The Dangers of Over-Commitment
If you over commit yourself to credit, you may end up having
your home repossessed or worse, having to go bankrupt
We all have Credit Cards and Store Cards as well as Car finance
or some other form of HP [Hire Purchase] but the biggest financial
commitment we have has to be our home.
We all get behind with our payments from time to time. This could
be no fault of your own and could be mainly due to unemployment or
loss of additional income. You may have been lulled into a false sense
of security, which led you to overspend. Suddenly you find yourself
unable to meet payments on time and are borrowing more to pay off
debt, and in-turn this will increase interest charges and pile on
more debt.
The solution to debt control is not to keep borrowing more and more
without very careful consideration of the interest charges, and certainly
not to borrow money from dubious sources that promise easy acceptance.
You should always take advice and be careful about the interest that
will be charged to you as careless borrowing will only compound the
problem and make it ten times worse.
Secured or Unsecured - What's the Difference?
Borrowing can be either Secured or Unsecured.
The basic difference is that secured borrowing is 'secured' against
your home or property, so, ultimately if you default on the repayments
the lender/mortgage company can take your home and have it sold
to pay off your debt. Whereas unsecured lending is a debt which
is owed to a company and if you default they can only take you to
court and obtain a judgement against you, a 'CCJ', which will mean
added costs and interest charges and affect your credit rating for
future borrowing. Naturally you will still have to pay the debt,
but over a fixed period and monitored by the court.
If you get behind with loan repayments you will invariably get reminder
and demand letters and even phone calls chasing you for payment, and
this can get quite intense and tough. No one likes to be chased for
non payment as some accounts departments are not always very understanding,
as they have a tough job to do to get people to pay. Many companies
however are very understanding and are very prepared to help you.
Mortgage companies do not pressure you about a missed payment, because
their debt is secured against your property. Therefore, people get
behind with their mortgage repayments because they tend to pay off
the unsecured loans from companies that do chase regularly. Unsecured
creditors are quicker to telephone you, send you letters, apply late
payment charges and threaten legal action, so you are more likely
to pay them.
However your most important asset, your home, may be at risk, so
when you get behind with the mortgage payments you could have a very
serious problem.
Don't put your head in the sand
Unpaid debt is never going to disappear, so
don't think by ignoring letters or phone calls it will go away.
The only true way to deal with the problem is to face it head on
and to face up to your situation. This will invariably mean you
having to make hard decisions, which may result in you having to
change your lifestyle, certainly curb your spending and make cut
backs on all of your expenditure to accommodate your debt repayment
schedule to bring you back on track.
I could go Bankrupt - What does it mean to me?
You may find yourself ultimately facing bankruptcy.
This is not a soft option and not one to be taken lightly as it
means you can't run a business, any assets are lost (homes, shares,
ISA's, inheritance), and all accounts, such as your bank account,
are closed. You no longer have control over your finances. You
may still have to make a monthly payment, if the official receiver
thinks you were being rash or hazardous, you could face a custodial
sentence, you cannot take on credit for more than £250 without
declaring your bankruptcy, and the DTI will keep the bankruptcy
on record for 15 years.
Serious Consequences indeed
But what else can I do to stop the constant
harassment by companies?
In some cases, there is an alternative to
bankruptcy, and that is an Individual Voluntary Arrangement,
IVA. This is good for people who want to retain their equity, such
as a home. An IVA can write off up to 95% of your debts, and you pay
the monthly payment for 60 months. An IVA will stop legal action,
freeze interest and charges, cancel CCJ's, and stop the calls and
letters from creditors. An IVA can only apply if the creditors
are going to be no worse off than with a bankruptcy, and a majority
of 75% of creditors must vote to agree with an IVA.
The advantages of an IVA include:
An IVA is not advertised in the press as a
bankruptcy petition, and
1) You keep your assets
2) Most of the debt is written off
3) Interest and charges are frozen
4) In 5 years you will be debt free
5) You can continue running a business
6) Contact from creditors will stop
7) There will be no court action
The disadvantages of an IVA include:
* Only suitable if you're unsecured debts total £15,000 or more
* Your assets may still be at risk if the
creditors decide not to exclude them
* If the IVA fails, you can be made bankrupt
by a creditor [someone you owe money to]
* the record of the IVA is recorded, thus
affecting any future credit applications you make
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