Debt Consolidation Debt Management IVA Trust Deed Bankruptcy Administration order Debt Relief Order or DRO

Monthly Archive for November, 2009

Avoid Bankruptcy: 7+ reasons and 7 ways to avoid bankruptcy

Bankruptcy is a debt solution but undoubtedly the last resort if you want to get out of debt. There are many reasons why you should try to avoid bankruptcy.

7+ Reasons to avoid bankruptcy:

In UK, when you are declared bankrupt:

  1. You will have to surrender all your possessions or assets to the court.
  2. Several restrictions will be imposed on you.
  3. Bankruptcy restricts you from getting a credit over £500.
  4. In case you are run a business, it will be closed down.
  5. You cannot be a part of any kind of promotion, formation or management of a limited company without the court’s permission.
  6. Your bankruptcy details will be flashed in the local press and the London Gazette for all to see.
  7. Your family life may be shattered
  8. More reasons

7 ways to avoid bankruptcy:

Being in debt does not mean bankruptcy is the only option. On the contrary, you must try to avoid bankruptcy. There are different formal and informal ways to avoid bankruptcy in UK.

Informal ways to avoid bankruptcy in UK:

  1. Contact your creditors yourself: Initially you can negotiate your debt issues with your creditors to come to an agreement to avoid bankruptcy. The payment agreement with the creditors may include both payments from your direct (salary) and indirect income (inheritance or other sources). You must tell your creditors about your financial crisis and come to an agreement to write off your debts or reduce your payments and at the same time avoid bankruptcy being filed by them. You must win their trust that you want to pay off as much debt as you can.
  2. Debt consolidation: If you want to avoid bankruptcy, debt consolidation can serve your needs. You can apply for a debt consolidation loan where all your debts will be merged into one. Thus, you will be making one single monthly payment.
  3. Debt Management: If you cannot find a suitable lender to consolidate your debts, you can find a reputed debt management company licensed by consumer credit law in UK to avoid bankruptcy. The debt management company will deal with your creditors and regulate your repayments. Mostly these companies charge a fee for their services. For free debt advice, there are a number of organisations in UK such as The Insolvency Helpline.

Formal ways to avoid bankruptcy in UK:

  1. County Court Administration Order: If you have a debt amount of 5000 or less and at least two creditors and a court judgment against you by your creditors, Administration Order can be a solution to avoid bankruptcy. You make your payments to the court and the court in turn shares the money amongst your creditors on a pro-rata basis.
  2. Individual Voluntary Arrangements (IVA): Next type of formal arrangement to avoid bankruptcy is IVA or Individual Voluntary Agreement. Once your creditors agree to an IVA, they will no longer be able to take any action against you. An Insolvency Practitioner, licensed under the insolvency law, will be drafting your IVA proposal to repay your creditors. Unlike bankruptcy, IVA will allow you to repay according to your assets and your debts will remain a private affair as well.
  3. Trust Deeds: For Scottish residents, Trust Deeds can be a suitable alternative to avoid bankruptcy. It is more like an IVA but is applicable only in Scotland. A protected Trust Deed will save you from creditor harassments. In a Trust Deed your assets will be transferred to a trustee i.e. a qualified Insolvency Practitioner who will be dealing with your creditors. Trust Deeds are more flexible than bankruptcy and will allow you to regulate your finances as well.
  4. Debt Relief Order (DRO): Recently DRO or Debt Relief Order has become very popular. Though DRO has been introduced by The Tribunals, Courts and Enforcement Act of 2007 in April, 2009, yet it is devoid of court interference. This works like bankruptcy but makes you debt free within one year. DRO is a good option to avoid bankruptcy for those who have limited income and assets.

The above mentioned solutions are best options to avoid bankruptcy. But what if you are made bankrupt and then want to come out of it? We will discuss about them in the next article. (Please subscribe to our free email updates to get notified when the next article is published.)

The Real Cost of Living in Britain

Less than 10% of the British population can afford to live an average lifestyle.  The high cost of living is forcing tens of thousands of Britons into debt – one person is becoming insolvent every three and a half minute in the UK, according to latest research.

This article is written by Joanne Wood and Tim Wood. Joanne declared herself bankrupt in February 2006. From the age of 17 Joanne worked as a court reporter at the Central Criminal Court. She is the author of Bankrupt 130 of 2006 – a remarkably candid account of what happened to a family after bankruptcy.

Plagued by pressure to pay the bills many Britons plunge hundreds of pounds into the red each week. The reported average net household income of £558 a week is just half what a family of four actually needs to lead an average lifestyle.

The middle classes have never been so hard hit. It is no wonder MP’s were carping during the expenses scandal that their £60,000 per year salaries were not sufficient to meet their lifestyle expectations.

