Just added up our debts. Please come and hold my hand as I embark on IVAs

[KernowBysVycken]

Shit shit shit. I have just added up the total that we owe on two loans and three credit cards and it is over £40K This doesn't even include the HP that we have just taken out on a brand new car (yes, I know you shouldn't buy new but the old one was dead and we couldn't borrow from anywhere and we didn't even have £100 to buy a banger; I also reasoned that second-hand cars don't come with the 3 MOT free years and I couldn't find a second-hand one that was £0 road tax).

I have just got off the phone to Payplan and they reckon that, with IVAs, we'll be cutting our monthly payments down to about £500 (as opposed to £900) and we'll be done in 5 years as these are the terms of an IVA.

What the fuck am I going to do about Christmas? And how am I going to pay for the MOT on the second (knackered) car in December? I'd be very surprised if that came in under £200. We really do have to have two cars as DH and I work in opposite directions and we live in rural Cornwall otherwise I would happily get rid of it. And the car tax is due this month and we are a month in arrears with the mortgage.

I don't really know how it got this bad; we have just had a whole year of one or other of us being on mat/ pat leave with DD so only one income but the debt is still way worse than I thought it would be

I know that I have been crap. Are there others of you that have got yourselves out of similar situations? Please tell me it gets better.

[Lougle]

You should have (at least) a seven day cooling off period under the Distance Selling Regulations Act (2000)

[kernowbysvycken]

Right, waiting for a call back from Payplan. CCCS can't help or offer any advice as I've signed the paperwork for the IVA. The meeting between creditors hasn't started yet though so I think we could back out of it if we change our mind. Obviously I now can't get any impartial advice from CCCS about what would be best without cancelling the IVA, and it could be that we then decide that the IVA is the best option after all and we're back to square one with an extra month of not having sorted anything. I think our only route is to continue with the IVA and, if it fails, then bankruptcy is our last option.

The small print in the car agreement relates only to bankruptcies.

For the record, it was a DMP that we were on 7 years ago, not an IVA, but yes we did go straight to Payplan this time.

Got a basic bank account set up, direct debits etc all set to go from it this month.

[bitsofmeworkjustfine]

oh yes, once you enter into the IVA your new car agreement will be void and they will ask for the whole amount or the car back. read your small print in the car agreement

[bitsofmeworkjustfine]

i took out an IVA, after 6 months i lost my job to refundancy and couldnt pay the iva. it failed and i ended up with the orignal debt AND i lost all the money i had paid into the IVA.

this was £149 x 5 = £750 (bad but not enough to make me kill myself)

but what if i had lost my job after 4.5 years? i would have lost £8046 AND still have my oringal debt!

I went on to become bankrupt. not a nice or easy, but i had no other option, i spoke with a charity near me who actually gave me the money for the court.

Good luck with whatever you decide.

[uggmum]

Yep. I did mis-read that.
In that case I would go back to cccs and see what they recommend.

[Lougle]

" If they have recommended an iva I would trust them."

Uggmum, if I am reading the OP's posts correctly, CCCS suggested IVA 7 years ago, and the OP went through Payplan. This time, the OP has skipped contacting CCCS and gone straight to Payplan, so hasn't had advice from CCCS to proceed with one.

[uggmum]

I'm a debt counsellor and I deal with cccs on a regular basis. If they have recommended an iva I would trust them. Cccs are currently unable to handle the iva process, ie they are not currently an iva practitioner, although they are changing their name in the next few weeks and are hoping to facilitate iva at some point. At present they refer to payplan.

If you do go down the iva route you will need to open a new bank ac. Your current bank will probably give you notice to close your account once they find out you are in an iva. Most banks credit search their customers every month and will probably give you 60 days to close your account. If you have a debit balance they can withdraw your banking facilities immediately.

The big five banks offer a 'basic' bank account which is open to all. So I recommend that you look to open one asap.

You will probably be able to keep your car as this will be seen as a priority debt and is secured on the vehicle. Also, iva practitioners are much of a muchness. Although cccs/cab etc will manage a dmp for free. You will be unlikely to find an iva practitioner that operate for free. Payplan are better than some as they have no up-front fees and get a percetage from the creditor as above.

