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| An administration order is available
through the Courts where you have at least one County Court Judgment,
total debts are less than £5000 and you have at least two creditors.
All debts must be declared, the Court will determine the monthly
payment to the creditors and charge a 10% administration fee. Administration
orders are only available to individuals, if debts are joint then
both parties need to apply individually. |
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| Bankruptcy proceedings free you from
overwhelming debts so you can make a fresh start, subject to a number
of restrictions. Anyone can go bankrupt, including individual members
of a partnership, there are different insolvency procedures for
dealing with companies and for partnerships themselves. All assets
have to be liquidated and you may be publicly examined in court.
During the bankruptcy period you cannot obtain credit for over £250
without the permission from the lender, you cannot act as a company
director, you cannot take any part in the promotion, formation or
management of a limited company (Ltd) without the permission of
the court, you cannot trade in any business under any other name
unless you inform all persons concerned of the bankruptcy. You also
may not practice as a Charted Accountant / Lawyer or a Justice of
the Peace (JP), you may not become a Member of Parliament nor may
you become a member of the local authority. Careers in banking,
financial services and public services may also be affected. Your
credit will be affected for many years after the annulment. Your
income will be assessed and a monthly contribution may have to be
made to your creditors, should you come into any money during the
bankruptcy period this will have to be distributed amongst your
creditors. At the end of the bankruptcy period your debts will be
written off and you will be discharged. The period of the bankruptcy
will be determined by the courts and can be as little as 12 months.
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| Credit reference agencies (Experian,
Equifax, Callcredit etc) hold details of individuals credit history.
They will usually hold details of credit agreements over the last
six years and details of payment history over the last three years.
County Court Judgments and defaults will be listed for six years
although these can be listed as satisfied once paid in full. Your
credit file will also list companies that have recently accessed
your file. Most lenders use a credit scoring system to assess creditworthiness.
Lenders will each apply their own criteria and will often apply
a higher interest rate if the credit rating is poor. The popular
conception that there is a “blacklist” is not correct but a bad
credit rating will result in all lenders declining credit applications.
When a lender is considering a credit application a key factor will
be recent payment history, as this will indicate ability to pay.
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| Debt management is an informal arrangement
with existing creditors to pay off unsecured debts by affordable
monthly instalments. This is usually arranged by a debt management
company who will undertake a detailed income and expenditure analysis,
they will then prioritise expenditure to ensure living expenses
and secured borrowing can be met and distribute any remainder to
the unsecured creditors. A good reputable debt management company
will not only carry out all the negotiations with creditors and
get interest and charges frozen, but will also administer the monthly
payments and handle all future communication with the creditors.
They will also carry out reviews whenever the client's circumstances
change (both for better and for worse) or when requested by the
creditors. A debt management plan always remains low key and is
completely flexible, it will continue until you are back in a position
to meet contracted payments or debts are paid off. A good debt management
company will also negotiate full and final settlements with creditors
should funds become available, often resulting in 60% or more of
the remaining debt being written off. |
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| The value left in your property after
paying off all mortgages and secured loans. If the total of all
outstanding mortgages and secured loans is greater than the property
value, then this figure will be a minus and would be negative equity.
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| Make sure credit and store cards are
paid on time, as even paying one day late can show up as a late/missed
payment on your credit file. Multiple credit applications will adversely
affect your credit score so shop around before actually applying.
If your application is refused, check your credit file to see why
before applying elsewhere. Correct any inaccuracies; you can also
add explanation notes to you file for potential lenders to see.
There are lenders who specialise in lending to those with poor credit
scores (adverse lenders) but be very careful to check all the costs
- application fees, process fees, courier fees, payment protection
costs as well as the interest rate. There is no legislation in the
UK to limit the amount of interest charged, and with some adverse
lenders you could end up paying back many times the amount borrowed
– so beware. If you have not made any payments for a while and ignored
reminders and demands, entering into a debt management plan and
making regular payments will slowly help repair your credit rating.
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| An IVA, Individual Voluntary Arrangement,
is a formal arrangement with creditors, administered by a Licensed
Insolvency Practitioner and recorded before the Courts. To qualify
for an IVA you need to owe over £15,000 and all debts have to be
declared. All assets usually have to be liquidated, then the creditors
will agree to a percentage of the debt being written off. At least
75% (in value) of the creditors have to agree to the arrangement
and the reduced amount plus the Licensed Insolvency Practitioner's
fees are paid off over a fixed period up to maximum term of 60 months.
Once payments have been agreed they have to be maintained and cannot
be changed without the agreement of the creditors, in the event
of more than two missed payments the Licensed Insolvency Practitioner
will usually instigate bankruptcy proceedings. The IVA will be reassessed
12 months before the end and if any equity is then available in
property or other asset this will need to be realised and made available
to the creditors, depending on the amount of equity available the
amount of debt write off may be re-negotiated. Any increase in income
or windfall during the term of the IVA may also result in the amount
of debt write-off being renegotiated. |
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| A re-mortgage allows the value built
up in your property to be released, providing the current market
value of your property is greater than the outstanding mortgage.
There will usually be considerable costs involved (legal fees, valuation
fees, broker fees and commissions) but these can often be added
to the amount borrowed. You should always consider any re-mortgage
offer very carefully and ensure payments are both affordable and
sustainable, remember interest rates can both rise and fall, affecting
your monthly repayments. It is wise to have some form of payment
protection in place to maintain mortgage payments in the event of
loss of income due to sickness or redundancy. A reputable mortgage
broker will be FSA registered and has a duty to undertake a detailed
fact find before making any recommendations. Always ensure you can
maintain payments from your regular income before entering into
any loan agreement. Think carefully before securing debts against
your home. If you do not maintain payments on a secured loan or
mortgage your home may be repossessed. |
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| Secured borrowing usually relates to
property or some other asset. The lender retains a charge on the
asset and the asset cannot be legally sold without repaying the
outstanding borrowings. The lender also has the right to force a
sale of the asset to repay the loan should repayments be missed.
Always ensure you can maintain payments from your regular income
before entering into any loan agreement. Think carefully before
securing debts against your home. If you do not maintain payments
on a secured loan or mortgage your home may be repossessed.
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| Unsecured borrowing is any personal
lending where the lender has no recourse other than the county court
system for example: bank loans, personal loans, credit cards, store
cards, mail order catalogues, etc. Always ensure you can maintain
payments from your regular income before entering into any loan
agreement. |
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