Questions and Advice on Debt, Credit, Loans, and Insolvency

As a financial counsellor and debt adviser for around 30 years, you really get asked some interesting questions, and also here quite a few personal financial stories.  You also get asked a multitude of questions, and while each question is different and important to the one asking and seeking advice, there are some common themes that do tend to dominate the Q&A.

I thought I might share some of the questions, advice and stories I have heard over the years.

 

Q:  My wife and I were married for 10 years and recently last year we got divorced.  I had co-signed for a couple of loans for her as her credit was not as strong as mine. In our divorce agreement she is to pay those 2 loans and I pay the small bills that I have.  I have just been contacted by a bill collector saying she has not made a payment on one of the loans in 6 months and they want me to pay the loan.  I explained the account is her responsibility, but the collector insisted I pay.  My question is, how can I get my name off this loan?  The collector said it has been reported on my credit as in arrears and will affect my credit.  How can I change all this? 

A:  I understand your concerns and while I can answer your questions, unfortunately the answers are not going to be what you may want to hear.

By co-signing for your ex-wife’s loans, you have made yourself just as responsible for the loans as she is.  You said she didn’t have strong credit, and that is why the bank or creditor probably required  a co-signer or guarantor.

The only way to have your name removed from those loans is if the bank or lender allows it, and does so themselves. 

The loan that is in arrears you may be able to offer a reduced one-off payment to settle the loan.  Possibly 50% of the balance.  But again, you would be the one paying it off, and you would need the cash to do so.

Regarding your credit, get a copy of your credit report and look to see how both loans are being reported.  If the report shows the arrears, there is not much you can do.  Your credit report is a factual picture of how accounts in your name have been paid. 

Have you discussed this with your ex-wife?  If so what was her response?  Why has she not paid the account?

Just because it states in a divorce agreement that one party is to pay a joint loan, the original contract with the lender supercedes the divorce agreement.

 

Q:  I left England 4 years ago due to losing my job and struggling with life.  I had some credit cards with balances, and a personal loan, overdraft, and some catalogue debt.  I am guessing in total I had around £10,000 in debt and I just left it all behind.  I moved to the EU and just tried to get on with my life.  In looking for work I have been offered a job back in the UK and I am concerned about coming back home.  Will I get stopped at the airport and arrested? Will the police take my passport from me?  I am just worried what will happen.

A:  The unknown can be very scary, and I can tell you that alone by itself, just leaving debts in the UK, will not interfere with your return and living here.

There will be no one waiting at the airport and you will not be arrested or have your passport confiscated.

When was the last time you had any contact with any of your creditors and what did they say?

While you can come back to the UK, by doing so you may place yourself back on the “radar” and your creditors may start up with collection efforts.

Will the new job allow you to make payments on the accounts?

If not, depending on your full situation, you could consider a Debt Relief Order or Bankruptcy to be done with the accounts and start out fresh.

  

Q:  I recently went bankrupt, however before I did this I gave my brother my car.  The car was worth around £12,000 and I no longer needed a car and he did.  In my interview with the Official Receiver, he asked about the car.  I am unsure how he found out about it, but he did.  He said he would be speaking to my brother about it.  A week later my brother tells me that the Receiver did speak to him and if he doesn’t pay the value of the car to my bankruptcy, the Receiver will make him bankrupt.  What can I do?  I went bankrupt and I don’t want my brother involved.

A:  Unfortunately, you disposed of an asset prior to going bankrupt, an asset which could have been  used to pay your creditors.  Hindsight is 20/20, so let’s move forward from there.

It may be as simple as your brother just giving the car to them, or selling it and passing the money to the OR.  It is doubtful the OR will make your brother bankrupt, however, that is within their powers in some extreme instances.

 

Q:  I am in bankruptcy and due to be discharged in the next 6 months.  My mother just died an I am named in the Will and am going to receive a substantial amount of money.  Can I get this money or will it be taken for the bankruptcy?

A:  First, I am sorry to hear of your loss.

Just being mentioned or named in a Will is not something that must be disclosed to the Official Receiver in your bankruptcy.  However, if you are to receive the funds or anything of value prior to your bankruptcy being discharged, then you have to disclose it, and the OR could take any assets for the bankruptcy.

According to the government’s insolvency service once you know or are made aware you are going to inherit anything of value, you need to disclose this to the OR.

How much did you go bankrupt for, and how much will you inherit? 

