Posts Tagged ‘bankruptcy’

When to Go Bankrupt

November 15, 2008

Since contemplating bankruptcy for myself I have generally advised against it. At the same time every person’s situation is different.

So noting the new figures for bankruptcy and the chilling of the financial ‘institutions’ to their customers I revisit the matter.

According to This is Money personal bankruptcies rose seven per cent in the third quarter, against a year before.

The number of families whose lives were turned upside down in the three months July, August and September is 13,653. Bearing in mind that bankruptcy lasts a minimum of a year, and that maybe it takes another five to recover, that suggests the number of families affected now are around 200,000 – and rising.

That will soon be one household in ten; an epidemic!

Apparently financial institutions are forcing these bankruptcies, just at a time when their own debt is being ‘socialised’ and they are walking away from their mistakes with their yachts intact.

However let me steer myself away from the politics of this…

While there may be cases where the banks will recover more in this way, than from an intelligent approach, my own experience tells me some of the banks are incapable of understanding the difference between different situations.

On the whole they will have less to gain from forcing bankruptcy, than from an intelligent agreement.

I always say it is better to talk to the creditor, persistently, than to just assume there is only one way to go… downhill!

When you do talk, or write, remember that one operative may have a quite different way of dealing with customers than the one sitting next to her.

You may have to contact a different department; or the Chief Executive Officer of the creditor. Don’t be afraid to. He uses the smallest room just like you do.

If you are in a position where you obviously cannot pay what is the point of wasting company resources chasing you? It is poor decision making on the part of the creditor.

And if you have assets what is the point of forcing a sale of them at a time when the cash gained will be minimal.

And if you are in a position to offer something, what is the point in saying ‘no’ if the offer presented to the creditor is reasonable in your personal circumstances.

It is surely all good accounting, and straight common sense.

Although knowing what I do about derivatives, toxic debt, dark pools and the other arcane forms of gambling in the financial casino I don’t think anyone can accuse the financial ‘institutions’ of being blessed with common sense.

Joseph Harris

Debt Control Man

Matching Debt Repayments to the Budget

September 4, 2008

A vital part of the process of contacting creditors to negotiate a new arrangement is the income and expenditure statement. They need it to assess what they can ask for and you need it to assess what you can afford to pay.
Usually you will receive a budget form from the company. My advice is ignore it. Not the need to present a completed form, but the actual form they send. The reasons for this are many, among them the fact that each company has its own layout, and none are about you; they are about the company!
Now more important is the fact we are facing difficult times. Living costs will inflate for some time, and it is likely that incomes will decline. A squeeze.
So long as you describe your needs clearly in this income and expenditure account it will provide the essential and accurate point for discussion.
I favour this accompanying your second letter, when you have had time to review all your affairs carefully. It might be worth setting it out roughly and putting it aside to come back to for review and correction. When you finally send this off it is vital that you have all items of expenditure included.
This is the 21st century; you are expected to continue to live without starving and without being homeless. In pursuit of this there are certain priority debts and payments. These must be deducted from your income before any attempt to assess what you might be able to pay towards settlement of non-priority debts.
If this gives a debit position—in other words if you need more money than you have to meet your needs then your creditors cannot expect payments.
As you investigate further you will learn of the options for managing your position: IVAs, bankruptcy and so on, and be told about bailiffs and court action. Court action—which rarely happens—will in any case be a long way down the road, and bailiffs can only be involved after court action.
You have research to do of course and trying to work out your personal best course of action. As you seek advice as well you will probably find your first fears recede, and options which you can handle with little discomfort becoming realistic.
That is exactly what I found. Because those who might have been intermediaries gave me advice that was not very sensible for me and made hashes of the figures I gave them I determined that it was up to me. And I am glad I took the step to control my debt crisis on my own terms.

