5 Factsheet How to manage your debts -

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Factsheet
5
How to manage
your debts A self help pack
Make Every £ Count
The information and benefit rates in this leaflet are correct at April 2009
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HOW TO MANAGE YOUR DEBTS –
A SELF HELP PACK
Contents:
Are You Liable For The Debt?
Legal Letters
Look At Your Income
County Court Action And Judgments
Spending Priorities
The Magistrates’ Court
Repaying Priority Items
In The Long Term
Repossession
Further Help
Unsecured Debts
DIY Financial Statement
Putting Together A
Financial Statement
This is a brief guide and it cannot state the full details of the law. Further details on specific
items are available from your local Citizen’s Advice Bureau (CAB) or Advice Centre. If in
doubt seek help.
Are you liable for the debt?
Always check that you owe the money before agreeing to make repayments. Many people
are asked to pay back money they may not be liable to repay.
Generally speaking you are not liable for your partner’s, or anyone else’s debts, unless you
signed an agreement or acted as guarantor. The two main exceptions to this are council tax
and water charges.
Did you sign an agreement?
Most people will have to sign an agreement in order to get money or goods on credit.
If you signed the agreement alone, you have sole liability – you and nobody else owe the
debt.
If you signed along with someone else you have joint and several liability. This means you
will each be regarded as owing the full sum.
Just because you live with someone, are married to them, have a civil partnership with them,
or you just have the same address, does not mean you are liable for their debts. However
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you can be jointly liable for council tax and water charges with your partner if you live with
them (or lived with them when the debt was incurred).
If you have signed as a guarantor for someone, you have accepted liability for the debt in
the event that the other person does not pay.
If someone signs an agreement in your name and without your agreement you may not be
liable, and they may be guilty of fraud. You will need legal advice.
If you have been forced to sign an agreement against your will, e.g. by a partner, or you have
been misled, you may not be liable for the debt. Seek legal advice.
Look at your income
Resolving debt problems should always begin with looking at ways of increasing your
income.
Benefits and tax credits
Are you claiming the correct benefits and at the correct amount? Many people do not claim
benefits to which they are entitled.
Remember there are different types of benefits. Some are based upon national insurance
contributions, some are based on your income and capital, and others are based upon your
personal care and mobility needs. It is always worth getting your benefits checked by an
adviser to make sure the claim is correct and that you are receiving everything to which you
are entitled.
Some people miss out on benefits because they wrongly assume they cannot claim anything
when they are working. Tax credits and some benefits can be paid even if you are working.
Help with benefits can be obtained from your local Citizens Advice Bureau or independent
advice centre. See also www.hertsdirect.org/benefits.
If you are repaying a social fund loan from your benefit and finding it difficult to manage on
the benefit you are left with, you can ask jobcentre plus to reduce the rate of the deductions.
Tax Codes
Always check that your tax code is correct for your circumstances – you can obtain further
information from your local CAB or office of Her Majesty’s Revenue and Customs (HMRC).
The current rate of income tax allowances can be found at www.hmrc.gov.uk/rates
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Sorting out priority and non-priority debts
It is important to divide your debts into priority and non-priority debts. Many people get into
difficulty because they pay the wrong creditors first.
Priority debts are debts that could result in you losing your home or an essential supply, if
they are not paid. Below is a list of debts that are usually regarded as a priority and the
reason for this.
Priority Item
Rent or Mortgage and secured loans
Council Tax
Electricity and Gas
Magistrates’ Court Fines
Maintenance arrears/CSA
HP/conditional sale, rented and hired
goods
Business Rent
Business Rates
Income Tax/VAT
TV Licence
Reason for Priority
Lender/ landlord can repossess the
home
Councils can use bailiffs, attach
benefit or wages and apply for
committal to prison
Supplier may obtain permission to
disconnect supply
Bailiffs can be sent to collect unpaid
fines, refusal to pay can result in
imprisonment
Bailiffs or deduction from earnings, or
committal to prison
Goods may be repossessed
Repossession of premises
Bailiffs, committal to prison
Bailiffs, committal to prison (for
evading payment)
Fine of up to £1000
Other items to consider
Water charges – water companies may no longer disconnect supplies to enforce payment,
but payment of water bills must still be regarded as an essential. If your water rates are
included with your rent then your landlord may try to evict you because you have arrears of
water rates.
