Debt Help and Advice - How to be Debt Free

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Too Much Debt
How do you know if you have too much debt? Credit is a great way to get what you need when you need it, but many Americans are finding that credit can get out of control rather quickly.

Just look at the amount of advertising for refinancing, consolidation, credit counseling and credit cards.

You may not have any problem paying on your debts right now, but that doesn't mean th... Read debt consolidation article



Is your credit card payment rising
Did you know your minimum credit card payment is rising? A new government program working to get Americans out of credit card debt is pushing credit card issuers to raise minimum monthly payments. Will you be able to make the higher monthly payment? Here are some tips for getting by. by Joel Walsh If you're an American, your minimum monthly credit card payment may soon be doubling. If y... Read debt consolidation article



Debt Help and Advice - How to be Debt Free
Common questions regarding IVA's (Individual Voluntary Arrangement's)

An IVA is a legally binding arrangement supervised by a Licensed Insolvency Practitioner, the purpose of which is to enable an individual, sole trader or Partner ("the Debtor") to reach a compromise with his creditors and avoid the consequences of bankruptcy. The compromise should offer a larger repayment towards the creditor¡¦s debt than could otherwise be expected were the Debtor to be made bankrupt. This is often facilitated by the Debtor making contributions to the arrangement from his income over a designated period or from a third party contribution or other source that would not ordinarily be available to a Trustee in Bankruptcy

Who Can Benefit From an IVA

An IVA is available to all individuals, Sole Traders and Partners who are experiencing creditor pressure and it is used particularly by those who own their own property and wish to avoid the possibility of losing it in the event they were made bankrupt.

It is also often used by sole traders and Partners who have suffered problems with their business but wish to secure its survival as they believe it will be profitable in the future which will enable them to make a greater repayment to creditors than could otherwise be expected were they made bankrupt and the business consequently cease trading.

The Procedure in Brief

In theory it is envisaged that the Debtor drafts proposals for presentation to his creditors prior to instructing a Nominee, (who must be a Licensed Insolvency Practitioner), to review them before submission to court and then to the creditors.

In practice the Nominee draws up the proposal upon the information provided by the Debtor and submits these to court with his comments on the merits of the proposals with a view to obtaining an Interim Order. An Interim Order is an order made by court precluding creditors from taking any action against the Debtor whilst a meeting of creditors is called and held to decide whether the proposals are acceptable to them or not. Following the granting of the Interim Order the Nominee will circulate to creditors the following information:-

-X The Nominee¡¦s comments on the debtor¡¦s proposals

-X The Proposals

-X Notice of the date and location of the meeting of creditors to vote on the proposals

-X A Statement of Affairs this effectively being a list of the assets and liabilities of the Debtor

-X A schedule advising creditors of the requisite majority required to approve the IVA

-X A complete list of creditors

-X A guide to the fees charged by the Supervisor following approval of the IVA

A form of proxy for voting purposes

The creditors meeting is held not earlier than following 14 clear days notice after the above has been circulated to creditors. The purpose of the meeting of creditors is to agree or reject the Debtor¡¦s proposals with or without modifications which can be requested by creditors at the meeting. Acceptance of the proposals requires 75% in value of those creditors who vote either in person or by proxy at the meeting.

Please note that the 75% relates only to those who actually vote and assuming the creditors receive notice of the proposals, all will be bound by the terms of the arrangement whether they voted or not.

Upon approval of the IVA, a Supervisor is appointed (usually the Nominee) to ensure the proposals are adhered to and to distribute the dividends to creditors.

Assuming the debtor complies with the terms of the arrangement, upon completion of the IVA he will be fully discharged from all liabilities included within it.

Key Components for a Successful IVA

-X The IVA must offer a higher return to creditors than could otherwise be expected were the Debtor to be made bankrupt.

-X An honest declaration of your assets and/or anticipated future earnings should be made. Material or false declarations are likely to result in the subsequent failure of the IVA. Advantages of an IVA

Individual, Sole Trader or Partner

-X Enables a Sole Trader or Partner to continue to trade and generate income towards repayment to creditors which would otherwise have a call upon the personal assets of the individual.

-X No restrictions as regards personal credit although in practice can prove difficult to obtain.

-X The proposals are drawn up by the Debtor and are entirely flexible to accommodate personal circumstances. An example of this may be to exclude the Debtor¡¦s property from the IVA assuming the Debtor can adequately satisfy creditors that the outcome would be better for them by agreeing to this than could otherwise be expected if a bankruptcy order was made.

-X The Debtor does not suffer the restrictions imposed by bankruptcy, such as not being able to act as a director of a limited company etc.

