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EDITIONS
 Friday, 17 January, 2003, 11:40 GMT
Debt: Your questions answered
A House car and debit cards
Level of personal debt has quadrupled in a decade
Two leading experts answer your questions about personal debt, as part of a week-long BBC News Online series.
Britons are currently borrowing 1.09 for every 1 saved, says research by the Independent Financial Adviser Promotion.

Borrowing at low interest rates, high employment and affordable prices in the shops have sent many of us on a shopping spree.

In an interactive Q&A on problems with personal debt, Steve Quinn, a debt adviser with the Money Advice Association, provided readers with some guidance.

Geeta Varna from Leeds-based debt charity Consumer Credit Counselling Service (CCCS) also took part.

Click below to read their answers:


Steve Quinn, Money Advice Association

I have four credit cards with debts totalling 10,000. I am in arrears and on sick pay. A debt collection agency is threatening me with court and bailiffs - I have made an offer of 1 per week but this has been rejected - what am I to do next? Martin, UK

Do you have payment protection insurance on any of your cards? If so make a claim.

Your creditors, or their agents, cannot use a bailiff without first obtaining a County Court Judgment.

If you are issued with a county court claim it is essential that you complete and return the reply form.

Steve Quinn
Quinn: Creditors can not simply call in the bailiffs

Use the form to let the court and your creditors know about your circumstances.

The court judgment will be based on your ability to pay. Your current offer could well be accepted given your position.

As long as you pay the amount the court orders, the creditors cannot use a bailiff. Write to your creditors again and ask them to reconsider.

My father is self-employed but sadly his business is not doing well. He has significant debts and the only major asset he has is his home - there is no mortgage on the property. I have offered to buy the house from him for 50,000 - well below its market value - but friends have told me that if my father does go bankrupt my buyout could be void, is this right? Anon, UK

Firstly, your father needs business advice urgently - he should contact the National Business Debtline (0800 197 6026).

As for buying the family home this could be problematic. If your father is declared bankrupt, a trustee will be appointed to liquidate assets including the house.

DEBT VICTIM
People in debt feel a terrible stigma, it is heartbreaking.

Sarah in debt for 15 years
If your father sold the house, prior to bankruptcy, at less than its market value, the trustee could apply to have the sale set aside.

This and other issues are covered in booklet obtainable from the Insolvency Service.

I like to take advantage of credit card firms' special introductory low interest rates. I transfer my balance from one card to another, is there a downside to doing this? Anon, UK

Opening lots of credit card accounts may affect the way some creditors credit score you in future.

They may feel you are in danger of becoming financially over-extended.

Too often people switch cards, but carry on using them in the old way. The amount they owe can actually rise.

One way to ensure this does not occur is to cut up the card once you have finished with it.


Geeta Varna, CCCS

I currently have a number of loans and debts, and want to consolidate. Do you think one monthly payment is better? Emma, UK

The question to ask yourself is "Why am I tempted to consolidate?" Have your circumstances changed since taking on the credit or have you been using credit for living expenses?

CONSOLIDATION WOES
A major danger is that people tend to look at how much they borrow not how much they will pay back in total

Meg Van Rooyn
National Debtline
Draw up a budget to show your income and expenditure ensuring that priorities such as mortgage, rent, council tax fuel and food are covered.

The budget will show the amount you have available to repay your credit debts.

Is this less than the payments your creditors are expecting?

Is it enough to support a consolidation loan? If you do go for a consolidation loan, will you be able to manage without using credit and making your situation worse?

I have unsecured debt totalling 28,000. I initially approached my lenders to try and reduce my repayments and I was met with hostility and threats. I have seen a debt charity and they have drawn up a debt management plan, but I fear by following it my creditors will drag me through the courts? James, UK

Most creditors are far more likely to come to an agreeable arrangement when negotiations are conducted through a reputable, free of charge debt advice organisation.

The majority of creditors are accustomed to working with these organisations and are more likely to agree to reduced repayments and charges.

Remember if creditors decide to take legal action, the reason for this will be the account arrears, not the fact that a debt advice organisation is involved.

I owe 60,000 on credit cards and 45,000 on bank loans and this borrowing is unsecured. I used the money to buy dot.com shares and I have been left with nothing. I am struggling to keep up repayments - can I declare myself bankrupt and start life again without having to sell my home? Cairan, Scotland

Bankruptcy should always be a last resort after other options have been considered.

Under bankruptcy, the official receiver would have to take all assets - including your home - into account in order to raise funds to pay the creditors.

A debt of 105,000 does suggest that bankruptcy may be an option.

However, an Individual Voluntary Arrangement (IVA) is a more flexible alternative.

This would have to be administered by an insolvency practitioner and would almost certainly involve current assets including the shares and your home being taken into account.

The benefits of an IVA include the fact that there would be definite payment arrangements in place for around five years and creditors would stand to recover a percentage of the debt.

The drawbacks include possible loss of assets and that creditors may not accept the arrangements at the outset.

Most insolvency practitioners will however offer a free-of-charge initial consultation.

Any opinions expressed are the debt advisors', not the BBC's. The answers are not intended to be definitive and should be used for guidance only. Always seek professional advice for your own particular situation.

BBC News Online is running a week-long series on dealing with personal debt


Debt busting

Analysis

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See also:

28 Nov 02 | Business
16 Jan 03 | Business
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