County court orders - if you have been ordered to pay a debt via a county court order, the
court should take into account your ability to pay a debt. If you cannot afford to pay, see the
section on county court judgments for how to deal with this.
Insurance (especially of your car and home) – car insurance has to be paid by law, but
insuring your home can be overlooked as an essential item; if you are uninsured, you could
lose everything through fire or theft.
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Always remember to check if you have any insurance policies (payment protection
policies) that will help you to pay your mortgage or other form of borrowing in the
event of illness, disability, redundancy etc.
Repaying priority items
If you are in arrears with priority creditors and you cannot clear them by large payments, one
of the first things to do is to set a repayment based upon current repayment, plus a sum for
arrears.
Rent and Mortgage
The current weekly or monthly sum must be paid regularly, and you need to add a sum to
clear the arrears by instalments.
The amount that you need to pay will vary according to different factors (including how much
the arrears are, what other priorities need to be met and how much you can pay without
missing those priorities).
The key is regular payment. This will gradually reduce the debt and will also show that you
are committed to clearing the arrears.
If you are a tenant on income support, income-based jobseeker’s allowance or incomerelated ESA it may be possible for the landlord to obtain payment of arrears at a fixed rate
direct from your benefit. At present this is £3.25 weekly.
Council Tax
This is due at the start of the financial year. Your council will normally allow you to pay by
instalments providing you clear the bill by the end of the financial year. If you fall into arrears
you may lose the right to pay by instalments.
If you have arrears from previous years, you should also offer an additional payment to clear
these.
If you cannot pay as above, you may need further advice.
If you are in receipt of income support, income-based jobseeker’s allowance or incomerelated ESA the local authority may apply for payment of arrears at a fixed rate direct from
your benefit. At present this is £3.25 weekly,
Gas and Electricity
The fuel supplier may set a rate of weekly or monthly repayments to cover current
consumption and arrears, or may insist upon the installation of a pre-payment meter to do the
same job.
If you are on income support,,income-based jobseeker’s allowance or income-related ESA
payments of current fuel usage plus a fixed sum for arrears may be taken direct from your
benefit. At present the sum for arrears is set at £3.25 for each debt.
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If disconnection of your fuel supply is threatened, contact the supplier at once and discuss
sensible repayments; if you cannot reach an agreement, seek further help.
Magistrates’ Court Fines
If you cannot afford the payment of a fine, you must contact the court with details of your
income and expenditure and a new repayment offer. You may be required to attend a hearing
so that the court can hear details of your financial situation and set a new rate of payment
(see later). The court can deduct money direct from income support, income based
jobseeker’s allowance or income-related ESA (usually £5.00 per week or £3.25 in some
cases).
Maintenance Arrears/Child Support Agency (CSA)
Current payments should be met, plus an offer to repay arrears by instalments.
If the maintenance is payable via a court, that court’s enforcement procedures will apply.
The CSA are usually willing to negotiate repayments of arrears but will require payment of
the current maintenance assessment. A flat rate for maintenance arrears can be deducted
from benefits – if this applies to you, seek advice.
Hire Purchase/Conditional Sale
To keep possession of goods on HP or conditional sale, you must usually offer the current
payment plus a payment towards the arrears that will clear them within the lifetime of the
agreement.
If this is not possible, you will need further advice.
You must NOT sell an item on HP or conditional sale in order to clear debts unless you
have the specific permission of the lender – to do so without permission is theft!
Repossession
Mortgage and Rent
If arrears of rent or mortgage have grown too high the lender or landlord may apply to the
county court to gain repossession of the property. You will receive papers from the court
giving details of the claim, and a date and time for a hearing at the county court.
It is always advisable to attend court. You may take a representative if you wish, and
your local CAB or advice centre may be able to help you.
The court hearing is your last chance to make an offer of payment to clear the arrears. The
district judge of the county court will listen to both you and the creditor, and s/he will make a
decision based upon the facts and the law.
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The court will always offer you a chance to resolve the problem, even if the lender/landlord
has not previously accepted your offer.
If your offer is accepted, possession will probably be awarded, but postponed so that the
arrears may be repaid as agreed. This means that you will not lose your home providing you
pay as agreed.
