Consumer Debt Help 3 – Income Expenditure and Offers to Creditors

When you are completing an Income & Expenditure Statement, and you have worked out how much you need to live on, you need to distribute any amount left over between your creditors. The first step is to judge how many of your creditors you can pay something to. To do this, make a list of all of your priority creditors (Fig. 1) and another list of your non-priority creditors (Fig. 2) from your Income & Expenditure Statement. From the Income & Expenditure Statement obtain the figure for ‘Money for Creditors’ (figure ‘C’ on the statement). We will assume this figure was £65.00 for our example. We now need to attempt to create a ‘moratorium’ with your creditors. Being, a delay granted by your creditors in the repayment of the debt, and all of your creditors refraining from debt recovery action: if you maintain your side of the agreement. As we only have £65.00 per month, and your priority debts will only receive a small payment, it does not look possible to pay any amount to your non-priority debts (in our example). However, you can decide to pay your non-priority debts a token figure until you can increase the payment. In this example, I have used £5 of our money to pay three creditors a small amount each. You will note that one creditor with a £20 debt has no payment: with respect to all creditors, this small amount cannot justify even a token payment (let alone the cost to the creditor to process any payment). A letter needs to be sent to all small creditors asking for them to write off the debt, or at least for them to do nothing as there is little, or no, likelihood of payment (see Fig. 3). We now have £60 for priority debts. A system exists and is accepted by most creditors. The amount is worked out as a ratio of amount of debt to payment available. One debt at a time is calculated as follows: (Amount available) £60 x £3500 (Amount of debt) / 6000 (Divided by Total) = 35.00 (Amount available) £60 x £ 550 (Amount of debt) / 6000 (Divided by Total) = 5.50 (Amount available) £60 x £1200 (Amount of debt) / 6000 (Divided by Total) = 12.00 (Amount available) £60 x £ 750 (Amount of debt) / 6000 (Divided by Total) = 7.50 Total 60.00

Fig. 1 – Priority Debts

Fig. 2 – Non-priority Debts

Fig. 3 – Letter to Small Creditors

Remember you need your creditors support, large and small alike. Being sued for £60 is no less stressful that being sued for £6000. If one of your creditors decides to ‘go it alone’ and take legal action, you need to consider one of the forms of personal insolvency. This ranges from getting the courts support and protection for a moratorium (as above), to the extreme of personal bankruptcy. In such circumstances either contact the Consumer Credit Counselling Service on 0800 138 1111 or your accountant. Still communicate with, and make offered payments to all creditors regardless of their ‘chest beating’, most will soon accept the inevitability of your payment arrangement. When we have many debts our senses develop a pessimism and defensiveness that can be far from reality. We believe that every creditor wants every penny ‘NOW’! That they will turn into monsters and descend upon us inflicting financial destruction and many years of darkness, and as such we will ‘fight them on the beaches’… Well, this need not be the case.
Creditors initially look for the answer to one question to determine how to deal with individual debtors: ‘Can the debtor pay, but won’t’ or ‘can’t the debtor pay’. Otherwise known as ‘can’t pay, won’t pay’. If the creditor is of the opinion that all you say and do is reflective of a ‘can’t pay’ you should have little to fear. If you do not contact the creditor to arrange an alternative payment arrangement the creditor will probably start legal action quickly. If you contact the creditor in good time, you have the opportunity to negotiate. In this day and age of easy credit, the creditor has a responsibility to those debtors that fall on hard times. No creditor should take legal action where a debtor is genuine, in contact, and playing fair (holidays in the Mediterranean whilst paying your creditors £1 per month is not playing fair and you should expect a call from the debt collector). The Income & Expenditure Statement is part of the creditor assessment of the debtors financial position, together with the knowledge and experience of the debtors collection staff. It should be noted that what seems like a great reason for you not to pay sounds like another excuse to the collection staff (whether true or not). Collection staff have to sort out the ‘won’t pay, can’t pay’ debtors by pushing all debtors to the limit of reasonable stress. If they could not sort out whom was who they would have to sue everyone as the only real alternative. If a creditor contacts you by telephone you must bear in mind that the companies that lend money are in the business of revolving cash. As such they will not give the debtor a comfortable experience. Collection staff are trained to find short term answers to your problems i.e. if you called them asking to miss one payment or they rang you because of one missed payment and you asked to miss that payment they would respond in this order:

• ‘NO’.
• ‘You have one week’.
• ‘Pay half now, and half in fourteen days’.

(I will stop at No.3 in case I get in trouble from the finance companies collection departments) The point is clear, if you can just about manage the payment, pay it. If you cannot pay under any circumstances, you must say so and be very resolute. Making promises you cannot keep looks good on the collection staffs work report, however, it also means that you cannot stick to an arrangement. Breaking an arrangement is giving a finance company a legitimate reason not to make further arrangements and to sue you. For a finance company to consider a long-term arrangement you will have to have many debts beyond your financial resources. If your finances are ‘a bit tight’ you will be expected to meet all of your debts on time, and in full. That said, if you lost your job, or you are self-employed and sick (and you did not take out the finance company’s Job Loss/Sickness Insurance) and you complete an Income & Expenditure Statement and have been fair with your living expenses, your creditors (in the main) will give you a high degree of understanding (never expect their blessing). If you feel that you have a legitimate case and the person dealing with your request (be that by telephone or letter) is not being fair with you (as does happen) you should ask to talk to a supervisor, or write to the Collection Manager. Explain that you acted responsibly by contacting them (before they contacting you), that you have completed a fair Income & Expenditure Statement based on acceptable standards and that you have made/will make the first payment of your proposed arrangement, however, you are at an impasse with their colleague. The biggest problem with debts is to have to face up to them! Most people with debt problems adopt a form of amnesia. The same human ability that stops us from remembering a ‘serious accident, seems to take over when we have ‘serious debts.