Debt & Financial Hardship
Grants are available to beneficiaries meeting qualifying criteria and who are in severe hardship.
Debt & Financial Hardship
Grants are available to beneficiaries meeting qualifying criteria and who are in severe hardship.
If you are facing mounting debts, don’t panic. There are solutions and remedies that can help your situation. The Players Foundation has an independent advisor we can put you in touch with to help you take back control of your situation, talk through possible solutions, and support you in taking action to reduce your debts.
We define hardship as the possibility of losing one’s home due to mortgage or rent arrears, having bailiffs sent in or other equally serious financial problems. We may also help with costs associated with resolving debt difficulties e.g., bankruptcy fees, debt relief order.
What is “problem debt”?
Problem debt means that an individual is struggling to pay his/her creditors each month after their essential living expenses have been accounted for. Practically, this will mean the debtor is struggling to make the minimum payment for their credit cards or loan payments.
The debtor can quickly get sucked into what advisors call a ‘debt spiral’. This means he/she can only make all the payments due to creditor’s each month by taking on more credit.
This situation can go on for many years before things come to a head and creditors stop lending to the debtor due to the volume of debt the debtor has accrued. However, it can sometimes come to a head quite quickly, for example a life event such as job loss or divorce can quickly mean the debtor become personally ‘insolvent’
What is ‘personal insolvency’?
Personal insolvency is a technical term which simply means an individual is unable to pay their creditors each month after essential living expenses have been accounted for. An individual can confirm they are insolvent by completing a Financial Statement, otherwise known as an Income /Expenditure calculation.
You can find an example by clicking here.
This document lists in one column all income the individual has, and in the other column all the essential expenditure the person has, plus his/her contractual payments to creditors. If the amount in the first column is less than the amount in the second column, then the individual is insolvent.
What should you do if you feel you have problem debt or may be insolvent?
Rule Number One – Seek Debt Advice!
It is a natural human reaction to ‘kick the can down the road’ if you are drowning in debt. It isn’t a pleasant thing to address, but the longer it is left the worse it becomes. Bite the built and make that difficult first contact.
If left unresolved, insolvency can have a detrimental effect on an individual’s mental health and can lead to permanent anxiety and depression. It can feel all-consuming, like there is no escape. This then typically leads to associated problems such as relationship breakdown, stress related time off work, sometimes even tragically ending in suicide. Debt is largely a taboo subject and the individual may suffer the stress alone, thinking there is no way out, no options. Frequently the debtors partner will not know about their insolvency.
The situation becomes more stressful once the debtor starts defaulting (missing creditor payments). Threatening letters and phone calls start which can ultimately lead to court action. If a creditor gets a judgement at court to say the money is owed, this can lead to enforcement via bailiffs, an Attachment of Earnings Order or even a bankruptcy petition.
If you think you are in financial difficulty with your debts remember Rule Number One – seek Debt Advice!
There are always options available to deal with the debts and an experienced debt advisor will guide a debtor through the available solutions. The solutions to deal with the debts will need to be tailored to a person’s individual financial circumstances.
Some of the options available as possible solutions are detailed here.
BANKRUPTCY
Bankruptcy is a debt solution for an insolvent debtor. It is now an online procedure administered through a portal on the Government website. It costs £680 to make yourself bankrupt. Bankruptcy will write off all debts. The person is bankrupt for 1 year and is then automatically discharged from bankruptcy. It is a public procedure but your name is only noted in The London Gazette and recorded on The Insolvency Service website.
Once made bankrupt it is extremely difficult and expensive to reverse. Consequently, it is imperative that the debtor seeks insolvency advice from an experienced insolvency advisor, before making the decision to be made bankrupt. It should only be considered if your debts exceed your assets. Even then it may not be the best option and advice should be taken to see if any other insolvency solutions, such as an Individual Voluntary Arrangement, could be considered as an alternative.
Advantages of bankruptcy –
All unsecured debts are written off on the making of the Bankruptcy Order (BO).
All creditor pressure is immediately stopped and you will not be contacted. The Bankrupts creditors report to the OR upon the making of the BO.
You are allowed to keep a vehicle up to the value of £2,000.
You are allowed to keep essential items to satisfy domestic needs.
Bankruptcy only lasts for 1 year then you are immediately discharged.
Disadvantages of bankruptcy –
An OR is appointed to investigate your asset position. Assets include any property you own as well as any vehicle over £2,000, stocks and shares, expensive jewellery etc. These assets all vest in your Trustee in Bankruptcy (TIB).