If your offer of repayment is insufficient, possession of the property can be ordered and
eviction could take place at a later date. If you remain in your home after the date set for
eviction your creditor will have to go back to court to get a warrant to evict you.
Items on Hire Purchase or Conditional Sale
If under one third of the balance has been paid, the goods can be repossessed without a
court hearing.
In other cases, the creditor must seek a ‘return of goods order’ from the county court. As
above, you will have a chance to attend court in order to make an offer of repayment and to
have the repossession postponed.
Non-priority debts
If you have a creditor who is not one of those listed above, they are an unsecured or nonpriority creditor. This means that although you owe them money, they have no security
against your home or your goods, and you cannot be imprisoned or have your services
disconnected for not paying them.
Unsecured creditors include:
•
•
•
•
•
•
•
Personal Loans
Credit Cards
Store Cards
Charge Cards
Catalogues/Mail Order
Bank loans and overdrafts
Buy Now Pay Later
Unsecured creditors include lenders who collect money on the doorstep!
No creditor likes to be offered less than was originally agreed, but they will usually negotiate
if you are acting in good faith and are genuinely unable to pay.
The method of making an offer of repayment is covered later - the principle is that every
unsecured creditor should receive a proportionate offer of your spare income.
To decide what your spare income is you need to set down your income and expenditure in a
financial statement.
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Putting together a financial statement
Putting your income and spending in to writing may sound frightening, but it will help to get
the problem in perspective.
At the end of this pack is a ‘DIY Financial Statement’, which will assist.
Everybody’s financial situation is different so you will need to adapt the financial statement to
your own situation. However the priorities mentioned above apply to most of us and should
be listed carefully.
Try to set down your figures so that they are all weekly/fortnightly/monthly (whichever suits
you best), even if you pay your bills at different times. This will help you to establish what
needs to be set aside for each bill.
You should consider the following points:
realistic spending – You may have to consider if some of your expenditure could be cut
down, but do NOT put unrealistically low figures, especially for housekeeping. Remember
too, that your fuel bills may be cheaper in the summer than the winter. You need to put
together an affordable and sustainable budget in order to avoid your financial problems just
carrying on.
housekeeping, clothing and shoes – Many people try to cut back on housekeeping in order
to pay other debts. It is important to have a realistic budget for housekeeping. Similarly, a
realistic figure must be included for clothing and shoes even if nothing much is spent on
these items on a weekly basis. Eventually these items will need replacing and the money
should be budgeted for.
house upkeep and emergency costs – It is impossible to budget accurately for costs that
you may or may not have in future, but if possible try to set something aside for repairs to
your home and for emergency costs, and list these on the financial statement.
family and personal costs – Think about the cost of entertainment, tobacco, alcohol,
children’s pocket money etc. Any provision must be sensible and reasonable.
payments to unsecured creditors – Do not list these in the ‘essential expenditure’ section,
list the creditor’s name and the sum owing in the ‘creditors section‘. How to work out what
should be paid to them will be dealt with later.
disability needs - Benefits such as disability living allowance and attendance allowance are
intended to cover the care and mobility needs of a disabled person. While they could be
listed in order to show the person’s situation, they should then be cancelled out by the same
sum being listed as ‘disability needs’ – creditors should not regard them as available income.
spare income - Take your total expenditure away from your income and you have your
spare income.
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pro-rata offer - An offer of repayment needs to be made that treats all creditors in an
equitable manner, i.e. they receive payments that are in proportion to what they are owed.
This is called a ‘pro-rata’ offer.
The formula for this is quite straightforward. You need to have the figure for your spare
income, each individual debt listed, and the total amount of all non priority debts.
Pro-rata calculation
surplus income
total debt
X
individual debt
Example – pro-rata calculation
There is £30 per calendar month available for distribution among creditors. The sum owed to
each creditor is:
creditor A
£865.25
creditor B
£352.01
creditor C
£1,025.85
total
£2,243.11
creditor A
£ 30
£ 2243.11
X
£865.25
=
£11.57
£ 30
£2243.11
X
£352.01
=
£ 4.71
£30
£ 2243.11
X
£1025.85
=
£13.72
creditor B
creditor C
You can confirm that the calculation is correct by adding up the offers made to the creditors.