[Lougle]

"However Payplan (or any other insolvency practitioner) does get fees of about £7500 for sorting an IVA. I didn't know this so thanks for telling me, Payplan didn't make this clear at all."

Don't worry, they never do. They say it's 'free' because the creditor takes a lower proportion of the IVA settlement. What they actually mean, is that you pay them, and the creditor, but it's dressed up as one payment.

DMP is no different, either.

I wish you well, but I am really very worried about your plan. Have you read all the small print? Are you aware that creditors often ask for a lump sum payment at the end of the term if you own your own house and it has equity? Have you received specialist advice regarding the equity loan part of your mortgage?

Are you aware that under bankruptcy, you can still normally keep your home if you can buy out the 'beneficial interest' and can afford the mortgage payments, which given your low equity is a potential option?

Please, please, go back to CCCS with your current circumstances, and get their impartial advice as to your best course of action. If they say 'IVA' go ahead, but you can't trust a profit-making company to advise you not to take their product!

[kernowbysvycken]

"You recently took a full year mat leave" - had no choice, we didn't have any other childcare as my parents very generously do some of it for us and they weren't up to looking after a small baby. Nursery costs for both DCs would've meant there was no point in DH working. I guess your reply to that would be that we shouldn't have had another baby, and I guess you're probably right but it's too late now.

We used the credit cards to live off, not to maintain a "lifestyle." They were used to pay for food and fuel primarily. The debt goes back further than that too obviously (we didn't run up £40K in one year!) Amongst other things, it has paid for two second-hand cars (one of which has now been replaced with the new car), vital home improvements and my first maternity leave too.

Re the new car: I said in my OP why we didn't buy a second-hand car. We couldn't get a loan (more unsecured debt) and we had no lump sum to pay for something outright. Our old car was completely knackered. We really honestly do need two cars as we work in opposite directions at different times of day, there are no lift-share options with colleagues and there are no buses. I have obviously explored these possibilities but we live in very rural Cornwall and that is life here. The new car is the smallest, cheapest 4 door that we could find. It has a 6 year warrantee, 3 years MOT free, no car tax and does 50+ mpg. Getting the new car was NOT something we did lightly, we really could not think of another option. If any of you can then I would be really keen to hear it. If we lose the car then one of us will lose our job and income. This is one reason why an IVA is more sensible for us than bankruptcy as it prioritises secured debt including cars that are required for work.

We are also not declaring bankruptcy because we don't want to risk losing the house. But we are prepared to make life-changing decisions. Yes similar has happened to us before but there were entirely different circumstances surrounding that (DH's father had just died, he was horribly depressed, he went a bit bonkers with money and also gave his mum loads to help her out). That was for much much less money, which we actually paid off, almost in full, in less than a year. I don't put any of this down to bad luck, and I am under no illusions about the fact that we entirely deserve to be in the shit that we are in.

Money Saving Expert says that CCCS recommended IVAs to only 3% of people in 2006, that's one company and it's six years ago. The Debtwizard link suggests that Debtwizard themselves get a fee from Payplan if you go to them and they put you onto Payplan. We went direct to Payplan. However Payplan (or any other insolvency practitioner) does get fees of about £7500 for sorting an IVA. I didn't know this so thanks for telling me, Payplan didn't make this clear at all. I have signed the paperwork now though and we've started the process. I'm going to talk to them in the morning to see if a DMP is a better option.

And finally I am not living a fantasy life. My new car is not a lifestyle choice and owning it is not about enjoying life, it is about getting to work which is all I will ever do in it as the agreement restricts the mileage I can do without losing money. I am not a materialistic person and I don't care about cars, or Christmas presents for that matter but thanks for the Christmas suggestions. As some of you suggest, we have plenty of stuff in the house and the DCs will not care about having very cheap presents.

[Lougle]

That means that if you are 'offering', say, 40p in the £ of the debt, the creditors will be 'offered' that minus the Payplan fee, so for example, 36p in the £.

