Advice Shop
Debt Advice
Self help guide
If you are having problems
with debts, making ends meet
and paying your bills, then this
guide is for you.
It explains the steps you can
take to sort out your money
problems.
Although there is no easy
answer, acting NOW will stop
the situation getting worse.
This guide is designed to help you work out your
income and expenditure, identify and tackle priority
creditors, look at non priority debts and ultimately
depending on disposable income available look at
options available to each individual.
This guide is produced by West Lothian Council
Advice Shop and the information will assist you to
sort out most problems yourself. However, if you
require further assistance then our contact details
are listed below:
n Website www.westlothian.gov.uk
n Telephone 01506 283000
n Face to face at West Lothian Council Advice Shop,
Lindsay House, Bathgate Partnership Centre, South
Bridge Street, Bathgate, EH48 1TS. Opening hours are
Monday – Thursday 8.30 – 5pm and Friday 8.30 – 4pm.
n Drop in sessions at West Lothian Connected in
Livingston on Monday 9.30 – 12.30pm, Tuesday 1.30
– 5pm, Friday 9.30 – 12.30pm as well as designated
appointments all day on a Thursday.
If however you require assistance with debts that are
facing court action then please see leaflet Better Off
Court Advice Project enclosed.
If assistance is required with general budgeting issues
then please see enclosed Better Off Managing your
Budget leaflet.
If you require assistance with any energy issues,
please see enclosed Better Off Energy Advice Leaflet.
Step 1 – Income & Expenditure
How much money do you have coming in?
Working out how much money comes into your household is the first step towards completing a personal budget. You need this to work out how much money that you have to offer to your creditors (the people you owe money to). The accuracy of this document is extremely important as it must be affordable for you to pay an agreed amount to your creditor for the duration of time agreed. Write down all of the money you have coming in including from your partner and children, lodgers or anyone else who contributes to your household. This does not include Housing Benefit
& Council Tax benefit. Decide whether you want to plan your budget on a weekly or monthly basis and convert all income figures on the same basis. Enter the figures on the income section of the budget sheet and add up weekly or monthly total. (A budget sheet is enclosed).
Where does my money go?
In this section (expenditure) you will need to know how much money you and your family spend on living expenses. At this stage, do not include any instalments or payment arrangements for debts or arrears.
As with your income, you must work out payments over the same period (weekly or monthly). Here is some guidance to help you when thinking about your outgoings:
Rent – if you receive Housing Benefit, your rent figure should be the amount you actually have to pay after your benefit is received.
Mortgage – if you receive help with your mortgage interest payments your mortgage figure should be the amount that you actually pay. Include all capital and endowment payments as well as the interest.
Council Tax – only count the Council Tax that you pay if you are in receipt of Council Tax benefit. At this stage only count the Council Tax that you pay for the current year as arrears will be looked at separately.
Housekeeping – include food, toiletries and cleaning materials.
Remember to include trips to the local shop as well as supermarket.
TV License – it is a legal requirement to have a TV license, you must budget for this, even if you do not currently have a license. For options on how to pay for your TV licence including a weekly cash payment plan, contact TV licensing.
Travel expenses – include travelling to work, school etc and if by car include road tax, insurance, repairs, MOT, servicing and petrol/diesel. If by public transport, add up the costs for the whole family.
Entertainment and cigarettes – spending money on things like
cigarettes, alcohol, DVDs, Sky TV, holidays, sporting activities etc pose special problems if you are having financial difficulties. Most creditors are likely to query expenditure on these items. As a general guide, how much you spend on these things should be looked at in light of your other essential outgoings and what you can afford.
It is very likely you will have to consider ways of keeping these expenses low. Initially you need to work out how much you are actually spending and if it is clear that you are spending more than you can realistically afford, think about how to cut back to a reasonable figure in you budget which you know you can manage to keep to.
How much money is left over?
You need to take away your total expenses from your total income. If you do have money left over, this disposable income can be used to pay off your debts.
If you have very little or no income left, take a look at where your money goes. Could you get a cheaper deal on your telephone, internet, insurances, gas & electric? Could you cut down on cigarettes, travel expenses, clothing or extras such as newspapers/magazines etc? It is likely that you will have to sacrifice something in order to pay your debts, especially if you have priority creditors such as rent, mortgage, Council Tax, gas, electricity or TV license arrears. You must still allow for basics such as food.
Step 2 – Deal with priority debts first
Some debts are more important than others: these are priority debts. You must deal with these debts first. Below is a list of priority debts together with a summary of the possible outcome if you fail to pay when due.
Type of Debt Possible Action against you Mortgage or secured loan arrears Repossession of your home Rent arrears Eviction from your home Gas and electricity Disconnection
Council Tax Deductions from income &
benefits, sequestration (bankruptcy), bank arrestment, attachment of goods Court Fines Imprisonment
Child Support arrears Deductions from earnings, bank arrestment, imprisonment TV License Fines, imprisonment Hire Purchase Repossession of goods
How much should you offer?
All priority creditors will want to know that you can meet your ongoing liabilities such as regular rent payments, Council Tax as well as payments towards the arrears. Do not make an offer, or accept an arrangement that is unaffordable. A small but regular payment off your arrears is better than no payment at all or one that you cannot keep up.