They should always add up to the total of the surplus income offered, in this case, £30.
If you have no spare income (for instance if you are on income support) it is wise to make a
token offer, which will show that you are willing but unable to make the required payment.
You can use the same process as above, but substitute a figure of perhaps £5.00 per month
for the spare income. The outcome may look a bit strange, but it is a good illustration of the
situation and shows that you are willing but unable to pay.
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Freezing interest and charges
When contacting the creditor to offer a reduced repayment, it is essential that you ask the
creditor to freeze interest and additional charges on the account. Freezing interest will
mean that your reduced payment pays something off the sum owing and the overall debt
does not get any bigger.
Your creditors may question items of your spending, and they may even demand a higher
payment than you have offered. Their demands may not always be reasonable, and this
requires some thought and some negotiation.
If it is possible to make some form of payment, even token payments, whilst negotiating, this
may create some goodwill.
If you are sure that you have set the details out correctly and offered a pro-rata repayment, it
is best to stick to your offer as the repayment plan treats everyone fairly. If one creditor gets
better treatment than others the entire plan can fall apart as everyone will want bigger
payments.
If your creditors will still not accept the repayment plan, seek further help.
Enforcement action
One of the most worrying things about financial problems is getting demands for repayment
through the post.
Creditors are entitled to make reasonable demands for repayment. There are a number of
steps that they are obliged to take by law before they can attempt to recover money.
However many of the letters that are sent out are poorly worded and threaten legal action
and further steps that may not be applicable.
Some letters will say they are ‘pre-legal’ or ‘pre-court’ but they are NOT legal documents.
They are simply stating the creditor’s intention (which is not always acted upon) to take action
if full payment, or a reasonable offer, is not made.
A ‘default notice’ is a genuine pre-legal document which most creditors must issue before
they can take any steps to recover the debt in the county court.
It is important to note that at this stage it is still possible to make an offer of payment, as
shown above. The default notice also contains a paragraph that advises you to seek help
from a Citizen’s Advice Bureau or law centre.
Debt Collectors
Many creditors appoint debt collectors to recover money owing to them. Even if a debt is
being collected by a debt collector they are still only entitled to ask you for reasonable
repayments which should take into account your ability to pay.
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Debt collectors can be negotiated with in exactly the same way as set out above. They have
NO legal powers to enter your home, or take goods. They do not have the rights of bailiffs
and cannot use bailiffs without a court order.
Complaints about creditors and ‘harassment’
Creditors’ letters, telephone calls and visits can sometimes create a strain upon a person in
debt and there may be occasions where these can become intrusive.
If you are taking responsible steps to deal with your debts and you are still getting letters and
calls, you may wish to make a complaint about the creditor or collector.
If this is happening to you, take the following actions:
•
write to the creditor, explaining the steps you are taking to resolve your debt problem
•
if you feel you are getting too many letters or calls, ask the creditor to send only essential
communications in writing
•
if the problem carries on, keep any letters and keep a log of calls, including the date, time,
who the call was from and what was said
•
there is a big difference between creditors just being persistent and them actually being
guilty of harassment, which is a criminal offence. If you want to make a complaint or you
feel that you are being harassed, get advice at once
The Office of Fair Trading has issued guidelines showing how debt collectors should and
should not behave. These can be seen on www.oft.gov.uk or your local CAB or advice
centre will be able to advise you on the guidelines.
‘Loan Sharks’ - All credit lenders must be legally licensed; a lender who is not, and who
ignores the rest of the rules, is often referred to as a ‘loan shark’.
No matter how bad your debts seem, never borrow from an unlicensed lender, they may
demand extortionate payments, randomly increase the debt and enforce payment by illegal
means, including threats and violence.
It will be impossible to negotiate with a loan shark - seek help if you are being harassed.
County Court
The county court is a civil court and most large towns have a local court.
A large number of debt actions are dealt with by the county court, and all matters under the
Consumer Credit Act 1974 (which covers much of the unsecured credit discussed above)
must be heard by the county court.
If a creditor does not accept your offer of payment (or you have not made one) they are
entitled to issue a claim form (formerly known as a ‘summons’) via the county court.
