Some time ago, I wrote a post entitled 'What can they do to me' my purpose was to try and blow away some of the myths that are usually voiced by 'well meaning friends' down at the local pub. Typical rubbish such as bailiffs being able to kick the door in and take away your first born etc.

There are numerous changes in the Law taking place currently but the factual content of that post remains the same apart from one point which does in fact involve the bailiff, who incidentally will now become known as an 'Enforcement Officer'. Enforcement Officers may now force entry into domestic and commercial premises. But don't start panicking, this is only in respect of Crown debts and does not include normal commercial debt such as HP, finance, credit cards etc. An example would be for unpaid rates or unpaid fines etc. So the priority remains therefore, to pay your rates before anything else.

I thought that it would be an idea to do a little update on the current state of play and so I have entitled this post 'What can I do to them?' the idea of this is to give a little guidance to people who need to tackle their debt problems but who may be a little confused by the process or who may be anxious regarding tales of woe from 'well meaning friends'

OK, you owe several thousand pounds on credit cards & bank loans, you are behind with HP payments, your creditors and their agents are baying for your blood, you have court summonses flying through your letterbox, your telephone is red hot but none of them want to listen to you, you've been robbing Peter to pay Paul and making minimum payments to creditors, there's too much month left at the end of your pay packet, you can't sleep for worrying and your nerves are stretched to breaking point – sound familiar?

It probably won't give you any degree of comfort to know that there are thousands in this position like you 'You are not alone'. However, it may give you a degree of comfort if you know how to handle the situation properly. The worst thing that you can do is to bury your head in the sand and hope that it will go away – it won't, but you knew that anyway didn't you?

The first thing to do is to get yourself into a positive frame of mind and to calm down. Some would say that it's easier said than done, but I say it's not. OK, so the phone is ringing off the hook – take it off the cradle it won't upset you then. The next thing to do is to get yourself a big mug of coffee, a pen, some paper and all of your bills. You are now going to make up a statement of affairs (SOA). On this list you will make a list of all your income (and that of your spouse/partner if applicable) including any benefit or child allowance etc. The next thing that you are going to list is all of your outgoings and then you are going to subtract outgoings from income to establish your surplus income. (I have described how to do this on many occasions so I don't intend to go over all of that again now, but for the benefit of any 'newbies' start here: http://www.fool.co.uk/debt/articles/soacalc.htm also, your SOA can be calculated for you, if you use the SOA calculator which is also on this link. Alternatively, you can also have a look at one of my old posts http://boards.fool.co.uk/Message.asp?mid=6151750
(has there really been over 32,000 posts since I did this? Sheesh!

Once you have determined what your expendable income is, you are now ready to take the first big step and that is to contact your creditors.

Again, I don't intend going into great detail about this as I have already done so on numerous occasions and the suggested letters to creditors are available on TMF here: http://boards.fool.co.uk/Message.asp?mid=6576213

Now let's get to the nitty gritty of this post and give you an insight into the mind of your creditors. The people who will be chasing you regarding the payment of your account will generally fall into four categories. 1. the internal debt collection department of the company that you owe money to. 2. an external debt collection company. 3. a solicitor 4. a bailiff.

Generally, they will all take a similar approach, so how do we deal with them?

If you have defaulted on a payment, then their alarm bells will be ringing. Initially, you will get a letter or two and if you don't deal with them, you will start getting the telephone calls. Ideally, you should contact your creditors before they contact you – take the bull by the horns you really have nothing to fear. When you write to your creditors you should keep a copy of your correspondence and preferably send it by recorded delivery and keep a receipt of this as well. Depending on the circumstances, they will respond in one of two ways, they will either accept your proposal or they will try the bully boy tactics. Do not be intimidated by the latter. There is yet a Law to be passed that allows them to get blood out of a stone.

Dealing with callers
Some companies have abysmal bad debt policies and very poorly trained staff and they appear to think that if they shout loud enough, this will in some way enable you to pay more than you can afford. Do not fall for this one and stick to your guns. If you can only afford £5 a month or even £1 a month then don't be bullied into paying more. The Law exists to protect you as well as your creditors and the Law will not permit your income to be reduced to below a level that you need to subsist - FACT!

If the telephone operative starts threatening to send their 'representative' round, tell them not to bother as you can't afford to pay any more and his visit will be abortive because you are not prepared to discuss it any further and if they persist, you will pursue an action against them for Harassment under the Administration of Justice Act.