More than one priority creditor?
If you have more than one priority creditor then begin negotiating with the debt which is nearest its final sanction. For example, if you are
threatened with disconnection of fuel within 7 days and you have received your first warning against rent arrears, deal with the fuel debt first.
Subsequently move on to the priority debt that is next in line and so on.
If you have mortgage arrears or arrears with another secured lender keep in touch with your lender and try to negotiate reduced payments
until such times as your circumstances improve. Alternatively, you may decide that you wish to sell your property and you should continue to pay as much as possible to your lender and keep them up to date with your progress. If you are unable to come to an agreement with your lender to reduce payments or pay interest only for a period you may wish to discuss other options with a local advice agency. Other options may be Scottish Government Mortgage to Rent scheme or Mortgage to Shared Equity scheme. To access these schemes, you have to contact your local authority or Citizens Advice Bureau and speak to an approved money advisor. Your home may ultimately be repossessed if you do not pay your secured lending and come to an agreement with your lender.
If, despite your best efforts, you cannot come to an arrangement with any of your priority creditors, contact a local advice service for assistance.
Step 3 – Options
There are a number of different options for dealing with debts and the option you choose will very much depend on your own personal circumstances.
If you have no money left after your essential expenses and payments to priority debts, you need to let your non-priority creditors know this. Write to them, enclosing a copy of your budget sheet. You can either ask your creditors to hold action until your circumstances improve – this is known as a moratorium. Alternatively you can make token payments as little as £1 per month to each creditor and request that the creditor freezes interest or charges.
LILA – low income low asset is a route into bankruptcy for people with low income and few assets – particularly those struggling to enter other debt solutions. Bankruptcy through the LILA scheme could be an option if you want to go bankrupt but your lenders haven’t started taking legal action yet. However to qualify you must be earning below £252.40 per week (minimum wage £6.31 x 40) (correct at the time of printing) and have assets worth less than £10,000 in total. If you have a car this must be valued under £3000 to be disregarded as an asset.
Be careful however and remember that bankruptcy will have a big impact on your credit rating and as such obtaining credit could be difficult for six years after bankruptcy is awarded. The current fee for applying for bankruptcy through the LILA route is £200 and be aware that if you have disposable income, the Accountant in Bankruptcy may request a contribution towards the debt for a period of up to three years. Seek advice from the Advice Shop before you decide on this route.
Bankruptcy – this is a formal legal process for individuals who are unable to pay their debts. Sometimes creditors apply to the Sheriff court to award bankruptcy for debt unpaid to them. Individuals can apply for their own bankruptcy however there are three main conditions:
1. Must owe more than £1500
2. Must not have been declared bankrupt in the previous 5 years 3. Must be eligible for a route into bankruptcy:
• LILA as described above
• Apparent insolvency where court involvement has already commenced and a Charge for Payment of Money (CFPM)
• Certificate for sequestration – this is document signed from an
approved advisor to declare that the debts cannot be paid as they fall due.
Once again, contact the Advice Shop before entering into any form of bankruptcy.
If you do have some money left to pay options may include the following:
Pro-rata payments – this is a way of ensuring all of your creditors get a fair share of the money you have available. It is worked out using a formula and you will require a calculator to do this.
For example
Mr & Mrs Smith have £50 per month left after all their essential expenses and payments to priority creditors. They owe £3600 in non-priority debts -
£800 to a credit card, £300 to a catalogue and £2500 loan to their bank.
£50 x £800 / £3600 = £11.11 per month to the credit card
£50 x £300 / £3600 = £4.71 per month to the catalogue
£50 x £2500 / £3600 = £34.72 per month to the bank
As you can see, the larger percentage of the available £50 goes to the creditor with the larger balance.
Send a letter to your creditors outlining the above offers and always ask for interest and charges to be frozen. If your creditors refuse the offer, continue to make the payments anyway.
Bankruptcy – see previous page, however if you have disposable income you may have to contribute towards your bankruptcy for three years. If you have assets these will also be taken into account – this includes your home if you are a homeowner.
Protected Trust Deed – very similar to bankruptcy however the debtor works with an insolvency firm to work out an arrangement to pay a contribution towards the debt for a period of usually three years. This is less formal however relies on the agreement of the creditors. Remember that your home and any other assets are at risk when looking into
insolvency options. Once again, seek appropriate advice before signing up for a trust deed.
DAS (Debt Arrangement Scheme) – DAS was introduced by the Scottish Government in 2002. This is a more formal and legally binding agreement between creditors and debtors and one agreed payment will be made to all debts. Interest and charges will be frozen and your assets will be protected from any legal action while the arrangement is being adhered to. The process is administered by the AIB (Accountant in Bankruptcy). Further advice must be taken before entering into a DAS as an “approved” money advisor or organisation is required to submit an application.
If you unsure what route to take or require further assistant, please
contact one of the many free advice agencies available through
various forms such as on-line, telephone and face to face.
Some helpful links for further information:
www.aib.gov.uk, www.stepchange.org, www.moneyadviceservice.org.uk, www.moneyadvicescotland.org.uk,
www.nationaldebtline.co.uk, www.dasscotland.gov.uk