So what is the average expenditure needed to live a relatively modest lifestyle in 21st Century Britain?

The industry standard usually used to show what an average household actually has to spend comes from retail giants ASDA. Their research for September 2009 indicates that an average household has only a net disposable income of £29,016 a year – £558 a week

But that is well short of the £765 disposable income a week Mr.& Mrs Average need to spend to bring up a family of four. If both parents are working with child care cost this figure hits £1,000 a week – £52,000 a year, which equates to a joint annual gross salary of £70,000.

This means that both parties would need to earn way above the £28,000 average gross salary in the UK.

The table below shows what it really costs a husband and wife and two children to live in Britain.  It covers a £150,000 mortgage, household bills, running a car, owning a dog, a basic Sky TV package and a £20 fish and chip take away for four at the end of the week.  A romantic meal for two is a once month treat of £50 and a two week family holiday. The figures also include two minimum interest payments for £5,000 for unsecured debt – credit card and HP agreements – which is the average amount per person in the UK.

All figures are taken from the latest research on what the average family spend.

Outgoings Weekly £
Mortgage (£150,000 2 year fixed-rate repayment 183.48
Utilities – Counsel Tax, Gas, Water, Electric
TV Licence, Internet/phones
Mobiles x 2,buildings Insurance
77.63
Running and maintaining one car (Tax, MOT, insurance, Petrol and repairs 73.07
Shopping (Food, alcohol, toiletries and laundry) 127.20
Season Ticket/Bus Travel costs -For husband and wife – travel (47 weeks ) 80.42
Keeping a dog 16.01
Sky TV 4.63
School uniforms, equipment, trips and lunches – one primary schoolchild £683 p.a/one secondary school child  £1195 p.a. 36.11
Fish and chip supper (once a week) 20.00
Eat out at a restaurant once a month 11.53
Minimum interest payment for unsecured debt x two adults 28.84
Total 658.92

Further expenditure:

Outgoings Weekly £
Clothing 19.38
Christmas Budget 16.69
Holiday Budget 53.84
Medical & Grooming:

Medical 1 prescription per adult per month. (£7.20 each x 2 ) = £ 14.40

Dental check-ups – 2 adults 2 per year (£16.50 each)

Hairdressing (haircut for 4 people 8 times a year – £10 per haircut

Dry Cleaning (one suit each x once a month)

Total

13.04
Hobbies
Gym membership. p.a. x 2 adults
23.07
Gifts
Birthday gifts – 1 gift per family per month – £10
2.30
Home contents and boiler/insurance 3.06
Children pocket money x 2 min 6.60
House maintenance/repairs 1.92
Extra 139.90
Total

Deduction of Child benefits x 2 children

798.82

33.20

Total Cost £765.62

* Optional extra – Childcare Fees [£159 per week (47 working weeks) per child] = £7144
Note: Average weekly Rent = £158 a week (The Halifax)

Luxuries  – Not included: Health Insurance/medical, Pet insurance, Socialising, Restaurants, Beauty Products, Driving Lessons, Life insurance cover, University Assistance, Pension  Contributions, Savings/Weddings, Cleaners/Gardener/Ironing Service, Private School Fees, Weekend Breaks, Car valet, Horticultural goods, garden equipment and plants, House maintenance/repairs, Opticians, Second car, Children Weekend hobbies, Window Cleaner, DIY services, Extra dry cleaning and shoe repair

This shows why the credit card has become an extended salary. Cash strapped Britons now rely on their credit cards to pay for the weekly shopping, paying interest on other credit cards and in extreme cases used to pay the mortgage.

Research carried out by Shelter, the housing charity reported that by June 2008 4.1 million households had used a credit card to help meet their housing costs within a twelve month period.

Luxuries for the average family now include home contents insurance, dental treatment and a £10 hair cut.  The temptation to put it on the plastic is too great an attraction to ignore.

For thousands of frustrated families across the country staying out of the red is now proving a challenge. Recent figures from the CCCs (Consumer Credit Counselling Service) have shown that an estimated 250,000 Londoners alone suffer from mental health problems as a result of debt – a 40% increase from a year ago.

But now credit crunch Britain is facing an even bigger threat as a result of the worldwide collapse of the financial sector.  With energy bills at an all time high, tax, VAT and interest rates expected to increase and reports of one house being repossessed every ten minutes, the future looks grim as we struggle to recover from the worse depression since the 1930’s.

KPMG (Global network of professional services) estimate that 411 people a day will become insolvent by way of bankruptcy or entering into an Individual Voluntary Arrangement (IVA) every three and a half minutes throughout 2009.

Britons are now faced with the financial horror of hanging on to their jobs just to put food on the table. Insuring the house and paying the gas bill is a bonus. With unemployment rocketing millions will be fighting to stay out of debt.

