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Monthly Archive for May, 2009

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11 Consequences of Scottish Trust Deed that you must know before signing

Published on May 11, 2009 in Trust Deed. 10 Comments

You have many alternatives to become debt free and Scottish Trust Deed is one of them. It is a better alternative to sequestration but if the situation is not too bad, you should consider other alternatives like debt management, debt consolidation etc.

trust-deed-example

However, if you think that Scottish Trust Deed is the only option, there are certain things that you must know:

  1. After you have signed the Trust Deed, rights of your assets will be transferred to the trustee. Your assets include your home and other immovable properties. The trustee can sell your assets to pay the creditors if you fail to pay your debt as per the terms of the Trust Deed.
  2. If the Trust Deed is not a protected one, the creditors may take further legal actions against you to recover their money.
  3. If you take a new loan after signing a trust deed, it will not be covered by the existing trust deed. The new creditor is free to take legal actions against you to recover money.
  4. A Protected Trust Deed will affect your credit rating like bankruptcy or sequestration.
  5. Details of the trust deed are published in “Edinburgh Gazette” and once the creditors agree to the trust deed, it is recorded in Register of Insolvencies (public record).
  6. Signing a Trust Deed would not entail you to hold the position of director in a limited company. You may also be barred from holding positions in some of the public offices during the tenure.
  7. The trustee will charge for everything they do to settle your debts. They will pay the creditors only after they have collected their fees.
  8. Prior to signing, any income or arrestment will be validated by the Trust Deed.
  9. You can continue working and hold a bank account (if the bank agrees).
  10. Trust Deeds do not cover secured loan, student loan, court fines, penalties etc.
  11. If you do not contribute according the trust deed, the trustee may file for bankruptcy.

The consequences of Trust Deed depend on your circumstances and the creditor’s acceptability. Do not forget to get a good trustee as a lot of things will depend on him or her.

If you have any question, please write it here. We will try to answer as soon as possible.

9 common questions about debt consolidation

Published on May 9, 2009 in Debt Consolidation. 0 Comments

1. Will debt consolidation effect my credit rating?

No, it will not. Taking up a debt consolidation loan will not harm your credit rating in anyway. You will be paying off your unsecured loan and hence it will not have any negative impact on your credit score.

2. Can debt consolidation help me save money?

Yes debt consolidation can help you save some money. You will be paying a lower interest rate.

3. What is the difference between debt consolidation and debt management?

Debt consolidation is a process where the borrower takes up a secured loan to pay off all their existing unsecured loans. Here you only need to make a single monthly repayment to settle your debts. However, debt management does not involve another loan. It is an agreement between the debtor and creditor to settle the debt within a fixed period of time and the amount is repaid monthly.

4. Will debt consolidation be the right option for me?

Debt consolidation loan will only be suitable for you if: (1) you have many creditors, (2) you pay high interest rate, (3) you are unable to pay off on time. Thus, it depends entirely upon your financial status. Please consult a debt advisor to take the right decision. Normally, if your loan amount is less than £15000 you can apply for a debt consolidation loan.

5. I have bad credit problem – will I be eligible for a debt consolidation loan?

If you have a bad credit, the creditors will naturally find it risky to grant you a loan. If you have already missed many payments or have a CCJ then you need to consult an experienced debt advisor. He can help you to get a debt consolidation loan depending on your situation.

6. How much can I obtain as debt consolidation loan?

This completely depends on your present financial circumstances like your income, your total debt and the amount you can afford to pay.

7. What are the general terms of repayment?

Generally, the debt consolidation loan is paid on a monthly basis. But you can have a customized repayment schedule if your creditor approves. A debt consolidation loan is given for a minimum of three years to a maximum of twenty five years.

8. Will the creditors stop harassing me when I take up a debt consolidation loan?

Yes creditors will not be able to harass you when you take up a debt consolidation loan. You can direct any creditor’s call to the debt consolidation loan company who will deal with the matter.

9. What will happen if I fall ill during the tenure of the loan?

If you fall sick your debt consolidation company will take care of it. Generally they provide covers for sickness, accident or unemployment.

However, for any debt consolidation related issues please consult a qualified debt advisor to get a personalized solution

Did we miss any question? Please write your question / questions in the comment box and we will add it in the list.

Debt Management Plan: Can it help you?

Published on May 8, 2009 in Debt Management Plan (DMP). 1 Comment

Do you owe more than £8000 pounds to your creditors? You can think about a debt management plan to get rid of all debts.

Debt management helps you to get into an agreement with all your creditors. It gives you an opportunity to accumulate all your debts into one single loan and pay off your loan on a monthly basis. Debt management plan also enables you to write off a portion of your total debt. Thus it makes it easier and affordable to settle your loan really fast.