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This will outline the sum they are claiming from you, the reasons for their claim and their
court costs. The papers will also include an ‘acknowledgement of service’, an ‘admission
form’ and a form on which you may enter any defence or counterclaim you may wish to make
against the creditor.
If you wish to enter a defence or counterclaim, seek advice.
If you admit the debt, you must return the ‘admission form’, which is in essence a financial
statement form, on which you may make an offer of repayment.
You have 14 days to return this form or judgment may be entered against you. You
may also incur extra costs if you have to make another application to the court.
If you return the acknowledgement of service form this allows 28 days, but only to
send in a defence or counterclaim, or to dispute the court’s jurisdiction.
The admission form is sent back to the creditor (not to the court) and the court will make a
judgment and set a rate of payment if an agreement cannot be reached.
Most debt matters of this sort are dealt with on paper by court staff and NOT at a court
hearing.
You will not have a criminal record from being taken to the county court.
County court judgments
Once a judgment has been made, a copy will be sent to you showing the details of the claim,
the costs and the total sum owing. It will also state the rate at which you must repay the
money. If you are unable to pay at this rate, you may request a reconsideration of the order if
there has been no hearing. You apply (by letter or by using court form N244) within 14 days.
There is NO cost for this.
Otherwise, you can apply to the court on form N245 to request that the payment instalment
be reduced. A fee is payable for this, unless you qualify for help with court fees – see below.
For more details on how to reply to court proceedings, see the court service leaflets available
from your local county court.
Enforcement of county court judgments
If you fail to pay as ordered the creditor might seek to enforce payment by one of various
methods. See below for information about court bailiffs.
Attachment of Earnings - money taken directly from wages
Third Party Debt Orders (previously known as Garnishee) - e.g. seizure of savings or
capital in bank accounts.
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Charging Order - secures a sum owed against an owner-occupied property and thus turns
a non-priority debt into a priority debt.
The creditor may also request you to attend court to give evidence on oath about your
income, expenditure and assets. This is called an order to obtain information from
judgment debtors (or information order). It was previously known as ‘oral examination’.
You are allowed a chance to respond to each of these actions and to ask the court not to
impose the enforcement measures.
If you fail to respond to the court papers, further action may be taken against you. In certain
cases, failure to respond to court documents may result in you being held in contempt of
court, for which you can be imprisoned, although this is rare.
Never ignore the courts, always respond to court papers and seek advice if you are worried.
The High Court
The High Court is a part of the Supreme Court. It is based in London and has District
Registries in larger towns. This can make this court less accessible than the county court.
Debts of over £15,000, and some county court judgments may be commenced or enforced
via the High Court. The procedures involved in issuing claims and enforcing judgments in the
high court are now similar to those in the county court.
Bailiffs (properly known as ‘enforcement agents’)
All creditors except for Her Majesty’s Revenue and Customs (HMRC) must obtain a court
order before using bailiffs.
•
Debt collectors, ‘counsellors’ or ‘advisers’ are not bailiffs and have no legal powers
•
Local authorities must send you a letter giving 14 days notice of a proposed bailiff visit to
collect council tax/poll tax. County court bailiffs must issue a warning notice allowing 7
days for you to pay
•
A bailiff must be legally authorised to collect the debt – the authority is usually known as a
‘warrant’ (‘warrant of execution’ if they are county court bailiffs)
•
You can ask the bailiff to show identification or authorisation if they call at your door
•
You usually do not have to let the bailiff in – but from 18th July 2005, enforcement agents
acting for the magistrates’ court may ‘enter and search any premises’ for the purpose of
pursuing unpaid criminal fines - providing this action is ‘reasonably required’. The new
rule adds that ‘an authorised officer may use reasonable force if necessary’.
•
A bailiff’s visit will add fees to your debt
•
Bailiffs may NOT usually break in to your home unless they have already been let in
peaceably. In very rare cases HMRC may obtain permission to break in. A bailiff may
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gain entry by walking through an unlocked door or open window, so long as they do so
peaceably.
•
Bailiffs may legally seize goods to be sold if they have followed the correct procedure.
Bailiffs (except bailiffs acting on behalf of the magistrate's court - see below) cannot seize the
following goods.