If they do in fact send someone round, keep your cool and don't panic, you do not have to discuss the matter with them and they do not have a right of entry to your home. Tell them that you have made your position clear and that you do not wish to discuss it any further. If they won't take no for an answer, tell them that you have asked them to leave and if they remain then they are trespassing and that you will call the police. If they remain, do so.


Dealing with a summons
If they tell you that they will issue court proceedings, tell them fine, you entirely reserve the right to produce all correspondence for the attention of the Court, when the question of costs arises (you did keep a copy of that letter you sent to them didn't you?) You should never ever ignore a summons and you shouldn't be afraid of them either. The Law is there to see that you are protected as well as the creditor. If the summons results in a hearing, you should always go, to get your point across.




If you have made a written offer to them in accordance with your means, it is highly unlikely that they will take Court action but if they do, it is very likely that once the Judge has sight of your SOA and your proposal letter, he will take a dim view of the matter and will view it as a waste of Court time. In such circumstances, it is common for Judges to make an order for payment much lower than the one that you have made and it is also likely that he will refuse to award them costs.

If you subsequently receive a summons, you will also receive a 'response pack' with it. You have fourteen days within which to complete the paperwork and make your offer of payment. If you disagree with their claim, you should complete the enclosed acknowledgement of service form and return it to Court. This will give you an additional 14 days (28 in all) to file your offer and defence (whatever is appropriate). The response pack is very much like a SOA so all you do is fill in the details, make your offer of payment and send it back to the Court. The Court will then ask the creditor whether they will accept the proposal and if they do, the Court will make the appropriate order and advise you in writing. If the creditor does not accept your proposal, then the Court will set the matter down for a hearing which you and the creditor must attend and at this hearing, the Judge will determine whether your offer is realistic or not and again, will make the appropriate order.

Applying to vary a Court Order
On occasion, people will find that they have already had a Judgment registered against them. This could have been because they have ignored the situation or is often because they did not understand or were frightened of the procedure. If this is the case and the creditor is demanding payment in full immediately and you can't afford to do so, you must apply to the Court for a variation order. It will cost you a small fee to do this and you need to go to your local County Court and ask them for the appropriate application form (Form N245). The forms are not difficult to complete and if you have any difficulty, the Court staff will generally guide you through it. The procedure then will be the same as that described in the preceding paragraph.

Setting Aside a Judgment
If a Judgment has been awarded against you and you do not owe the money, you are entitled to have the Judgment 'set aside' that is to say, have it totally removed from the public register. Be quite clear here, that a Judgment will only be set aside if you don't owe the money. Don't be caught out by these con merchants who's adverts tell you that you can have your Judgements legally removed. What generally happens here is that you will see an advert in the papers telling you that you can get your Judgements legally removed and what happens then when you contact them, is that they will tell you that they need to do a search on your address to find out what Judgments are registered against you, for which they will charge you about £50 and then for another princely sum they will tell you how many Judgments you have and how to get rid of them. You pay your money and their advice is to make an application to the Court to have the Judgment set aside on the grounds that you 'didn't receive the summons'. This is total hogwash because all that will happen is that it will cost you an additional £50 to make the application and then you will have to go in front of a District Judge and convince him/her that the Judgment should not have been granted in the first place. If you genuinely owe the money, then the Judgment will not be set aside. Even if you lie, then the result will be temporary and all that will happen is that the Judge will order a further hearing, which you will have to attend again and the Judgment will then be made against you once more.




Applying for an Administration Order
So far so good but what if my debts are not huge but are nevertheless draining me? If your debts are below £5000 you can apply for an Administration Order from the Court. There is no initial fee for this. An Administration Order allows you to pay an affordable sum each month into Court to cover all your debts. If it is clear that you will not be able to pay off your debts in full within a reasonable period of time (say 3 years) you can ask the Court (on the same form) to make a composition order. This is at the discretion of the Court and with consent of your creditor and they can make an order for you to pay less than what you actually owe. The Court will administer your debts and will deal with creditors directly on your behalf. Whilst they do not charge an initial fee, if your AO is made, the court will deduct 10p in the pound from every monthly payment you make, as an admin charge, therefore if you are paying £50 per month into Court, they will take £5 in fees. Whilst the AO is in force, none of your creditors can take enforcement action against you or make you bankrupt without direct permission from the Court. To qualify for an AO you must have more than two outstanding debts, one of which must be a High/County Court Judgement and your debts listed on the list of creditors must not exceed £5000. The form that you require from Court is Form N92.

