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.

I think this is the time when both your DH and you sit down and work out what you have been spending your money on. Have you been putting everything on cards - do you pay off all the amount monthly or only a bit therefore racking up interest payments. Do you have any children when you talk about Christmas ? I think you might have to possibly work with what you have already in the house - christmas cards you have never used, wrapping paper , something you have that could actually be given as a present- can you buy something at a charity shop wash it and then wrap it up nicely ?. How much food do you actually have in the house ie could you live on it for the next month and then do a christmas shop ? Do you really need to replace any toiletries right now - apart from loo rolls of course ! Remember the likes of Body Shop give out freebie samples so you could create presents of samples . Try and get hold of a book by Kath Kelly called "How I lived a year on just a pound a day " there are millions of tips in there and ways of doing things for free . And yes, it will get better. Good luck

Sorry, just reread your post and you do have a child

How old is your dd? Guessing not very, if you've been on mat leave. Honestly, she won't care a hoot about Christmas, and everyone else will get her loads. You really don't have to spend loads for Christmas - just refocus on having really nice time together.

Whats your budget? How much do you spend on food etc?

IVAs can be a good thing (have had one and for more debt than you have) but they do mess up your credit rating. You have to fill in very detailed income and expenditure forms at the beginning, have the worry that creditors won't accept and then every year do the same thing. At the end of 4 years you have to try and remortgage your house so the creditors can get more equity. If you don't then the IVA goes on for a further year. If your pay increases you have to give some of it to the creditors.

A good forum is this one - there are lots of helpful people there. It isn't an easy solution but can be the best one.

Sorry no advice on your debts, but.......
Have you heard of freecycle? Possibly ask on there for things you need-household stuff, possible christmas gifts? I know they will be second hand but they will be free!
How about having a clear-out & using ebay to raise some funds for christmas?
What about Groupon? You`d still have to pay but they do massive discounts a lot of the time on all sorts of things!!
How about home-made things, like fruitcake, jam. Again more effort & time than money!!
Wishing you luck with getting yourselves sorted!

OK, so first things first (ex-bankrupt speaking):

1. Do not get advice from Payplan. They are a commercial company, and although they are 'free', if you read the small print you will see that they charge your creditors a fee, which will be loaded when they consider your proposal. Think of it this way: If you offer 40% of the value of the loan, then Payplan charge them a 10% fee (I don't know how much the fee is, it's an example) then if the loan is £1000, they get £400, but actually only receive £360 because Payplan charges the 10% fee. This means that they are only actually being offered 36%, which will be less favourable.

1. Do get advice from CCCS - they are free, impartial, and will look through your figures and tell you what your options are. Payplan have a vested interest in getting you to sign up for an IVA. CCCS have a vested interest in you managing your debts, whatever the method (because that is their sole purpose).

1. You need a clear financial picture. Be brutal. Write down all your income, then write down every expense. Include the clubs your DC might attend, the weekly pint down at the pub, the chocolate bar at the petrol station. You are past the burying your head in the sand stage.

1. Visit Money Saving Expert "Bankruptcy and Living with It" forum. It also covers IVA and Debt Relief Orders (you won't be eligible for a DRO because your debts total more than £15k). There you will find all sorts of advice.

The main thing to look at, is what are 'allowable expenses' under an IVA/Bankruptcy. Believe it or not, bankruptcy 'allowables' are slightly more generous than IVA 'allowables', because in an IVA you are saying 'I am able to pay my debts, just not as much as they are', so you are having to show that you are fully committed to pay as much as you possibly can. With Bankruptcy you are saying 'I admit that there is no way I can meet my debts' and therefore, although you might have a Payment Order attached to your bankruptcy, you aren't actually expected to clear a proportion of your debts, just make a contribution based on your income.

1. Once you've seen the 'allowable expenses', review your spending that you wrote down in step 3. If you find that you are spending in ways that would not be allowed under an IVA:

Work out what your income/outgoings would be under an IVA (before the debts) and see if you can then service your debts. That will be harsh, but it means that in effect you would be putting yourself under 'IVA conditions' but not having 'IVA credit rating impact'.

If, even discounting all expenses that would not be allowable under IVA, you still wouldn't be able to meet the monthly debts, then you know you have a real problem.

1. Remember that, if you enter into either an IVA or bankruptcy, you will not be able to get more credit, so you need to be sure that your debt is not a symptom of drastic financial insufficiency. You have to know that you can afford to live if it were not for the debts.

1. IVA and bankruptcy will both affect your credit rating badly for at least 6 years, and getting credit will be very difficult (although after this experience you shouldn't want to touch credit with a barge pole, tbh. 6 years on I still get a cold sweat if my bank account goes below £300 in credit!). If you opt for an IVA you will make payments for 5 years, and if it fails, it will go to bankruptcy. If you opt for bankruptcy, you will be discharged after one year (It took me 9 months, my husband 8 months) but may make payments, depending on any surplus income, for 3 years.

Any questions, fire away!

You are probably more likely to keep your car in an IVA & if you have equity in your house an iva may be better. As your child doesn't sound very old he/she really will not know how much you spend on them at christmas.

Great advice from Lougle! I second the moneysavingexpert website.

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.

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.

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

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.

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.

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.

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.

" 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.

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.

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.

"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.

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.

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.

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

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 £.

"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.