The Importance of Getting Help

September 2, 2008

However you decide to tackle your debt problems you need to make sure you understand what you are doing. That is true of everything one does. And I think the process of getting advice and help is not just a first step, but an on-going one.
Even if you are not going to do it yourself there are good reasons from finding information on your own. Many intermediaries offer services for designing and running a debt management plan, an IVA, or even bankruptcy.
What is important is how any plan affects you. And the way to be sure of clear understanding is to find out exactly what each suggestion means, and how it will need to be improved for your own circumstances.
Don’t ever feel rushed. Don’t allow people to insist on a decision before you are ready. Always ask for clarification of anything that is not clear.
There is plenty of advice available, much of it good, but some of it like the sharks in the water.
First collect your thoughts and think what you need. You are going to be seeking the agreement of people to whom you owe money. They are going to want to know what the position is regarding the debt itself, what your income and expenditure are, and how your intend to pay back, or seek some other route.
You are going to want to know what you must do, how severe the law is for debtors and whether the finance company, bank or debt collection agency has any rules it must follow, how to contact and deal with the company, and where to get that detailed help and advice.
I already have some of this information on this blog for people in England and Wales, and there is more in my book. The first part should be ready very soon.
I wrote a note on the FSA (Financial Services Authority) trying to find a way to ensure advice was independent of selling. Well that isn’t a firm rule yet, and even when it becomes one there are still people’s personal views. In your case the only personal view that matters is your own.
So always take more than one source of advice. If I had taken the advice of my first ‘advisor’ I and my family would be starving and in the street, with no long term benefit to my creditor’s either.
Take a deep breath, take your time, and seek multiple advice and information.

Joseph Harris
Debt Control Man

Is Bankruptcy a Good Option?

August 18, 2008

It’s certainly tempting.

The idea of being able to hide behind a wall erected against creditors can seem great in moments of panic and feelings of being very oppressed by heavy debts.

But obviously I have cautions for you!

Let me be clear first that what I write here certainly applies to debt in England and Wales, and though there are similarities to other places you do need to check. In the US for example there have been some changes in the bankruptcy laws which are rather nasty to debtors.

When I first realised my debt position my first thought was to go bankrupt. I was in a state of panic and to some extent my mind switched off. Maybe you have done the same, maybe you have not really had that experience.

Fortunately I calmed, and even when an advisor with one of the charity debt specialists told me I was ‘the best candidate for bankruptcy’ he had come across I spent my time considering his advice.

Very roughly going bankrupt puts all your financial affairs in the hands of the Official Receiver; he or she, not you, decide where your money goes and what creditors can expect, and what you, the debtor, need to live on. All your assets go into the pot.

Although this state usually lasts for just a year it can involve the loss of your home, even if the debt is nothing to do with your mortgage, or if you own your home outright. Other assets get included: car, holiday home, valuable record collection for example. And all this is likely to be examined, looked through and valued by a bailiff.

When you have debts you cannot pay, whatever approach you take, it is likely that any valuables will be considered as available for part of the debt repayment in some way.

It is unlikely that the bailiff or any other representative of the creditor or of the Official Receiver will know how to get the best value for these things.

Indeed you might have noticed that where debt leads to repossession of a house and home it is often the case that the repossessed house is sold at auction, often for a ridiculously low price. Less indeed that if the creditor treats the debtor with some civility and reaches an alternative deal for renting with an option to restart the mortgage at some future point.

Anyway that is another discussion, and mortgages are not something I offer expertise about, though many of my suggestions would be applicable for mortgage debtors as for others.

But if you do have a collection and you know that you do not have the income to meet your debts my advice would be to sell it yourself. That money must still go into the pot, so don’t try to hide it. This way it will at least show that you have tried to make the best restitution possible, and that will be a positive factor in your dealings.

There is an initial cost to bankruptcy. I think it has risen to just over £500. There is a small variation depending on whether the hearings are at a county court—not all handle bankruptcy—or at the High Court in central London, which acts for the Greater London area.

Where the applicant debtor is in a state of privation, or otherwise in severe financial difficulty, the court and the Receiver have the right to refund the charges. But those charges do have to be made up front.

Dealing with the Official Receiver is said to be a relatively friendly experience and is conducted across a table rather than in a formal courtroom. The job of this official is to help you to create a new beginning, though you will undoubtedly be put through a very fine mill of questioning and examination of your financial affairs.

These days there is a queue, and there will be some delay though I have no detail as to how long.

It includes the fact of being persona non grata for new debt for six years, even though you may become a discharged bankrupt within one.

There are some situations in which you may still be chased for some debts, but I think this is rare. Still you should make sure that you have any risk that way covered, and plenty research is in order as well as a discussion on the point with the Official Receiver should you take, or be forced into, this path.

You name will appear in the local newspaper as a bankrupt and it is possible everyone you know, and all your family, will hear about it and point fingers. They may be sympathetic—I believe that is far and away the more likely response.

But it can affect a lot of your relationships, possibly including your work. And you will be permitted to have only a basic bank account; that might badly affect any self-employed person, and cause problems for almost anyone.I think most advisors, most creditors and perhaps most debtors see bankruptcy as a last resort, that final step when all other ways of resolving the situation have failed.

I do agree with that. So if you are tempted down that path make sure you have thought through every other possibility, and understand the effects of this one on your life, well into the future.

Joseph Harris
Debt Control Man