If you are thinking of getting into a debt management plan, get hold of a good counsellor. He will help you to develop a debt management plan according to your financial situation.

The debt counsellor negotiates with your creditors to reduce your debt amount and to freeze the rising interest rates.  However, all these depend on your debt situation and counsellor’s expertise.

Debt management plan or DMP also prevents the creditors from taking any legal action like bankruptcy against you. Thus it gives you the opportunity to pay off your debts without getting into any legal problem.

You can go for a debt management plan if,

  1. You are having difficulties in paying off your current dues
  2. Your total debt must amount to £8000 or more
  3. You must have debts with more than 2 lenders
  4. You should have the ability to pay a minimum of £100 every month as repayment dues
  5. You are not in a very poor financial condition to file for bankruptcy

Debt management does not involve any legal action. More and more people are getting benefited by the customized plans from their counsellors every year. However, if you are in debt problem, please consult an experienced debt counsellor to know which procedure will meet your requirements.

How to get an IVA: Step by step guide

Published on May 7, 2009 in Individual Voluntary Agreement (IVA). 0 Comments

IVA is a legal process that entitles the borrowers to have the privilege of paying what he can afford comfortably. It is a repayment agreement signed between the debtors and all his creditors.

Borrowers usually go for an IVA when they are unable to pay off their debts. IVA also enables them to avoid bankruptcy, whilst keeping their credit ratings at a reasonable position. However, a borrower can follow this step by step procedure to obtain an IVA.

guide-to-iva

Step 1: Select a Registered Insolvency Practitioner:

Select a registered Insolvency Practitioner to become a nominee for the IVA. The insolvency practitioner drafts the IVA proposal that shows the amount of funds or assets that can be made available to pay off the debt. The insolvency practitioner provides reason why the draft has been made in the interest of both the parties.

Step 2: The draft is produced in the court

The draft is produced in the court for approval. The court may reject or approve the proposal and grant the interim order. The creditors will be unable to take any legal action if the court approves the IVA proposal and grants the interim order. Hence the creditors cannot petition for a bankruptcy within the stipulated period.

Step 3: Creditors meeting is called

The insolvency practitioner calls for a creditors meeting. There the debtor must get a minimum of 75% votes in favour of the proposal. The vote decides if the proposal is viable or not. Once it is decided the creditors get bound by the terms of the proposal. Henceforth, the insolvency practitioner becomes the supervisor of the IVA schedule.

Step 4: the Insolvency practitioner becomes the supervisor

Finally, after the IVA proposal is accepted the insolvency practitioner or the supervisor takes charge of the debtor’s assets. He also administers the IVA schedule on behalf of the creditors and supervises the IVA schedule.

One last note, if the debtor falters in making the monthly payment according to the IVA schedule then the supervisor becomes contractually bound to petition bankruptcy against the debtor.

IVA or Bankruptcy?

Published on May 6, 2009 in Bankruptcy and Individual Voluntary Agreement (IVA). 1 Comment

Did you know that one person is becoming bankrupt or entering into an IVA in every 3.3 minutes in UK? The experts believe that the average number of people will be 435 / day throughout 2009.

iva-applicationsThe number is really big and it is steadily rising. According to the latest statistical data from the Insolvency practitioners in UK, the number of debtors or defaulters has increased by 60% since 2005.

Fact Sheet: IVA or Individual voluntary agreement was introduced in 1986 by the Insolvency Act in order to provide the debtors and defaulters with a better alternative to get out of debt.

While bankruptcy used to be the last resort for a debtor to deal with all his creditors, IVA came as a breath of fresh air, bringing in a better way to resolve their debt problems.

Here are some basic differences between IVA and Bankruptcy:

Social Stigma – Filing for bankruptcy brings in a social stigma for the defaulter or debtor. When a defaulter is pronounced bankrupt it gets published in the local newspaper along with the defaulter’s name, address and profession. This may seem quite humiliating to a lot of people.

However, IVA allows you to maintain privacy. The agreement is confidential and thus none but the concerned people know about it. IVA settlements are not published in newspaper.

Professional Hazards – Bankruptcy can take a toll on a person’s financial as well as professional life. If a person is declared bankrupt by the court then he loses the credibility to hold, manage, form or promote a company unless he gets a court order.

However, individual voluntary agreement enables a person to maintain his professional stature quite unaffected. While the debtor applies for an IVA he may continue with the same professional designation or run his own business as before.

Right to hold a public office – When a person files for bankruptcy he is not entitled to hold any public office. This affects the person financially as well as socially. An IVA does not lead the debtor in such a situation. With an IVA a person can continue to work in any public office.