You may be able to pay off all the debts, the OR’s fees, and whatever is remaining would be yours. 

 

Q:  Hi, and I hope you can help.  I have almost £18,000 in loans and credit cards and due to a reduction in my hours at work, there is no way I can continue to pay these accounts.  They are in my and my wife’s names.  We have a house that is mortgaged and has some equity, maybe £7,000.  I was told if we go bankrupt we will lose the house.  This is what we want to avoid, we don’t want to lose our home.  We have 2 children and it would be harmful to them if we had to move.  What can we do?

A:  I understand your concerns, and can offer some advice, however with out all the details, and depending on how much you can afford to offer towards the accounts each month, I cannot say which option is best for you. 

You could consider two options either an IVA/Individual Voluntary Arrangement, or a Debt Management Plan.

IVA’s are a more formal arrangement, where you make payments for five years of what is determined you can afford each month.  Then in the fifth year you are expected to re-mortgage to release some of the equity in the property to buy-out the IVA.  With an IVA any remaining balances on the accounts after the five years is written off and you are debt free.

In a Debt Management Plan, you again make payments of what you can afford each month, however there is no time line or concession in the balances of the accounts.  You continue making payments until the accounts are paid in full.  A DMP is not a formal arrangement like an IVA.

 You need to speak to a professional adviser who can go over your full set of circumstances and also complete an income and expenditure sheet to see which option is best for you.

  

Q:  I have bad credit from not paying my accounts on time in the past.  I am working, and need to buy a car to get to work.  I know my credit score is low, and I cannot seem to get approved anywhere for a loan.  Any suggestions?

A:  You may want to consider a guarantor.  If you have a friend or family member who can sign as a guarantor, you can get approved for the loan.  Guarantor loans are not based on credit scores, but the fact you have someone guaranteeing the loan, and affordability.

You can also look to improving your credit score.

Get on the electoral roll, and also review your credit report for any errors.

  

Q:  I lived and worked in Dubai for about 3 years, but when I was let go from my job, I lost m Visa to stay living there, so I moved back here to the UK.  I left a few unpaid accounts there and the bank has tied to contact me, but I am only working part-time and don’t have the money to pay them.  They refuse to accept any for of reduced payments, and want the full balance paid.  I just recently was contact by a local solicitor’s office saying they were now collecting the account for the bank in Dubai.  My questions are:

Can they collect the money owed to a bank in Dubai here in the UK? 

What can they do to me?  They are threatening to make me bankrupt.

A:  I understand your concerns, and as the world gets smaller and we moved about and live in other countries, it can get confusing when we have accounts and debts and move, and then the accounts get collected, literally around the globe.

First off, yes, there are collection agencies here in the UK that can and do collect accounts for banks outside the UK and EU.  Many contracts or terms and conditions for some loans have a non-jurisdictional clause, which in essence means the account can be assigned to an agent of the bank to be collected in another county.

However, as it is a UK agent collecting the account now in the UK, they have to abide by all UK collection rules and laws, and you are afforded the rules and laws we have in the UK to repay debts, and also our insolvency laws.

This means if you have other debts here to pay, you could consider a debt management plan, or a form of insolvency, IVA, Debt Relief Order or Bankruptcy.

If you have assets, such as property, the threat of the agent stating they are going to make you bankrupt is one you may wish to consider real.  If you have no assets, in all probability, and unless you owe £5,000 or more, they will not make you bankrupt.

  

Q:  I had a property repossessed a few years back, and never heard any more about it.  I know it’s on my credit history as I have looked at my credit report.  Recently I was contacted by a collection agency stating I owed them over £20,000!  When I questioned them about this, they said it was from the property being repossessed.  How can I owe money for a house that was taken back?

A:  It may be that you owe a deficiency balance from the mortgage loan.  When a property is repossessed, it is sold, usually at an auction, but can be sold in other ways.  The lender attempts to get the highest amount they can for the sale, but repossessed homes can be in need of repair, and unless the balance on the loan is low, and the property is of value, the sale may not clear or pay off the mortgage.

This balance left owed is the deficiency from the sale that failed to clear the full loan amount.  This amount is now unsecured as the property was sold, and unfortunately, still owed by the person whose name the mortgage was in.

As an unsecured debt, it can be included in various debt management plans or even an IVA or bankruptcy.

 

Q:  I owe some money for a credit card and a loan back in the US.  I now am living in the UK and want to go bankrupt, can I include the accounts in the US in a bankruptcy here in the UK?