Dealing with Bailiffs or Sheriff's officers
A visit from the Bailiff or the Sheriff's Officer (High Court equivalent of the County Court Bailiff) can be quite alarming if you have never had the pleasure before. However, you need not be entirely stressed out if this happens. Unless the debt you owe involves a crown debt (fine or community charge) these enforcement officers, do not have a right to force entry into your property. They will on occasion try and get you to 'invite them in for a chat' but don't fall for it, you do not have to let them in and whatever you do, do not fall for the 'well OK, if you just sign this to say I can't come in, I'll go' trick. What they will be asking you to sign is a walking possession order. Warning:If you sign this, then they can return at a later time and they can force entry then. The best way to deal with enforcement officers is to be polite but firm. Tell them that you will make an offer of payment to them and if they won't accept that, then they will have to leave. Generally, they will be happy to come to an arrangement with you but if you can't make an offer, they will have to report back to the creditor to that effect and the creditor will have to consider further enforcement action. My advice in this situation is: Make an offer of payment if you can afford to (it doesn't matter if this is only a couple of pounds per month) Do not let them in and Do not sign anything

Note
It appears to me, that quite often people think that they have to make a large offer of payment because they fear that the creditor will reject it otherwise. This is just not worth worrying about. If you haven't got it, they can't have it. The worst thing that you can do is make an offer that you can't afford, kill yourself trying to pay this over a couple of months and then defaulting. It is far better to make an offer that you know that you will be comfortable with and if the creditor doesn't like it, he will have to have a Judge review it and if it is obviously out of your means to make a higher payment then the Judge will say so and make the appropriate order. Be sensible, but always make your initial offer low, you can always increase the offer if your circumstances improve. I was representing a client once and a Judge shook his head and said to me 'do these people (the creditor) not expect your client to have at least one night out a month?” – Judges are Human Beings too!



All well and good so far but things are a bit more serious now, what else can I do? My debts are quite significant and I am getting real grief from my creditors.

The remaining options are an Individual Voluntary Arrangement (IVA) or Bankruptcy. Let's deal with them in order.

IVA
An individual voluntary arrangement is a legal process which is designed to give your creditors a better return than they could expect if you declared bankrupt. The way that an IVA works is that you would approach an Insolvency Practitioner (IP) (yellow pages) and ask them for an appointment. They will normally give you an hour free and will discuss your debts and proposals with you. The IP will then collate all of your information and will make a statement of affairs and will contact your creditors and call a creditors meeting. The creditors may attend the meeting in person or by proxy. At the creditor's meeting, the IP will make a statement about your affairs and give the reason why you have found yourself in the financial mire that you are in and will make a proposal based on your assets and your ability to pay. An IVA will generally last for between 2 and 5 years and the proposal will usually be for a percentage of the debt that you owe to be paid off within a certain period. I.e. the proposal is to pay 60pence in the pound over 5 years. Once the proposal is made, the creditors must vote for or against it. Although the creditors can ask for it to be varied, i.e. paid over a longer period or to have an asset such as your equity in your property to be included. For the IVA to succeed, you must obtain votes for, from at least 75% of those creditors attending the meeting* both in number and in value and if you manage this, it is binding on all creditors whether they like it or not. If you do not achieve this, then the IVA will not go ahead and the creditors will be at liberty to take whatever action they see fit to take. Assuming then that your proposal succeeds, the IP will now become known as your 'Supervisor'. It is the supervisor's job to collect the monthly payments from you for the benefit of the creditors. Whilst he will collect payments on a monthly basis, he will only make the dividend payment to the creditors at the end of the IVA. If during the course of the IVA, you default on the instalments, then your supervisor is obliged to make you bankrupt from the funds that he is holding. It is fairly expensive to go through this process, you would have to pay the IP's costs of calling the meeting and the associated tasks involved and this would amount to about £1500 - £2000 on average. Additionally, the supervisor will take a monthly fee from the instalments that you pay to him for the term of the IVA.