You lose control of your assets as they vest in your TIB if you are made bankrupt. The TIB has a duty to sell the assets to claw some money back to pay your creditors. It is possible you will be left with nothing.
If you have surplus monthly income the Official Receiver (OR) will ask you to sign an Income Payments Agreement. This contracts you to pay your surplus income to the OR for a period of 3 years (36 Payments).
It has a possible detrimental impact on some impact professions, such as lawyers, accountants, government workers.
You can’t be a Director of a company while bankrupt.
You still have to pay certain liabilities such as student loans and fines.
It is relatively expensive for an insolvent individual at £680.
DEBT RELIEF ORDER (DRO)
A DRO can be seen as an alternative to bankruptcy for a debtor with no assets, smaller debts and a small disposable monthly income.
It is available to debtors with debts of under £30,000, no assets and a monthly disposable income of less than £75.
The application fee is only £90 and the procedure has to be carried out via a licenced provider such as The Citizens Advice Bureau (CAB) or the debt charity StepChange.
Advantages of a DRO
It has a very low application fee.
Free assistance can be obtained to advise and assist with the application from the CAB or other licenced provider.
You are in the DRO for only 12 months. At the end of this period your debts are written off.
Disadvantages of a DRO
You are unable to obtain credit for the duration of the administration.
Your credit rating is hit severely, possibly affecting you securing a tenancy.
It may have a detrimental effect if you work in certain areas such as finance or law.
INDIVIDUAL VOLUNTARY ARRANGEMENT (IVA)
An IVA can be seen as an alternative to bankruptcy. It is an option for insolvent individuals who have some surplus disposable monthly income to offer creditors. The arrangement typically lasts for 5 or 6 years. Instead of a monthly payment, a lump sum could be offered to creditors in full and final settlement to the total debt.
The IVA is proposed to creditors with the help of a Licenced Insolvency Practitioner (IP). The IP convenes a virtual meeting of creditors who vote on the proposal to pay creditors your surplus monthly income. If 75% of the creditors (by debt value) vote in favour of the IVA, then the arrangement is accepted. It is a formally binding legal contract at this point.
The payments into the IVA are made by the debtor to the IVA company and the IP administers the arrangement making pro rata payments to all creditors in the IVA.
At the end of the IVA the debtor is debt free, usually with a significant element of ‘debt forgiveness’ – meaning the debtor pays in significantly less than the total owed but all debt is written off.
Advantages of an IVA
It avoids the debtor being made bankrupt by a creditor.
No creditor pressure, once the IVA is in place the creditors can only liaise with the IP.
There can be no creditor action against the debtor.
If there is equity in a property this is protected.
Very often a large proportion of debt is written off.
The costs of the IVA are paid by creditors not the debtor.
Disadvantages of an IVA
If you do not make the monthly payments the IP can make you bankrupt.
You will be on a tight budget for the duration of the IVA.
No credit (credit cards, loans etc) are permitted for the duration of the arrangement.
Debt Management Plan (DMP)
A DMP is like an IVA in that you pay your monthly surplus income into the plan. If there is no surplus income to offer creditors, then a nominal £1PCM will be offered to creditors for as long as necessary. Unlike an IVA the plan doesn’t run for a set period of time, it lasts until all the creditors have been paid in full.
Advantages of a DMP
Creditor pressure is taken away if they agree to enter the plan, they will not contact you.
Interest is frozen on your debts.
It is flexible – if your monthly income goes up or down, more or less can be offered to creditors.
The monthly payment into the plan is affordable meaning your other income is available to meet essential living costs.
Disadvantages of a DMP
Unlike an IVA the creditors are not bound to the plan meaning they can take recovery action against you at any time.
You will pay back all your debts in full, there is no ‘debt forgiveness’
You will be in the DMP for as long as it takes to repay the total debt. This could take many years.
The advice for a debtor to embark on one of the above procedures will be entirely dependent on the debtor’s personal circumstances. This can be primarily financial but also emotional considerations have to be taken account of. For example, financially it may be clearly the best option for a debtor to declare him/herself bankrupt but they may not wish to go down this route due to a perceived stigma of being made bankrupt.
Other ancillary factors such as money management, how to negotiate with individual creditors, bailiff advice, money claims through the county court, credit score advice, housing advice etc should also be considered and advised on by a competent debt / insolvency advisor.
One golden rule remains however for anyone who is concerned about their financial position and that is to remember Rule Number 1. Don’t suffer in silence. Take that first step to get help from a debt advisor, which should always be free, confidential and impartial. This is always the first step on the road to getting your finances back on track.