocket costs.