A couple of days ago, I thought everything was going to be OK. I had decided that the best way to deal with this stupid amount of debt that I have wrapped around myself was to go to the Courts and get an Individual Voluntary Arrangement (IVA) in place.
An IVA is where I promise to put a monthly amount of cash in a .....trust fund is the best way of describing it (perhaps we can call it a big piggy bank) Anyway, this fund (piggybank, whatever you want to call it) is looked after by an Insolvency Practitioner and he watches the fund grow. All of the creditors (the people I owe money to - creditcards mostly) trust this Insolvency Practitioner and have agreed to receive just a small percentage of what I owe them.
In return, I must be truthful about how much I have to spend each month just to live (rent, council tax, gas, electric, food and so on) and what is left I have to put in the piggy bank. Every so often, the Insolvency Practitioner decides there is enough in the piggy bank for everyone to have a bit of a share-out. So, every year he takes out the bung, lets the cash drift across the table and has a count-up.
OK - I know I'm making it all seem very simple - but I really am a simple kind of guy. It was the complexity of living that got me in this mess in the first place!
Now - watch this carefully - which cup is the ball under?
If I owe £80,000 and offer to pay my creditors at the rate of 25 pence in the pound (that's 25 pence I pay for every pound I owe) over five years (and only if they all agree - for an IVA to be acceptable they all have to vote on it), then that's £20,000 I pay back - over 5 years that comes out at £4,000 per year that I have to promise to put in the piggy bank. Right?
Wrong. Because nobody works for nothing! Least of all the Insolvency Practitioner.
Every year - as soon as that bung comes out of the piggy bank - the Insolvency Practitioner lets the first £1000 spill across the table top and into his open drawer. That's right - he takes his fees first. Fair enough, I guess. I can't expect him to help me out of the mess that I'm in and not charge me for helping, can I?
So, instead of me promising to put £4,000 in the piggy bank each year, I must put £5,000 in. Easy, huh?
Think about it - £4,000 per year breaks back to £80 per week - each and every week for five years. Now it seems that I must find another £20 each and every week, to cover the Insolvency Practitioner's fees. Not only am I down to cold baked beans every night, I can only have the small cans!
Perhaps I shouldn't joke about it. After all, I was stupid enough to spend more than I was earning. I was stupid enough to use credit cards. If you want to really know - I was stupid enough to draw cash off of one card to pay the monthly payment on another. Now that is King Stupid - and I did it!
But I didn't know that my gas and electricity costs were going to double in 2006, did I? I didn't know that I was going to be made redundant in 2006, did I?
Whoa - I can hear you. All credit cards offer insurance against loss of earnings - Joy and Jubilation, I'm protected!
Forget it - just read the small print. I did - but too late. I can only tell you about the insurances that I took out - there were six of them - but I expect all the others are pretty much the same.
You can only claim on the insurance after you have been registered unemployed at the Job Centre. I was told that I could not register until I had been out of work for 6 weeks. You need the Job Centre to fill in a form and send it to the insurance company. You also need your old employer to fill out a similar form and send that off, as well.
All of that registering and form filling takes ten to twelve weeks. So you are out of work for three months, no money coming in and the debts still need to be paid. The insurance company won't pay out immediately so what happens? You do what I did and pay one card with another one, just to make the payments.
Look - I'm sorry. I'm going on too much. But please be careful with repayment insurance - I didn't get any help at all. Only you can decide if it's worth it for you.
I'm going to stop now and open my tin of beans. I'll Blog on in a couple of days.
Thank you for being there - I need you.
An IVA is where I promise to put a monthly amount of cash in a .....trust fund is the best way of describing it (perhaps we can call it a big piggy bank) Anyway, this fund (piggybank, whatever you want to call it) is looked after by an Insolvency Practitioner and he watches the fund grow. All of the creditors (the people I owe money to - creditcards mostly) trust this Insolvency Practitioner and have agreed to receive just a small percentage of what I owe them.