Creditors

-X The costs of administering an IVA are considerably lower than in bankruptcy, enabling a higher return to creditors.

-X IVA¡¦s operate as an insolvency procedure and creditors can as a consequence of this, still reclaim tax and VAT relief as a bad debt.

Disadvantages of an IVA

-X Where contributions from income are being made, IVA¡¦s are generally expected to be for a period longer than that in bankruptcy, i.e. 5 years as opposed to 3 years. The 5-year period is often required by creditors as a bargain for allowing the Debtor to avoid the consequences of bankruptcy.

-X If the Debtor fails to comply with the terms of the arrangement his home and assets can still be at risk if they have not been specifically excluded from the proposals.

-X If the IVA fails as a consequence of the Debtor not meeting his obligations under it, it likely that the Debtor will be made bankrupt at this time.

-X There will be no opportunity for a Trustee in Bankruptcy to investigate the actions of the Debtor or possibility of hidden assets.

Paul Mccann B.A.(Hons) is a professional debt consultant with several years of experience of advising people about debt. http://www.chasesaunders.co.uk

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Debt Management Plans - Your Debt Survival

So either you're considering paying a visit to a certified credit counselor or you've already been to see one. Either way, the fact is you're deep in debt and don't know how you're going to pay them off. In general, you need help. Either you've been overwhelmed by unexpected but necessary bills, you've lost your job but need to pay rent somehow, or you've simply lost control of your budget. Whatever the reason, you need help and a Debt Management Plan might possibly help. Whether one can or not will depend on your personal situation.

In a Debt Management Plan essentially your credit counseling organization takes over the managing of most of your unsecured debts. They directly interact with your creditors in order to negotiate lower interest rates, eliminate fees, prioritize debt payments and arrange what you will pay. The credit counseling agency may be able to help manage most unsecured debts.

Before your sign up for a Debt Management Plan

Before signing up for any Debt Management Plan, you want to take some steps to do research and prepare yourself. The more prepared and informed you are, the better you will understand the process and options that are available to you even before discussing the situation with your credit counselor.

1 - Talk to your creditors yourself

The fact is, many negotiations between a creditor and a credit counselor can be done by you. Before I went to see a credit counselor, I negotiated lower interest rates on all my credit cards, so low, in fact, that even the credit counselor couldn't do better. You also want to have a long chat with your creditors about what other concessions they might be willing to make for you and for the credit-counseling agency you're considering. Creditors want their money and it may be the case that you can negotiate a better arrangement because you know your situation best. As my own situation got worse for numerous reasons, I negotiated with my creditors a second time and was quite surprised that they were willing to eliminate the late fees and arrange a workable payment plan with me. The benefit of a Debt Management Plan is that all the negotiations are done for you; you simply make one monthly payment to the credit-counseling agency after you sign-up and they pay your creditors; and they may be able to provide a timeline for getting out of debt, which is really what the goal is. In going this route, you may have to agree not to use or apply for credit while participating in the Debt Management Plan.

2 - Find a reputable credit-counseling agency

Finding a reputable credit-counseling agency means research. Many of us have had trouble with debt at one point in our lives, so ask around and see if anyone has had success with a particular agency. Also, if you think you have found one, check with the Better Business Bureau, check online to see if this agency is reputable. Another option would be to, again, talk with your creditors and see if they work with that company. For me it turned out that the agency I chose didn't work with two of the creditors that I owed the most to.

3 - Work out a budget

Before making any financial decision, one of the first and most necessary steps is to figure out just how much money you have coming in, how much is going out, how much of your spending is necessary and how much isn't. Deciding how much money you have coming in is easy, just look at your pay stubs - printed or otherwise. Deciding how much you have going out is not always that easy and it's important to be honest and calculate everything. First, you need to gather your bills and your receipts for all expenses, necessary and unnecessary. Add everything up to get an idea about how much your spending. Second, list your expenses by necessary and unnecessary; and, no, that $9 movie is not necessary. I was even told by a credit counselor that spending $50 a week on food was too much and that only $20 was necessary. Of course, I was thinking, 'what world are you living in?'. While difficult to do sometimes, you will need to make a decision about what expenses you can eliminate. When you have made these decisions, you will then be able to see your financial situation for the future a little better and be better able to discuss your options with your credit counselor.

Is a Debt Management Plan Right For You?

One thing to remember is that not everyone is eligible for a Debt Management Plan. My own negotiations were so good that the credit-counseling agency could do no better, and in fact the interest rates I was paying were half what the credit-counseling agency could get. You also might be so far in debt and simply not making enough money to afford any but the most essential living expenses and have nothing left over to pay creditors. There are other decisions to be made, though, before deciding to participate in a Debt Management Plan. Here's what you should cover with your credit counselor beforehand:

1 - Options besides a Debt Management Plan

Everyone needs options and it's always good to have a few. Before you sign-up for a Debt Management Plan, you should know what they are.

