On
April 1st 2009 we had our final lent meeting. It was
very appropriate for our current climate of a severe recession
arising mainly from over spending. Mr Nigel Dear from the
Citizens Advice Bureau gave very sound advice on how to cope in
extreme situations that could lead to bankruptcy. Before
working with the Citizens Advice Bureau, he was in Banking for
thirty two years up until 1996, where he worked in the security
and recovery of debt.
Mr Dear (left) started with the question:
‘Why do people fall into debt?’ He said there are three key
points:
Communication
Advice
Prioritisation
It is easy to slip into debt. Money can flow through hands like
water. Many can identify with this. There are many reasons why
debt happens. From student fees to marriage and heavy bills, the
circumstances in life create a need to borrow. The loss of
employment, redundancies, change in family circumstances, being
shopaholics and gambling are to name but a few more reasons.
Preparation is advised to cope with a sudden financial crisis,
such as injury or redundancy. The government view is 3 months
salary saved as a buffer. We all know someone who has had money
problems or is currently suffering now.
Research shows that the average family borrows £9,000, excluding
mortgage. The average client that comes to the Citizens Advice
Bureau owes £17,000. There has been a rise of 2/3rd
in clients since 2001.
Key Points
1) Communication
There is a tendency to bury heads in the sand and hope the
problem will right itself in the end. Letters are ignored in the
hope it will all go away. First talk to someone.
Lenders always assume the worse and will jump in quickly before
others get a chance to claim back what is owed. They harass as
soon as possible before the other predators. So link with the
lenders and inform them what the situation is in advance and
negotiate the hoped for future outcome.
2) Advice
Professional serious advice can be sought out without any fee.
There are many web sites and charities willing to help.
Some find it difficult to talk about at first as it is an issue
of pride, so the many web sites are a good place to start. There
are also many easy to read pamphlets and booklets available for
information (web sites given at the end).
3) Prioritise
Not all debts are the same. Some have a bigger impact. Those
which are a priority are fines, tax, revenue, mortgage, etc.
Loosing your home has to be one of the biggest priorities. Sort
out an arrangement with the lenders.
Examples are the weekly loan shark, catalogues, the bank
overdraft, etc. Some ignore the BLUE bill and wait longer for
the RED bill. The question is “What will make the biggest impact
on the family?”
FIRST STEP.
The Citizens Advice Bureau will give a clearer idea of the
situation by examining outgoings and incomes. Calculate the
surplus or deficit. This is done by the calendar month, but
allowing proportional bills such as road tax to be taken into
consideration. Is there a second job? Are there any benefits
that can be utilised? What is the expenditure and what are the
essentials? What can you do without? For example walk to train
stations, rather than parking in a nearby car park. Constantly
ask yourself “How essential is this and is it really needed?”
The starting point is to ‘pare down’ what you have and learn to
negotiate payments.
Priority debts need to be paid monthly as much as possible each
month. Reach an agreement with creditors. Try to avoid borrowing
more. There are many offers to consolidate debts into one big
payment. However this often leads to paying a higher interest
rate.
PROPERTY DEBT
The Government has introduced new schemes. There is the
Mortgage Arrears Protocol
The Mortgage Rescue Scheme
Homeowner Mortgage Support.
There are 15 steps of corresponding requirements to qualify for
these schemes. This was decided in November 2008. These steps
are required to be taken by most banks and companies to check
the criteria, before going to court. The courts normally work
towards the advantage of the borrower.
At Epsom County Court, the Possession orders are read out on
Tuesdays. The Judge is very sympathetic towards the borrower and
negotiates an arrangement with the lender on their behalf. At
the courts there are three rooms used for interviews by the
Citizens Advice Bureau for this purpose and many come to the
courts not having spoken to the lender or sought legal advice.
An intermediary can persuade the lender to reduce payments for
six months until the borrower can find employment again. The
agreement reached could have been settled weeks before the court
hearing if the correct help had been sought out.