Living Costs £ Source
Mortgage (£150,000 2 year fixed-rate repayment) 183.48 Money Supermarket
Rent 158.00 The Halifax
Utilities (Council Tax + Gas + Water + Electric + Internet/phone + Buildings Insurance + TV licence £142.50) + Mobile phones x 2) (27.98 + 15.21 + 8.46 + 8.60 + 4.29 + 2.47 + 2.74 + 7.88) £77.63 1. Daily Express article November 12, 2009 – Page 39 of Money Supermarket
2. This is Money
Run and maintain a car (Car tax, insurance, MOT and repairs and Petrol) 73.08 1. Perrys (reported: Daily Express: Sept 24 2009 – £3,800) 2. Daily Mail (£4997 pa)
Food (includes alcohol, toiletries and laundry) 127.20 Mirror
Travel (Season Ticket + Spouse – Bus Travel) £80.42 (66.92 + 13.50) First Group
Keeping a dog (food, vaccinations) 16.01 Average cost of keeping a dog – Adrian Holliday The Observer 2 May 2004 – £833 pa – Guardian; The Observer
Sky TV Package 4.63 This is Money
School uniforms, equipment, trips and lunches primary and secondary years 36.11 Average cost of education, uniforms, equipment etc – Friday, 21 August 2009 – one primary school child £683/one secondary child £1195 – cost £1878 – £36.11 per week – BBC
Fish and Chip supper family of four 20.00 Once a week
Eating out once a month for 2 adults 11.53 £50
Credit Card Payment x two adults 28.84 The average APR (annual credit rate) on credit cards is 15%. This means on a £5,000 credit card debt you will be paying an annual interest fee of £750 which is £62.50p a month. That is without paying anything off what you have borrowed – 14.42 x 2
Clothing 19.38 Lloyds Bbanking Group – PDF £84 x 12 = £1008
Christmas Budget 16.69 Average spend £868 Daily Mail
Holiday budget 53.84 Average cost of a two week family holiday – £2800 – E-tid.com – 09 June 2009
Total Grooming and Medical: (1 prescription a month each @ £7.20 + Dental x 2 adults Two check-ups /PA + Hairdressing x 4 people + Dry Cleaning – one suit each once a month) £13.04 (3.32 + 1.27 + 6.15 + 2.30) Two prescriptions a month – £14.40 x 12 – (£172.80) + Adults £16.50 each visit (£66 pa)/children under 18 free NHS + 8 times a year (every six weeks) £10 a hair cut/four people (£40 x 8 – £320) + £5 per suit – £10 per month x 12 – £120
Hobbies + Gifts/birthday £23.07 + £2.30 Two Adults – gym membership £1200 p.a. + One birthday or gift per month per family of four £10 (£120)
Insurances (Home Contents + Boiler insurance) 1.54 + 1.52 £79.04 p.a – British Gas
Children pocket money x two children 6.60 Two children £3.30 each min UK Family
House maintenance and repairs 1.92 £100 a year – miscellaneous

A situation: £70,000 gross household – Two adults working full time – Both earning £35,000 gross – net £25.957.60 x 2 – household net – £51.915.20. Calculate

Annual Monthly Weekly Hourly
Gross pay £35,000.00 £2,916.67 £673.08 £16.83
Income tax £5,793.00 £482.75 £111.40 £2.79
National Insurance £3,249.40 £270.78 £62.49 £1.56
Net pay £25,957.60 £2,163.13 £499.18 £12.48

More information?

Childcare Costs - £159 per week –Daily Mail Jan 29 2008: author Sarah Harris) (47 weeks working – £7473 per child) [Aska Mum]
Average Credit Card Debt, Debt Fact file, Money Advice Trust – £4,825 per person.
Min Interest Payment (Barclaycard APR ) – Monthly: £125

Family of Four – two adults and two children – (Asda: Charles Davis Economist – Unit 1, 4 Bath Street, London EC1V 9DX.direct line: 020 7324 2863) ASDA Income Tracker – August 2009:
The average Gross income for 1.8 adults is £35,840 (p.a)
The net income is £28,500 (p.a) (Weekly £558)
Cost of Weekly living – £396
Average family weekly spending power – £162 – Other living costs

Quotes:
Below – Debt facts and figures compiled by Credit Action – 1 August 2009 –
KMPG (Global network of professional services) estimate ‘One person becomes insolvent every three and a half minutes in Britain’ – 411 a day throughout 2009.

BBC News – ‘An estimated 250,000 Londoners suffer from mental health problems as a result of debt’ – 16 ~September 2009

Shelter carried out a one off research with Gov – between June 2007 and June 2008:

Who the allowance is for Current weekly amount
Eldest or only child £20.00
Additional children – per child £13.20
Guardian’s Allowance – per child £14.10
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