2 - Other Credit-Counseling services

Check to see if the credit-counseling agency also provides other money management services, such as help with budgeting. Sometimes our debt is simply due to the inability to budget and manage money well. Education on money management issues can go a long way in preventing further problems with debt.

3 - Impact on your Credit Score

There are some conflicting stories about what happens to your credit score when you sign-up for a Debt Management Plan. When I talked with a credit-counselor, I was told it would not impact my credit score. However, after talking with my creditors, I was told that it would reflect negatively on my report. I was more inclined to believe the creditors because they are, in fact, the ones who report on my payment history, length of history, etc. You don't want anything negative on your report, so find out from both your creditors and your credit-counselor how it might affect it. While you may not be able to avoid having negative entries on your credit report, you should try to minimize the damage as much as possible.

4 - How much will your monthly payment be?

This is an important fact to know because it will affect your budget and you need to know if you will be able to manage the payment with all of your other necessary expenses. As with any expense, if you can't afford it, then you don't want to commit to it.

Can the Credit-Counseling Agency do what it says?

Like any major financial decision, you want to take some time to do research and think about it. Don't simply sign-up at the first meeting with a credit counselor; you may be in for a big surprise.

Here are some further issues you should research:

1 - Confirm concessions

Your Credit counseling agency should provide with a list of what they can do for you by creditor, such as interest rates, elimination of fees, etc. Check with your creditors to confirm that the credit-counseling agency can provide these concessions and whether there is a waiting period for them.

2 - Will your creditors be paid on time?

An important fact to remember is that all of the accounts with your creditors are still in your name and you are expected to pay by the due date. Talk to your credit counselor about when payments are made and confirm that this will coincide with the payment due dates for your creditors.

3 - How do you get account information?

As with any account you open, you need to have a way on checking that status of that account. Find out whether this is possible and how it can be checked - email, phone, etc. Also, find out how often it can be checked and what types of information will be provided. If this service isn't available, you need to find a different agency. Regardless of the service, it's your money and you should know how it's being spent.

After you sign-up for a Debt Management Plan

Debt management is not a passive process. This is your life and your financial situation. You need to be an active part of the solution. A Debt Management Plan only helps you manage your financial obligations to your creditors better. Your active participation can only help you in the long run and will ensure that your financial situation improves for the future. It may also provide a little peace of mind since you will be able to your debt diminishing and continue to monitor whether your credit-counseling agency and Debt Management Plan is doing what it should be doing - eliminating your debt. Active participation means you need to keep in contact with your creditors.

Here are some ways to be active:

1 - When does your Debt Management Plan start?

This is important to know because you want to continue paying your bills until it goes into effect. Your credit rating is affected by your payment history and your goal should be to avoid any negative reports, whether you've had them yet or not. It would be a shame to start a Debt Management Plan to avoid negative reports, only to get them anyway.

2 - Has your Debt Management Plan been accepted?

Your Debt Management Plan only works if your creditors accept the proposed plan. If it hasn't been accepted, then you should contact your credit-counseling agency again before sending them payments.

3 - Is your Debt Management Plan paying the bills?

Check your monthly statements and call your creditors monthly to confirm timely payment, interest rates, elimination of fees, etc. Again, it doesn't do any good to sign-up for a plan only to have it fail in what you've been told it would do and how it would do it.



Since a Debt Management Plan is just a step away from, if a Debt Management Plan isn't going to work for you, you might want to consider bankruptcy. This was the only option given to me by my credit counselor, but I didn't want to consider it. Unfortunately, I could have saved myself a lot of grief by accepting what inevitably did happen years sooner. However, this option should be discussed with a credit-counselor if indeed this is the only option they give you. Regardless of what you decide to do, remember that financial issues can be very emotional, and overwhelming debt is stressful and can have other consequences besides the obvious financial consequences. Also, think about how the financial issues affect those around you; your family, your friends. Talk things over with those who are directly affected. Sometimes a little discussion goes a long way in helping to solve the problem and relieve some of the emotion strain. Lastly, the sooner you seek help, the sooner the emotional strain can be relieved and you can get on with the rest of your life.

The author of this article runs OpinedMind.com and is currently a Ph.D. student writing articles on the issues of student loans and other sources of college funding and debt consolidation based on personal experience and many hours of research.


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Debt Help and Advice - How to be Debt Free
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