The scheme was introduced in January 2009 for those with arrears
if they have 25% equity or more. For those owning only 5% to 25%
they can revert to shared ownership or just pay a rent on the
home they no longer own. The idea is that they remain in their
homes. However this is for properties valued at £225,000 or
less. There are not many homes at that price in the Epsom area.
The Mortgage Rescue Scheme is a last resort. There are a number
of other schemes which all target specific groups and there is a
long list of issues to go through before a person qualifies for
such a scheme.
A mortgage can be held up for two years. A regular monthly
payment of 30% of their current mortgage repayment for five
months is an option, if the person does not exceed £400,000
secured debt and has savings of £16,000 or less. People need
help researching which scheme is appropriate for them.
OTHER DEBTS
A Debt Relief Order is coming into place on 6th
April 09. This will help those heading for bankruptcy owing
£15,000 or less. This is quicker than going to court and it will
not be published. The cost is £90 and cheaper than the £500 for
the bankruptcy orders. Individual cases are looked at by an
intermediary. There needs to be debts on less than £15,000 with
assets of less than £3,000. The person must not be a home owner.
This excludes tools of the trade i.e. lap tops for work and a
car valued approximately £2,000. Each case, when assessed, then
goes to the head office in Plymouth.
With a Time Order the courts allow a further time before
repayments are made. This will only take place if there is
reasonable justification to do so.
The thirty or so who attended the meeting , went off into groups
of four to answer some given questions and then finally bring
feed back to the whole group.
The feedback spoke of the irresponsible lending of banks which
does not mean people should be drawn into borrowing. So destroy
credit cards and use a debit card. Store cards often have a
higher rate of interest. Become educated in financial matters.
For instance, the 5% monthly repayments on cards, means that you
are only paying approximately £10 on a card. Increased amounts
are borrowed because this seems a small amount to pay back but
in reality thousand of pounds are eventually borrowed at an
increased larger interest rate. The psychology of cards and easy
spending of large amounts instead of taking cash out of a
wallet, fails to remind people that although you pay less,
initially, you will end up owing more creating long term stress.
List expenses, shop with a budget, either mental calculations or
write out items. Structure your bank account. What are the
incomings and outgoings? Maximise income and minimise
expenditure. Avoid impulse spending. With serious debts,
consider taking a lodger. Negotiate with creditors and avoid
spending more.
Other issues raised were the rights of people renting. Some have
returned to find their home repossessed because the owner could
no longer pay the mortgage. Some lenders are unaware that the
property was being rented. There have been cases in the news of
people loosing their homes even though they have paid the rent.
Those who borrow for a holiday can be making repayments long
after the holiday is over. Furniture can be purchased with
nothing to pay for two years. By that time, you are paying for
old goods! Supermarket’s own brand of goods are almost as good,
if not the same quality. The cost is approximately 40% cheaper.
One particular family of four in a TV documentary experimented
without the knowledge of two members, who never knew the
difference. By using the supermarkets own brand it gave them a
massive saving of approximately £4,000 per year. Avoid adverts
that tell you to spend, spend, spend. Beware of legal looking
letters with bullying tactics. Ask yourself is payment to them a
real priority? Avoid offers to consolidate all loans because the
interest with these is often higher.
Finally the question of giving arose. As Christians, tithing is
part of our belief. Is it right to give away money that is not
ours with debts? It was suggested that giving time in a
voluntary capacity might be a solution.
An organisation called CAP (Christians Against Poverty) offer
workshops to educate and support those in debt.
See
http://www.capuk.org/home/index.php
The web site most recommended is;
Consumer Credit Counselling Service
www.cccs.co.uk
Other sites are;
Financial Services Authority
www.fsa.gov.uk
National Debtline
www.nationaldebtline.co.uk
Citizens Advice Bureau
www.adviceguide.org.uk
Payplan (Paid for by the Credit Industry)
www.payplan.com
Report by Louise Shah of the Epsom Baptist Church
Speaker: Steve Henwood
Speaker:
Dr Jim Wilson 