A:  That is a good question, and one being asked more and more, as we travel and live in other countries, and naturally take out accounts in those countries.

You can include accounts in other countries in a UK bankruptcy, but there is a caveat to this.

While you can include the accounts, the creditor(s) you owe in those countries are not bound by our insolvency laws here in the UK, except in the UK. 

Meaning any protection you are afforded by the bankruptcy is only good in the UK.  The creditors cannot collect the accounts in the UK, but should you move back to that country where the debts originated from, they can be collected there.

  

Q:  I have been working in the UK for 5 years now under a work visa and am looking at citizenship here, however, I am deeply in debt, and am worried that the debts might ruin my chances of getting citizenship. 

A:  I understand your concerns, and to some extent, they are valid.

When getting a work Visa, spouse Visa, and even citizenship here in the UK, only in a few instances for a Visa does the Home Office ask about or look at financials.

You will need to show you can support yourself for many Visa’s, or in the example of a spouse Visa, you may need to show that a spouse can support you, but credit histories are not reviewed, and do not come into play for a Visa or citizenship.

There is however a “good character” portion on the citizenship application, and also a sound mind section.

These refer to being of good character and not having any mental health issues. The good character portion refers to criminal actions, and if you have ever been arrested or charged with a crime.

While not specifically asking about debts or finances, if you have CCJ’s, and are being chased for payments, this could be seen as an issue.  I say/write could be seen.

If you are actively paying on the accounts, either on your own or though a third party, such as with a Debt Management Plan, then this shows you are working to cure the debt issue.

  

Q:  Should I Take Out a Loan to Build My Credit Up?

A:  That depends on a few things, such as do you need the loan?

Taking out a lone just for the sake of “building up” credit, is an option, but what is your credit score currently, and have you reviewed your credit history? 

Does your credit score need building up, have you had bad credit in the past?

There are other options, such as getting on the electoral roll, paying down what accounts you may already have, if you have any.

  

Q:  I have 3 credit cards and am considering a consolidation loan. Do you think this is a good move?

A:  Debt consolidation loans can be a good and useful way to get out of debt, and also to save money on interest.  Credit cards usually carry a high interest rate, and if you are only paying the monthly minimum payment, it can take you many years to pay them off. 

As to if a debt consolidation loan is right for you will depend on a few things.

What are the balances on the credit cards?

Can you afford to pay more towards the cards each month?

What would the terms be for the new loan, interest rate and how many payments?

What brought you to this position to want or need a consolidation loan?

Consolidating the cards may save you money each month, which is a good thing, but if you begin using the cards again, then you will have the loan to pay, and new credit card balances.

You need to address what brought you to this point in time, then decide if a consolidation loan is right for you.

 

Q:  I am buying a new car and am confused about what type of car financing is right for me?

A:  With so many choices and types of car financing available, it can be confusing as to which is best for someone. 

Asking yourself a few questions can help direct you, like do you want a new car every few years?

How quickly do you want to have the car paid for?

How much of a deposit do you have saved?

We have a guide to car buying that helps to explain financing options as well.  You may wish to review it. 

 

Q:  I have a property valued at £200,000, with a mortgage balance of £100,000.  I also have a personal loan of £10,000, and 4 credit cards totalling £18,000.  I want to remortgage and pay these accounts off, and also buy a new car, paying cash.  The problem is my credit score is low due to bad time we had when I was made redundant a few years ago.  I am back to work now, and am concerned I may not be able to get the new mortgage.

A:  It is unfortunate, but it does happen that people do have rough patches with their finances, and being made redundant is one such cause for their to be financial difficulties. 

Have you always paid your current mortgage on time?  Did you ever pay it late, or miss any payments?

This can have a bearing on getting approved for the remortgage. 

It appears you have a good LTV or loan-to-value with all the equity you have in the property.  By taking into account the mortgage balance, and the accounts you wish to pay off, depending on how much you require to buy a new car, you still are in a good position equity wise.

You may wish to speak to your current mortgage holder about the remortgage, as you are currently with them, and if you never missed a payment, it does look better.

You could also contact a mortgage broker, and speak to them.  Mortgage brokers work with different lenders who specialise in loans for people with bad credit, or low credit scores.

 

If you have a question regarding credit, credit scores, travelling or moving with debts, anything related to personal finances, ask them here, and we will get an expert to answer and address the question for you.

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