[Lougle]

Payplan do take a cut when managing IVA's. From their own site:

" Unlike most companies that provide IVAs, Payplan's Insolvency Practitioners do not charge upfront arrangement or assessment fees.

The monthly payments that you make into your arrangement will cover the payments to your creditors as well as the Nominee's and Supervisor's fees involved in an IVA. These fees will not affect your monthly payments, as by agreeing to the terms of the IVA your creditors agree to accept a lower debt repayment into the arrangement*. This means that your IVA payments should always remain affordable for you." Payplan site

[dementedma]

Payplan do NOT take a cut. We have a debt management plan with them which began 6 long years ago.It has been very hard work but we only have a few months payments left and owe just over one thousand pounds now. They have been brilliant. Yes, our credit rating is screwed but it would have been anyway.

[fuzzpig]

You are being very brave to confront this :) I don't have any advice on the money side but just wanted to agree that xmas really need not be a big deal. Honestly even a 4yo will be happy with very little I'm sure. 1yo can unwrap something they need anyway (next size up clothes? You could do that for 4yo too if he needs them)

Good luck.

[Lougle]

"we have just had a whole year of one or other of us being on mat/ pat leave with DD so only one income but the debt is still way worse than I thought it would be"

It's so much worse than you thought it would be, because you didn't adjust your lifestyle to suit your income. You simply put your lifestlye on credit cards.

Please don't think I'm being harsh - I am an ex-bankrupt myself. I bitterly regret being sucked into the world of credit. I bitterly regret thinking that one day DH would be earning so much that it would be easy to pay it off. I bitterly regret listening to the bank manager who told us that consolidation was a perfectly sensible option, that we should take out 'a bit extra to give us a cushion' and that our debt was incredibly low compared to 'most people'.

I don't regret for one minute realising that our situation was impossible, that we would not be able to keep an IVA viable, no matter what we cut back on, that we would never be able to get out of the credit cycle, and declaring bankruptcy. Now, almost 6 years on (our bankruptcies will drop off the credit file in January, but we will still have to declare that we are previous bankrupts if asked, for life) we have such a different attitude to money.

I think that bankruptcy really is life-changing for people like us: People who are willing to understand how things got the way they are, willing to make radical changes to attitudes regarding money, and people who shudder at the thought of credit afterwards. The people it is no solution for, are the people who think that they were just 'unlucky', did nothing to 'deserve' their financial situation, that there is nothing wrong with their 'lifestyle' and who say 'I declared bankruptcy yesterday, how long before I can get credit/mortgage/HP loan.' I worry for those people, because they want to get back into a situation where they owe people money for things that aren't essential.

[Snog]

Lots of good advice here but tbh you say your situation was similar 7 years ago yet here you are £40k in debt again... You recently took a full year mat leave twice and bought a brand new car which you still tell yourself was a sensible decision.

I don't think you are making good decisions or living in the real world. You are spending other people's money, most of which you will never pay back.
OP stop living a fantasy life. Real life is good too and you don't need a new car to enjoy it.

[bbface]

sorry you are going through this stress.

The first thing that occurred to me when i read your post was that you are worried about the wrong thing. Forget about christmas. It will be liberating. Use your existing decorations (do not buy a single thing in addition) decorate one room, and that is the special christmas room. The one yr old gets nothing but a kiss and cuddle, the 4 yr old gets a couple of plastic tats from a pound shop, that will give him something to open and play with on xmas day, but by the next day will probably be forgotten and indeed christmas day will be forgotten to him. It goes without saying that you and your partner get one another nothing at all. Same goes for every other member of family, even children. Be honest, explain that in dire financial situation and working your way through it. Do not spend anything in addition to a normal family meal, if you start thinking that you will wait around and get reduced christmas meat, garnishes etc, you WILL end up paying more. Fight the temptation, and do a bog standard family meal that you would have done on any other day. Other than wait for the last minute and get the most reduced cheapest crackers you can find, even if as ugly as sin.

will it be a different christmas to normal? hell yeah. will it worse, not necessarily so. Will you spend more than a tenner in total? not if you stick to the above.

So, that is Xmas sorted.

