Debt Management Plan Case Study – Its all about the timing?

Is Debt Management all about the timing?

Mr Anders contacted us after being left with a large debt from his haulage company. Unfortunately he was the guarantor for all of his company’s finances and when the credit crunch took hold his business started to go down hill. Mr Anders was left with debts amounting to £312,000 that he clearly couldn’t manage and felt he had no option other than bankruptcy. Before he contacted the courts he wanted some professional advice from a company who could point him in the right direction.

Mr Anders contacted National Money to see how we could help. After discussions with one of our advisors it was clear that bankruptcy may not be the right way forward, as he was getting back on his feet and starting to earn some money with his new transport company. Bankruptcy would have prevented him from being a director of the company, and with a potential improvement in his income, he may well be required to make substantial monthly contributions into his bankruptcy through an Income Payment Order set out by the Trustee in Bankruptcy which would cause him serious difficulties.

He explained to us that the collection agents for his unsecured debts were starting to become more aggressive and he needed help fast. We reviewed his finances to see what he could realistically afford after his priority debts and living expenses had been paid. He also explained that later in the year his income could increase dramatically due to a new contract he had won, which could push his disposable income from £650 to £1600 per month. Our advisor explained that he could consider entering into an IVA (individual voluntary arrangement) once his income had increased as the creditors would be more likely to accept this higher offer of payment. This would also mean the collectors would no longer be able to contact him, and all interest and charges on his debts would cease by law once the IVA had been agreed. The problem with entering into an IVA now was that this increase in income was not certain, and particularly in the current economic climate with rising fuel costs and VAT increases, it may not be right to commit to a 5 year, legally binding payment arrangement.

But what happens in the mean time asked Mr Anders?

Well a suitable option is a Debt Management Plan; this will allow Mr Anders to pay his creditors only what he can afford until his income increases. Whilst Mr Anders is in the Debt Management Plan we negotiate with his creditors in order to reduce the interest and charges on his debts and deal with all those hassling phone calls and letters he had been receiving, leaving Mr Anders to concentrate on his new business, pushing up his income.

Since Mr Anders has been on board with National Money in the debt management plan he rarely receives calls from the collectors and simply forwards any letters he gets to his personal advisor, it has also enabled us to prepare his IVA proposal for when Mr Anders can afford to enter into the IVA agreement.