•
•
tools, goods, vehicles and other items of equipment necessary for use by you in your
employment, business or vocation
clothing, bedding, furniture, household equipment and provisions as are necessary for
satisfying the basic domestic needs of you and your family
Bailiffs acting on behalf of the magistrates' court cannot seize the following goods:
•
•
clothing, beds and bedding
tools of the trade
Basic domestic needs of the family would normally include fridge, cookers, freezers, but may
not include video recorders, second TV's, jewellery, washing machines, stereos or microwave
cookers.
•
If you fail to pay a county court order, the creditor can request that county court bailiffs
visit your home to seize goods. It is possible to apply to the court to have this action
suspended
•
If you owe council tax, your local council may obtain permission from the magistrates’
court to use bailiffs to seize goods
•
The magistrates’ court itself uses bailiffs to collect unpaid fines (on a ‘distress warrant’)
•
Bailiffs may also be used to collect unpaid maintenance/CSA payments
•
Some landlords can use bailiffs to collect rent arrears – however this may be abolished
This area of law is very complicated. Our website www.hertsdirect.org/benefits has further
details, including how to complain about bailiffs.
There is a set of National Standards for Enforcement Agents (NSEA) which set out bailiffs’
conduct, including when they can visit; this is a voluntary code – you can get copies from the
bailiffs or from creditors or www.dca.gov.uk
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Administration Orders
If you have at least one county court judgment and unsecured debts of under £5,000, it may
be possible to place all these debts on to one court order called an administration order.
This can assist in controlling debts and simplifying repayments as a single payment can be
made to the county court every week/month. This payment is set by court staff according to
your ability to pay.
•
You can apply on form N92 (with guidance notes, N270) – available from your local
county court or online at www.hmcourts-service.gov.uk
•
Form N92 asks for some basic personal details, a full list of creditors, addresses, account
numbers and how much you owe. You will also have to list weekly income and outgoings
•
List all credit debts, such as credit and store cards, personal loans, bank loans and
catalogue debts. You should also list arrears of rent, mortgage, fuel, council tax,
magistrates’ court fines and child maintenance on the application form
•
Courts can exclude certain debts. These are more likely to be those which can be
enforced in another way, e.g. by evicting you or cutting off your fuel supply. If you have
already agreed to repay these creditors, it is likely they will be left off the administration
order and you will have to continue to pay them separately. Even so, you must still list
them on the application form
•
Monthly payments will generally be set to clear your debt within three years
•
If you cannot pay within this time, the court can let you pay a percentage of your overall
debts. This is called a composition order. For example, if you owe £3,500, you would
need to pay nearly £100 per month to pay this off in 3 years. A composition order of 50%
would mean you would pay £50 per month and at the end of 3 years the other half of your
debts would be cancelled
•
Court staff cannot give you a composition order, only a district judge can do this. If you
ask for one, you will probably have to go to a court hearing (see below)
•
When you have filled in the form, take it to your local county court with a copy of your
court judgment. Some courts will want to see copies of any letters from your creditors.
Your application is dealt with by court staff over the counter. They will ask you to read a
short statement swearing the truth of the details you have given
•
You do not have to pay a fee up front - The court takes its costs from each of the monthly
payments that you make. This is currently 10p for every £1 you pay. For example, if you
pay £20 a month, £2 will be taken by the court and £18 will be divided between your
creditors
•
You may have to attend a court hearing to decide if the order can be made
•
Payments may be made by ‘attachment’ of your earnings unless you tick a box on the
N92 objecting to this
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•
If you do not pay and do not contact the court to explain why, the order can be cancelled
(revoked)
There are further details about administration orders on www.hertsdirect.org/benefits
Bankruptcy
Bankruptcy is one method of dealing with the financial affairs of someone who cannot pay
their debts. Bankruptcy can free the debtor from an overwhelming situation, enable them to
make a fresh start and make sure that any available resources are fairly distributed among
creditors.
However bankruptcy can have wide implications for a debtor’s home, job, future credit and
reputation. Some debts still have to be paid even when someone is discharged from
bankruptcy. It is therefore important to consider personal circumstances before deciding
whether bankruptcy is an appropriate option.
Anyone considering bankruptcy should seek advice as there are fees to pay for the
bankruptcy petition as well as additional costs during the bankruptcy and the possibility of the
loss of assets such as the home.