· This is a fairly recent amendment and the Law now states that the creditor must attend the meeting (one way or another, in person or by proxy) if the creditor does not attend the meeting then he will be bound by the proposal whether he likes it or not (as long as they were listed as a creditor and not omitted)

A variation of an IVA that you could try yourself, would be to offer to settle in full and final settlement. This is sometimes accepted by creditors if you are able to come up with enough money to make an instant payment to them, (say 50/60%) and the attraction to them is that they would get paid immediately instead of having to wait 5 years in an IVA or get a much lesser dividend if you are made bankrupt. You have to point this out to creditors though, they will usually not realise that this is to their benefit, unless you 'convince' them that this is the case. Always head any written offer WITHOUT PREJUDICE. This just means that if they reject your offer, they can not later produce your letter in Court as it is privileged.


Now to the ultimate option – Bankruptcy!

There has been so much myth and changes in the Law recently that people have understandably become very confused about bankruptcy.

Bankruptcy
Is the final step that you can take if the burden of debt is so crippling that it is having a detrimental effect on your health. There is no stigma attached to bankruptcy these days and neither should there be. Bankruptcy is a legal process which allows you to divest yourself of the crippling burden of debt. It is very honourable to soldier on and attempt to pay back your creditors and I agree that you should always try your best to do so but if you are in serious debt and having considered all of the alternatives and there is just no way that you can manage and you are making yourself ill with worry and you can't provide for your family, then please consider bankruptcy– it is a right that you have in Law.

Bankruptcy rules are shortly to become 'more relaxed' in April 2004 when the new rules under the Enterprise Act 2002 are implemented. There is no point going over the rules as they are at present because even if you are made bankrupt before April 2004, your bankruptcy will be administered under the new rules, in retrospect.

Under the new rules, all bankrupts will be discharged 12 months after the date of bankruptcy (it could be less in some circumstances – you could make an application for your discharge after 6 months and if your trustee agrees you will be discharged early).

If you are going to apply for voluntary bankruptcy, my advice is to pick a day to do it as it will certainly entail most of a day to go through the process. First of all, go to your local County Court and ask for a Bankruptcy pack. This will contain the application forms and several publications produced by the insolvency service. Take them home and read the booklets they are very good and they explain the process in plain English. Once you have completed your application form, arrive at the Court at 10:00am on the day that you are going to make your application (the Court offices normally open by 10:00am and you want to be first in the queue). The fees at the moment are £390 although they are due to increase shortly. Please note that of the £390, £120 of that is the Court Fee. You can ask for the Court Fee to be waived if you are on income support or benefit.

You hand in your paperwork and money to a clerk who will check and process the paperwork and they will then ask you to swear an affidavit that the information that you have stated is true. Once that has been done, the clerk will take you up to District Judge's Chambers (the Judge's office) Judge's are usually very sympathetic in these circumstances and you have no need to be afraid. In fact, this is the easiest part of your day. You will literally be in with the Judge for about 5 minutes and he/she may ask you a question or two (usually it is clear from your paperwork that your situation is unrecoverable) and if he is satisfied, he will make the order.

You are now officially bankrupt or as I see it, enjoying the happy state of insolvency. Once the bankruptcy order is made you will usually go straight away to the offices of the Official Receiver (OR) and this is where you will spend the next four hours, filling in forms and making a statement. Sometimes however, they will take a few details from you and they will tell you that they will ring you to do a telephone interview (this usually lasts for about an hour)

On your initial meeting with the OR's staff (the examiner) you will be required to complete a booklet which details all of your personal information and listing all of your assets and details of your creditors and the amount that you owe them. The examiner will also take a narrative from you which is a statement that you make under oath and outlines why your situation led to your bankruptcy. Do not be tempted to omit or deliberately forget any information here because it will be made very clear to you that if you lie you will be guilty of perjury and you will go to prison.

Anyway, once that has been done you are literally free to go and unless you have significant assets to deal with, you will probably not hear from the OR again and you will be discharged from bankruptcy, 12 months from the date that you were made bankrupt.

Now then, what are the implications of bankruptcy? If you have assets worth more than £1000 then the OR will not take your appointment and will appoint an IP to act as your trustee. You must co-operate with your trustee just the same as you would with the OR. It is the trustee's job to realise any assets that you own, for the benefit of your creditors (not forgetting his modest fees of course). At this stage, many people feel that they are about to be attacked by a shoal of piranha but it is not quite so painful and you can negotiate with your trustee.

Yes, you will lose any assets that you have or any interest that you have in a property but contrary to popular belief you do not necessarily lose your home, your pension, your car etc. Everything will be discussed between you and your trustee.

