Clearing Your Debts In Two Stages:
Working Examples
So how could this work out
for you in practice?
Here are some examples
of how particular cases with different levels of debt may be cleared
using the two stage process. It is assumed that the following may be
individuals or households (families). The law provides for loans not
exceeding £25,000 to be written off if the original credit agreement
is lacking in certain details. For this reason mortgages will usually
not be covered, although secured loans or equity loans will be covered
if they are under this figure.
Also it should be
noted that an IVA will not be proposed by an Insolvency Practitioner
unless there is at least £15,000 of debt and (usually) payments
of at least £150 to £200 a month may be advanced.
Example
1
2 credit cards totalling
£10,000 of debt
1 unsecured personal
loan for £5,000
1 car loan for £5,000
Total: £20,000
debt
Solution:
Stage 1. One of
the credit cards and the car loan are found to be in breach of the terms
of the Consumer Credit Act 1974 and are effectively unenforceable. They
are written off, leaving only the other credit card and the unsecured
personal loan, totalling £8,000 in remaining debt.
Now only £8,000
of debt remains to be dealt with by the Insolvency Practitioner.
Stage 2. The remaining
debt of £8,000 is not enough for an IVA to be considered, so a
Debt Management Programme (DMP) is used to pay off the debt over a number
of years.
NOTE: While
an IVA actually writes off a large proportion of the debt as part of
its terms, a normal debt management programme has no such provision.
Example
2
5 credit cards totalling
£20,000 of debt
1 unsecured personal
loan for £10,000
1 car loan for £10,000
Total: £40,000
debt
Solution:
Stage 1. Three credit
cards and the car loan are found to be in breach of the terms of the
Consumer Credit Act 1974 and are effectively unenforceable. They are
written off, leaving only two credit cards and the unsecured personal
loan, totalling £18,000 in remaining debt.
Now only £18,000
of debt remains to be dealt with by the Insolvency Practitioner.
Stage 2. The remaining
debt of £18,000 is enough for an IVA to be considered, but in
this case the disposable income is insufficient for an IVA to be implemented,
so a Debt Management Programme (DMP) is used to pay off the debt over
a number of years.
Example
3
10 credit cards
totalling £55,000 of debt
2 unsecured personal loans totalling £25,000
1 store card with £3,000 debt
1 car loan for £17,000
Total: £100,000 debt
Solution:
Stage 1. Six
credit cards, the car loan, one of the personal loans and the store
card are found to be in breach of the terms of the Consumer Credit Act
1974 and are effectively unenforceable. They are written off, leaving
only four remaining credit cards and one of the personal loans, totalling
£30,000 in remaining debt.
Now only £30,000
of debt remains to be dealt with by the Insolvency Practitioner.
Stage 2. The
remaining debt is packaged into an IVA and reduced immediately by 65%
to £10,500. It is paid off over 5 years at £175 a month.
Example
4
Secured loan
of £20,000
12 credit cards totalling £65,000 of debt
2 unsecured personal loans totalling £25,000
1 store card with £3,000 debt
2 car loans totalling £27,000
Total: £140,000 debt
Solution:
Stage 1. Eight
credit cards, one of the car loans, one of the personal loans, one of
the unsecured personal loans and the store card are found to be in breach
of the terms of the Consumer Credit Act 1974 and are effectively unenforceable.
They are written off, leaving only four remaining credit cards, one
of the car loans, the secured loan and one of the personal loans, totalling
£50,000 in remaining debt.
Now only £50,000
of debt remains to be dealt with by the Insolvency Practitioner.
Stage 2. The
remaining debt is packaged into an IVA and reduced immediately by 70%
to £15,000. It is paid off over 5 years at £250 a month.
From the above it
can be seen how even the most seemingly impossible debt may be managed
by the two stage process. Personal debt can be much higher even than
this. But there is usually a sensible way out.
Why not take the
sensible way today?
If you really want
to write off your credit card debt and/or other debts, then visit our
Write off Credit
Card Debt website (offer applies to holders of UK credit accounts).
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with the CAN-SPAM Act. We will not pass your name or any other details
to third parties apart from the specialist solicitor who will need to
know these details in order to help you.