The bankruptcy rules have been reformed from 1 April 2004. From this date there are new
rules relating to automatic and early discharge, bankruptcy restriction orders, income
payment agreements and the bankrupt’s home.
If you have received a statutory demand seek advice at once. You have, in practical terms,
18 days to take action to avoid a bankruptcy order.
There are possible alternatives to bankruptcy in some circumstances, which would also
require advice.
The Insolvency Service provides a range of leaflets explaining bankruptcy available from
www.insolvency.gov.uk
Debt relief orders
Debt relief orders were introduced in April 2009 and are similar to bankruptcy but for people
with debts under £15,000, assets under £300 and spare income under £50 per month. In
order to apply for a debt relief order you need to have seen a specialist debt adviser at an
organisation like the Citizens Advice Bureau, Consumer Credit Counselling Service or
National Debtline.
More information about debt relief orders can be found on the Insolvency Service website
www.insolvency.gov.uk.
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Help with court fees
Fees can be payable for various applications to the court, such as to vary county court orders
or suspend bailiff action. If you are on income support/income-based jobseeker’s
allowance/income-related employment & support allowance/guarantee credit part of pension
credit or working tax credit with no child tax credit then the fee is waived. You may have to
show proof that you are receiving these benefits.
You can also be exempt from the fee if you have earnings below a set level. This depends
upon the number of children you have and whether you are single or part of a couple. The
table below gives more information.
Single:
couple:
Number of
children
Total gross
income
Number of
children
Total gross
income
0
£12000
0
£16000
1
£14735
1
£18735
2
£17470
2
£21470
3
£20205
3
£24205
4
£22940
4
£26940
For additional children add an extra £2,735 for each child to the gross income figure for 4
children.
The court can also remit part of the fee if it would cause you financial hardship.
These figures might increase - more information can be found in leaflet EX160A, at
http://www.hmcourts-service.gov.uk or from your local county court.
The Magistrates Court
For the purposes of this guide, this court deals with arrears of *fines, council tax and
maintenance/CSA. Similar proceedings can apply for recovering court costs and
compensation orders.
Magistrates courts have the power to make deductions from income support, pension credit
and certain other means-tested benefits for outstanding fines.
If these remain unpaid after bailiff action, proceedings may be taken to compel you to attend
a court hearing to answer detailed questions on oath concerning your income, expenditure
and assets.
If you are summonsed to such a hearing, you must attend, as failure to do so can result in
your arrest.
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In order to attend a hearing, you will need to prepare income and expenditure details, show
evidence of your income and bills, and you will need to explain your reasons for non-payment
as well as offering a new payment to pay off the arrears.
It may be helpful to seek advice before such a hearing. This is the start of a process which
can lead to committal to prison. However, the court can only impose a prison sentence if it
is satisfied that you are guilty either of wilful refusal to pay, or of culpable neglect (e.g. you
had the money but spent it recklessly on something else).
The court also has the power to set new payment arrangements, or even to write off part or
all of the debt if there are good reasons for doing so. The court cannot write off compensation
orders.
In the long term
Debt repayments can go on for a long time, and creditors will want to be updated regularly,
just in case your circumstances have changed.
It is wise to keep your financial statement updated, and if things improve you may be able to
offer a higher rate of repayment to your creditors. Always bear in mind however that you do
not have to offer increased payments if your situation has not improved!
There may be circumstances in which long-term repayments are not a realistic idea, and it
may be better to ask the creditor to consider placing a long-term hold on the account, or to
write off the debt. Seek help from an adviser.
Further Help
Citizens Advice Bureaux: for details of your local CAB see www.hertfordshirecab.org.uk or
contact the Customer Services centre at Hertfordshire County Council (HCC) on 01438
737555 or 01923 471555 if you are calling from an 01923 or 020 8 number
National Debtline: 0808 808 4000 (call charges at local rates) www.nationaldebtline.co.uk
Business Debtline: 0800 197 6026 Monday-Friday 10am to 4pm (24 hour ansaphone)
www.bdl.org.uk
For legal help and information, and details of other advice agencies in Hertfordshire, contact
the Community Legal Advice helpline on 0845 3454345 Mon - Fri 9 am - 6.30 pm (8pm from
July 09) /Sat 9 am -12.30 pm or visit the website at www.communitylegaladvice.org.uk.