In return, I must be truthful about how much I have to spend each month just to live (rent, council tax, gas, electric, food and so on) and what is left I have to put in the piggy bank. Every so often, the Insolvency Practitioner decides there is enough in the piggy bank for everyone to have a bit of a share-out. So, every year he takes out the bung, lets the cash drift across the table and has a count-up.
OK - I know I'm making it all seem very simple - but I really am a simple kind of guy. It was the complexity of living that got me in this mess in the first place!
Now - watch this carefully - which cup is the ball under?
If I owe £80,000 and offer to pay my creditors at the rate of 25 pence in the pound (that's 25 pence I pay for every pound I owe) over five years (and only if they all agree - for an IVA to be acceptable they all have to vote on it), then that's £20,000 I pay back - over 5 years that comes out at £4,000 per year that I have to promise to put in the piggy bank. Right?
Wrong. Because nobody works for nothing! Least of all the Insolvency Practitioner.
Every year - as soon as that bung comes out of the piggy bank - the Insolvency Practitioner lets the first £1000 spill across the table top and into his open drawer. That's right - he takes his fees first. Fair enough, I guess. I can't expect him to help me out of the mess that I'm in and not charge me for helping, can I?
So, instead of me promising to put £4,000 in the piggy bank each year, I must put £5,000 in. Easy, huh?
Think about it - £4,000 per year breaks back to £80 per week - each and every week for five years. Now it seems that I must find another £20 each and every week, to cover the Insolvency Practitioner's fees. Not only am I down to cold baked beans every night, I can only have the small cans!
Perhaps I shouldn't joke about it. After all, I was stupid enough to spend more than I was earning. I was stupid enough to use credit cards. If you want to really know - I was stupid enough to draw cash off of one card to pay the monthly payment on another. Now that is King Stupid - and I did it!
But I didn't know that my gas and electricity costs were going to double in 2006, did I? I didn't know that I was going to be made redundant in 2006, did I?
Whoa - I can hear you. All credit cards offer insurance against loss of earnings - Joy and Jubilation, I'm protected!
Forget it - just read the small print. I did - but too late. I can only tell you about the insurances that I took out - there were six of them - but I expect all the others are pretty much the same.
You can only claim on the insurance after you have been registered unemployed at the Job Centre. I was told that I could not register until I had been out of work for 6 weeks. You need the Job Centre to fill in a form and send it to the insurance company. You also need your old employer to fill out a similar form and send that off, as well.
All of that registering and form filling takes ten to twelve weeks. So you are out of work for three months, no money coming in and the debts still need to be paid. The insurance company won't pay out immediately so what happens? You do what I did and pay one card with another one, just to make the payments.
Look - I'm sorry. I'm going on too much. But please be careful with repayment insurance - I didn't get any help at all. Only you can decide if it's worth it for you.
I'm going to stop now and open my tin of beans. I'll Blog on in a couple of days.
Thank you for being there - I need you.
2 comments:
Steve, it's good to see that you at least got your calculator out before entering into an IVA. The insolvency practitioner will first take all of his fees as Nominee and together with his fees for acting as supervisor this will probably eat up most of your contributions in Year One.
You may also be told that it's not 'cost effective' to pay out small sums as dividends to creditors and that the supervisor also needs to retain funds in case he has to petition for your bankruptcy if the IVA fails. So, don't assume that the money owed to creditors will reduce year on year.
There's no doubt that IVAs can work if your financial circumstances are right but I would recommend that you talk to someone like CCCS (http://www.cccs.co.uk/) before you commit. They are a respected charity and can give independent advice without the risk of highly profitable IVA fees influencing that advice.
My blog on voluntary arrangements at http://voluntaryarrangementmole.blogspot.com/ also covers some of my research into the flip side of IVAs but there's no need to go there to identify some of the pitfalls.
All of the recent news stories about mis-selling of IVAs confirm that there are problems that you should really take into account. And I would say that the best way of doing that is to first take some truly independent professional advice from someone like CCCS.
Best of luck and remember you're not alone.
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