10 Debt Myths!

There are hundreds of myths about the debt industry - everyone has a mate, family member, work colleague that has a story about debt problems. We've taken some of the worst debt myths in this post... enjoy! Please contribute your own too!

Debt Myth 1 - You can't tell anyone

Often people think they can't tell anyone about their debt problem or it'll result in receiving additional threats and worry more people. Millions of people each year turn to debt advice charities and receive debt advice. There are a number of different debt solutions available including Bankruptcy, IVA, Trust Deed, or Debt Management Plan. 

You are not alone - speak to a debt charity or tell a friend or family member. A problem shared is a problem halved.

Debt Myth 2 - Debt advice companies are all the same

Some debt companies will act within your best interests but most want to make money from your misery. Research and check out your debt company. We advise speaking to a debt charity who can give you informal debt advice

 

Debt Myth 3 -"Write off your debt"

In some debt solutions you can write off your debt but this will have a negative impact on your credit rating and make obtaining credit again in the future difficult. Rarely can you write off as much as the adverts say - it's typically 50% debt being written off in an IVA or Trust Deed.

Debt Myth 4 - I'll never have a bank account again

Lots of banks are now creating bank accounts for people who have a bad credit history. If you are entering a debt solution ensure you change banks if one of your creditors is the bank you currently bank with. 

Remember, ask for an account without an overdraft!

Debt Myth 5 - Paying fees for Debt Management

You DO NOT HAVE TO PAY FEES FOR A DEBT MANAGEMENT COMPANY! We've bolded it because it's one of the most mis-understood myths about the debt industry. There are fee debt management plans where you don't have to pay for the solution. Instead the creditors pay the debt management company fee so you don't have to. Speak to any debt charity - they'll steer you right!

Debt Myth 6 - Bankruptcy will take my home

Most people are scared their debt will mean they will lose their home. In Bankruptcy (and an IVA) the official receiver / insolvency practitioner is only interested in any equity you have in your assets. This means if your house has no equity or you live in rented accomodation you will not have to leave your house. 

If you earn an income where there is disposable money available to pay towards the Bankruptcy then an Income Payment Order may be in place for a total of 3 years.

Debt Myth 7 -Friends / Family can't buy my assets

Friends and family can purchase your assets as long as they are paying a fair price. It's always best to speak to a licenced insolvency practitioner about this before proceeding (especially in an IVA / Bankruptcy).

Essentially, the official receiver / insolvency practitioner wants the equity that's due so it can come from any party.

Debt Myth 8 -You can go to jail for not paying your debt

This is factually incorrect, you cannot go to jail for not paying your debt. You should repay your debt if you can but if you can't then you won't go to jail.

If a judge orders you to make repayments and you refuse then the judge can place you in jail as punishment however this would be for failing to follow a judges orders.

Debt Myth 9 - Your credit file will be damaged forever

If you enter an insolvency solution your credit file will be damaged with a default being added. This default will last for 6 years, after which period you will be able to gain credit and start to improve your credit rating again.

Debt Myth 10 - Bailiff's / Messenger at arms will enter my house

A bailiff (or in Scotland messenger at arms) are only allowed to enter your property if you invite them in.You should communicate with a bailiff / messenger at arms to come to an agreement regarding your debts, this avoids the problem spiralling out of control.

LILA, Bankruptcy, Certificate of Sequestion

Mr & Mrs P received a Charge for Payment, this gave them 14 days to pay their debt off or legal action would be taken against them. The two weeks past and they hadn't made a payment since this was received which means they were now Apparently Insolvent. This means that they could use the charge for payment as a reason to declare themselves Sequestrated (Legal name for Bankruptcy in Scotland).

Mr P worked full-time but was on a low wage and Mrs P stayed at home in order to look after the kids. There was £21,450 debt and it was all loans which were in joint names. After considering all options Mr & Mrs P decided that sequestration was the best option for the them.

Once they had decided that this was their best route out of debt they only had to wait until their creditors petitioned the county court for the couple to be declared sequestrated.

There is a two new forms of sequestration which now gives the person in debt the chance to declare themselves sequestrated. These new debt solutions are called

- Certificate Of Sequestration - This is similar to sequestration except you don't need to wait for creditors to make you sequestrated and the criteria as follows;

- You must live in Scotland (or have lived in Scotland within the last year)
- You must not have been bankrupt in the last five years)
- Owe at least £1500 in unsecured debt
- You must pay a fee of £100 to submit your certificate of sequestration to the Accountant in Bankruptcy (AIB)
- To receive the certificate you must use an insolvency practitioner (IP) or someone who works for the IP and has been given authority to act on his behalf. You can also visit your local CAB, approved money advisors for DAS or your local authority money advisers
- Only the person in debt can be granted the certificate - creditors cannot apply for this
- On the day the certificate is granted the person in debt then has 30 days to apply for their bankruptcy. All applications made after the 30 days will be rejected and they will lose their £100 fee. The process would then need to start over and a further £100 would be charged.
- The debtor will be required to provide evidence with their application to help the AIB so that identity can be confirmed and that they qualify for the bankruptcy. Acceptable evidence will be payslips, bank statements, proof of benefits if applicable.
- Also required would be tenancy agreements and HP agreements if they have any.
You can get a copy of the Accountant in Bankruptcy Certificate for Sequestration here, however it must be completed by an IP, approved money adviser, CAB or local authority money adviser.


LILA (Low Income Low Asset) - As the name suggests this debt solution is for people with low income and low value assets if any. the criteria for a LILA is as follows;

The criteria to enter Sequestration via the LILA route is;

- Your income must be less than £237.20 based on a 40 hour week
- If you are on income support, income based jobseekers allowance or receiving working tax credits then you would have met the low income test. This will apply even if you are earning more than £237.20
- You must be unable to meet your current repayments and charges
- You cannot own property or land
- The cost for LILA is £100 and is payable to the Accountant in Bankruptcy
- If you get any monetary windfalls or inherit any property or land you would need to let your trustee know as this may need to be paid to your sequestration
- You cannot start up or be involved in the day to day running of a limited company
- You are unable to act as a Member of Parliament. Other restrictions include not being a member of a local council or on a school board etc
- It will be difficult for you to obtain credit after you being discharged