The Financial Services Authority’s website, www.moneymadeclear.fsa.gov.uk/tools, features
a number of interactive money management tools including:
• A budget calculator for working out income and expenditure
• A mortgage calculator to check what repayments might be if interest rates change
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•
•
A debt test to check if you would be likely to have problems with borrowing over the
next year
Comparison information about the features and costs of various savings, mortgage
and pension products.
This information is for guidance only and is not an authoritative statement of the law
PRODUCED BY THE MONEY ADVICE UNIT
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DIY Financial Statement
Income (per week/fortnight/month)
Wages
Wages (partner’s)
Maternity Pay/Allowance
Industrial Disablement Benefit
Bereavement/Widowed Parent’s
Allowance
Maintenance/CSA
Child Benefit
Tax credits
Job Seeker’s Allowance
Income Support
Retirement Pension
Occupational Pension
Other Pension
Pension Credit
Paternity/Adoption Pay
Statutory Sick Pay
Disability Living Allowance
Incapacity Benefit
Carer’s Allowance
Boarder/Lodger
Employment and support allowance
Other Income
Other Income
Other Income
TOTAL INCOME (per week/fortnight/month) £
Essential Expenditure (per week/fortnight/month)
Rent (less Housing Benefit)
Mortgage
Endowment Policy
Council Tax (current year)
Water Charges
Electricity
Gas
Other Fuel
Housekeeping
Clothing/Shoes
Maintenance/CSA
Travel Costs
Health Costs
Fines
Hire Purchase
Rentals
Telephone/Mobile
TV Costs (rental/licence)
Family and Personal
Rent Arrears
Mortgage Arrears
Service Charges
Council Tax (arrears)
Poll Tax Arrears (to 1993)
House Insurance
Life Insurance
Childcare Costs
School Travel
School Meals
Maintenance Arrears
Car Costs
Disability Needs (see DLA)
County Court Orders
HP Arrears
House Upkeep
Newspapers etc
Other
Other
TOTAL EXPENDITURE
£
SPARE INCOME
£
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Pro-Rata Offer
Total Debt = £
Spare Income = £
CREDITOR
REFERENCE
BALANCE
OFFER
SAMPLE LETTERS 1/ Contacting the creditor
Dear Sir/ Madam,
Re. Account Number:
I am encountering financial difficulties and as a result of these, I am having problems in keeping up with
payments on this account.
I am having problems because (enter reason here).
In order to bring matters under control, I am asking all of my creditors for the following information.
It would be helpful if you confirm the following.
The date and type of the original agreement.
The rate and frequency of repayment.
The current balance and level of arrears.
Any current recovery action.
Any insurance policy on the account and what it covers.
The name and address of the person to whom I should send future letters
Once I have received replies from all of my creditors I will contact you again with a financial statement and
proposals for repayment. I would be grateful if you would take no further action for the time being and freeze
any interest or charges accruing on this account, to prevent things from deteriorating further.
Thank you for your help in this matter.
Yours faithfully,
Money Advice Unit
01438 737555
www.hertsdirect.org/benefits
Page 21 of 22
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SAMPLE LETTERS 2/ Offer of repayment
Dear Sir/ Madam,
Re. Account Number:
I am writing with reference to my previous letter.
I am now in a position to enclose a financial statement, showing a list of creditors and pro-rata offers of
repayment.
As you can see from the financial statement I am not currently in a position to make full payment of this debt, as
I do not have sufficient spare income. In view of this, I would be grateful if you could accept the sum offered
and freeze all interest and other charges accruing upon this account.
Please let me know what options you can offer to enable repayments to be made, such as standing order
details, payment book or other method.
As and when my circumstances change, I will review the offer of repayment
Thank you for your help on this matter.
Yours faithfully,
SAMPLE LETTERS 3/ Change of circumstances
Dear Sir/ Madam,
Re. Account Number:
I am writing to inform you that my circumstances have now changed.
I am now back at work, but on reduced hours and pay. This situation may go on for some time.
I have revised my financial statement and offer of repayment, as attached, and I would be grateful if you could
accept the payment and freeze all interest and charges as before.
Thank you for your help on this matter.
Yours faithfully,
Money Advice Unit
01438 737555
www.hertsdirect.org/benefits
Page 22 of 22
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