Let's deal with the major cause for concern first, the house. Any third party (doesn't have to be a relative) can offer to purchase your beneficial interest (your share of the equity) in your home. You are not immediately ejected on to the street and you do not have to bid against anyone else. Make it clear to your trustee that your wife/partner/whoever will be wanting to make an offer, at the earliest opportunity. The longer you leave it, the more equity is likely to build, so do it quickly if you are able.

Recently, poster on the board questioned my reasoning for not selling his property before he declared bankrupt (he had been advised to do this on a different site to TMF). You can sell your property to your wife/partner before you declare bankrupt but you must be paid exactly half of the full current market value and you must keep this money to hand to pay to the trustee. If you do this, be sure to get at least two valuations from reputable local estate agents.

Personally, I suggest that it is better to leave the sale of the property until the bankruptcy order is made. The reason that I say this is because I would argue 'forced sale value' with the trustee, together with any essential building works. When I say 'forced sale value' this would be the approximate value of the property if you had to move very quickly, you can usually drop at least £10,000 off the value (more or less depending on the type of property). The next thing that I always argue is if any repairs are required and I get local builders estimates for this work. Then finally, I argue that I would be saving the trustee costs in legal fees, surveyors fees, estate agent and court fees and that's worth another few grand and by which time, we have significantly reduced the equity by quite legitimate argument and consequently, we have a more manageable figure to deal with. For an example of how this works, I would point you in the direction of this post http://boards.fool.co.uk/Message.asp?mid=8350616

What about my pension? No worries here, pensions are outside of your bankruptcy and are no longer claimed by the trustee, so your pension is not affected at all.

Will I lose my car? Not necessarily. If you need your car to travel to and from work and provided you are not driving a Ferrari, you can ask your trustee if the car can be excluded from the bankruptcy. Very often the trustee will agree as it is not in anyone's interest to stop you getting to work.

You will also not lose your bed, your armchair, your TV, your cooker or any tools of your trade.

You can still have a bank account and you can still carry on a business. The only restriction here is that you cannot be a director of a limited company and you must not trade in any other name than that in which you were made bankrupt. You can still apply for credit but you must advise the lender that you are bankrupt if the credit facility exceeds £250. If it does and the lender is comfortable with you, then he can give you whatever credit limit he wishes.

So what will you actually have to give up? Well, any savings or stocks and shares, anything of significant value, such as antiques. If anyone dies and leaves you cash or anything valuable in a will and if you are luck/unlucky (depending on how you view it) to have any windfall such as winning the pools or the lottery, you will forfeit this.

Additionally, you may have to make a contribution to your bankruptcy if you have spare cash after you have paid all of your living expenses. The way that this is worked out is by deducting all of your essential outgoings, such as rent, rates, electricity, gas, food etc from your income and what is left is called your 'disposable' income. The trustee will claim between 50 and 66% of this money and you are left with the rest. This is called an Income Payment Agreement and will last for a period of three years from the date of your bankruptcy, so even though you are discharged after one year your IPA will continue for 3. If however, once the calculation has been made, it is clear that the trustee would not receive at least £50, you will not be asked to make a contribution to your bankruptcy.

Can I be discharged earlier than 12 months? Yes, in two situations. You may make an application to be discharged earlier than 12 months and you may have your period of bankruptcy reduced to 6 months. The decision is entirely at the discretion of your trustee and if they think that there is no real purpose in your remaining bankrupt and you have co-operated fully, your trustee may discharge you after 6 months. The only other way is to have your bankruptcy annulled or to propose an IVA (yes, you can propose an IVA whilst in bankruptcy, but there is very little point in my opinion)

To have your bankruptcy annulled, you must first pay off all of your creditors. The funding for this should come from a third party obviously – Good old Dad. Once the creditors have been paid off, then you can make an application to the court to have your bankruptcy wiped out.

And talking of being wiped out, that about does it for me! I think that I have covered just about everything, If I've missed anything then I apologise and please feel free to ask for further information.



Just remember the golden rules:

1. Do not ignore your creditors
2. Do not be intimidated
3. Always put/get it in writing
4. Don't make offers that you know you can't keep up with
5. If you get a summons always respond and always attend any hearing
6. Beware of Bailiffs bearing gifts – sign nothing.

I hope that this will help some of you to be less afraid of tackling your creditors, as the saying goes – It's easy when you know how.

Cheers – L1BRA