You need to focus all you energy in clearing your debts. For the time being, celebrations, luxuries all have to play second fiddle, in fact they have to be totally dismissed. You are fortunate that your children are so young, so tey really will not notice or give two hoots. what your children WOULD notice is having to move suddenly into a tiny temporary accomadation because you have lost your home or similarly serious events. Be focussed, mature and strong... you and your partner can get through this.

[Lougle]

" Payplan do not charge up front fees to begin the IVA process. Fees vary according to the overall level of debt and are built into the regular monthly payments. A schedule showing the level of fees to be charged in an IVA is included within the IVA proposal for you and your creditors to see." http://www.debtwizard.com/fees

I am absolutely certain that Payplan charge fees, that those fees reduce the amount that your creditors get, and that the fees are 'front loaded' in some way. For example, if you read on money saving expert, a poster there had an IVA which failed in the first 2 years. She had paid £5000, the creditors only got £1300.

If you are looking to keep a brand new car on HP, then I really don't think you have come to a place where you are ready to face your situation.

An IVA is much stricter than bankruptcy, is only suitable for 3% of people, takes longer to clear and has just the same effect on your credit rating.

[Loveweekends10]

I think you must face reality. You sound like you have your heads still stuck in the sand if you are buying new cars on HP.
We have a combined income of 75 k but don't run two cars due to the expense.
Possibly you have a mental image of the lifestyle you feel you should have and that differs to what you can afford.
You could put your family in jeopardy if you don't stop.

[MiniMonty]

Let me get this right..... You owe more than 40k and you are buying a brand new car on HP ???
Have you ever heard the phrase "when you are in a hole, stop digging" ?

It sounds to me like you need a jug of very cold water poured over your head and then a serious talking to about the simple realities of money.

[Viviennemary]

Don't those companies like Payplan take a commission out of each payment you make to creditors and charge a fee up front for their services. I think I read somewhere that the Citizens Advice Bureau can give advice re setting up your own negotiations with creditors and then you won't be paying commissions on your repayments.

[KernowBysVycken]

I spoke to Payplan today and they were very clear that they absolutely do not take a cut and 100% of what you pay them goes to the creditors; they are funded by contributions from lending agencies just like CCCS are. Martin Lewis recommends both; National Debtline, CCCS and the CAB all have links to Payplan on their websites; and I've done a bit digging on the internet and I can't find anything that suggests that they aren't kosher. If anyone knows anything else or can link me to anything then I'd be really interested to know before I sign!

Also, apparently any sort of DMP will affect our credit rating and the effect that it will have on our mortgage depends on the mortgage company so I'm going to phone them on Monday to see what the deal will be. We definitely can't afford to make the minimum repayments on our loans and cards so we've got to do something.

[RedHelenB]

I wouldn't necessarily dismiss the idea of using payplan because despite them taking a cut they may get better terms for you.

[Fluffycloudland77]

I think you need to sit down with CAB and go through all your options or Consumer credit council?.

But please dont go giving all your money to a company to do what can be done for free.

[KernowBysVycken]

Sorry it's been a while, been working in the evenings.

I'm a bit confused now as Payplan said that we would absolutely be able to keep the car as it's a secured loan and would therefore be prioritised, especially because we need it for work. If we declared bankruptcy then we'd definitely lose the car and probably the house as well which is unthinkable.

We don't have very much equity in the house (maybe £2K) and couldn't remortgage as we have a weird deal on a key-worker scheme where we've got an equity loan with one company as well as our mortgage. The Ts&Cs of the equity loan don't allow us to extend the mortgage for anything other than home improvements otherwise I'd have done that ages ago.

I didn't know that my mortgage rates would change if I had a crap credit rating though so I'll definitely talk to the mortgage company before I sign anything. And it's also news to me that Payplan get a cut. We have done this before, about seven years ago when we graduated from uni and had crap jobs and a bit of debt, and CCCS put us in touch with Payplan which is why I went back to them.

DD is only 1 so not fussed about Christmas but DS is 4 and a bit more consumer savvy (not much though). It's also his birthday in December but I have planned that pretty well to cost very little and got his present ages ago.

[expatinscotland]

Great advice from Lougle! I second the moneysavingexpert website.