Expenditure factor – Filing for bankruptcy can cost more than IVA. It is expensive for both the debtors and the creditors. IVA is comparatively affordable.

Keeping your assets intact – When a debtor is declared bankrupt, all his movable as well as immovable properties and vested in a trustee who sells them to repay the debts. While you go bankrupt you loose almost everything you have except certain properties like tools of your trade, spouse’s equity in a house etc.

Nevertheless, if the debtor applies for an IVA he does not require letting go his assets. He can keep them with a suitable agreement with the creditor.

IVA offers other benefits for the debtors too. With an IVA agreement the debtor can write off almost 75% of his existing debt and the repayments are made of the basis of debtor’s affordability. Within the tenure of the IVA schedule the creditors would not be able to harass their debtors. After a successful completion of the IVA the debtor will be considered debt free.

And do not forget that bankruptcy will stay in the credit report for 6 years.

5 ways to improve your credit score

Published on May 5, 2009 in Personal Finance. 0 Comments

Are you finding it difficult to improve your credit score? Let us find out five ways to improve it.

Credit ratings can falter at times for different reasons. Normally a credit score suffers if you do not pay bills or loans on time. There may other reasons too like prior loan refusals, missed payments etc.

credit-score

Why do you need to improve your credit score?

With a low credit rating you might find it difficult to get quick approval for another loan, or a credit card. A higher credit rating provides you with the facility to choose a suitable loan package with much lower interest rate. The credit score ranges between 300 to 850 and generally the top tier credit score is something between 760 to 850. Borrowers falling within this range are categorized to have the lowest risk. 620 is the average credit score and if your score is anything less than that, put more efforts.

A good credit score not only means that you are in a good position to get a new loan (stay away as long as possible). It also shows that you are in a better financial position and close to living a debt free life.

Note: You may ask for your credit report from any credit reference agency for £2 under the Data Protection Act 1998. Example: Experian

There is nothing to panic if your credit score is not perfect. You may use the following tips to improve it.

5 tips to improve your credit score:

Pay your bills on time

Late payments and penalties may damage your credit ratings. It is important that you pay your credit card bills or loan installments on time. Repayments done on time for one year can raise the credit ratings significantly. This will also help you to avoid CCJ (Country Court Judgment).

Consolidate – if you have any debts

Unpaid debts bring down the credit ratings considerably. With an escalating interest on the unpaid debt the borrower will find it extremely difficult to keep his credit score in shape. Debts can be consolidated to lower the repayment amount. This in turn will help improve the credit score.

Proper Budgeting

A proper budget can keep your credit scores go up. Managing funds while paying off your dues on time is very important to avoid late or missed payments.

Lenders approve your loan on the basis of your past credit scores. The above three factors solves almost 35% of the borrowers problem. The remaining 65% of the borrower’s problem can be solved by these two factors:

Payment history

The lenders always goes through your past credit history while approving your loan or credit card. Late payments play a big role in your credit ratings. Even if you are paying the minimum amount on time it would keep your credit score up. Other payments like utility bills should be paid in due time to avoid low credit rating.

The total amount of outstanding debt

The outstanding debt on your credit card or loan affects your credit rating greatly. Paying even the minimum dues for your card or loan helps to keep the rating high (however , paying ‘minimum amount due’ does not solve debt problem). Try to maintain a minimum number of credit cards to avoid over expenditure that often ends in outstanding or missed payments.

Major credit reference agencies in UK:

  1. Experian Ltd: www.experian.co.uk
  2. Equifax PLC: www.equifax.co.uk
  3. Callcredit Ltd: www.callcredit.co.uk

Maintain a Daily Budget – First Step to Saving Money

Published on May 1, 2009 in Personal Finance. 0 Comments

If you really want to get out of debt you must check your spending habits and start saving money. There is hardly any alternative to it.

If you want to save money, you must have a structured budget. Take a look around and you will be amazed to see that many people do not have a structured budget for each month. Without a structured budget, it is very tough to monitor exactly where your money is going.

What is a structured budget?

It will not take long to find out your last month’s spending.  Simply deduct the amount you have left from the amount you accumulated throughout the month (example: monthly salary). However, this does not provide you a complete scenario on where your money is going.

The best solution is to write down your regular expenditure one after another. This may seem a tedious job but after one month you will be in a better position to understand where your money is going and where you can actually save. This is what we call a structured budget.

Do a Google search and you can easily find a lot of free budget templates (Excel sheet) to make a structured budget. But, we would recommend you to maintain a daily expenditure sheet along with a monthly budget.

And remember to be honest in the process.

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