Pros and Cons of Debt Mangement
How Do Creditors view Debt Management Plans? Creditors generally look on a Debt Management Plan as the lesser of at least two evils. They would obviously prefer that debtors repaid their debts in full. However, if it is a straight choice between Debt Management and bankruptcy, Debt Management is a clear winner as far as creditors are concerned. In Debt Management, creditors can expect to have the debts repaid in full, albeit over a longer – sometimes much longer – period of time than what was agreed in the original loan contracts. However, if the debtor was to petition for bankruptcy, creditors usually rate to do much worse and often recover little or nothing of the original debt. An IVA is also preferable to bankruptcy, from the point of view of the creditors, since the debtor will effectively repay the maximum amount possible over an extended period, usually five years from both disposable income and from any realisable equity in property.
Can you enter Debt Management if you are Solvent? Yes, you can. Debt Management is really an informal process with no comprehensive legislation governing the process. Although your income and assets may be sufficient to pay off your debts in full in accordance with the terms of your contracts with your creditors you might be unwilling to carry out some of the necessary actions to achieve this. You might for example be unwilling to sell your home. By entering Debt Management you might be able to manage your finances in a more orderly way and sell or re-mortgage your property at a time that suits you or when the market is more favourable or when re-mortgage terms are more reasonable.
Can you prevent your neighbours from learning about your Debt Management? While there are no guarantees that your Debt Management can be kept from the attention of your neighbours, a few practicable steps will minimize the likelihood of them finding out. Assuming that none of your neighbours is a creditor of yours, then provided you behave discreetly in your communications with your creditors and with the debt management service provider you choose to use, then you can have a reasonable level of confidence that your neighbours will not be aware of your Debt Management. Commercial debt management service providers as well as CCCS, CAB and Payplan all offer complete confidentiality and privacy in their dealings with you and no information should be disclosed by them to any third parties such as your neighbours or your employer. Only your creditors will be contacted and you will have to agree in advance before even that can happen. The norm is to give your Debt Management service provider written authorization to contact your creditors and to negotiate with them on your behalf.
Why enter a Debt Mangement Plan if an IVA might be more suitable? While one should choose the most suitable solution your personal circumstances may prevent you from choosing the ‘best’ option. For example, you may work in a profession where entering an IVA may lead to your being dismissed from your job or curtail opportunities for promotion or advancement. While such sanctions are usually more severe if you were to opt for bankruptcy, a lot may depend on your employer’s attitude to IVAs, particularly if you are in a position of trust, financial or otherwise or if your promotion would place you in a position of trust. Apart from the policy, practice and attitude of your employer, you also have to consider the attitude of any recognized professional body (RPB), of which you may be a member and the possibility that you could lose such membership if you were to become bankrupt or enter an IVA. You may find that disclosing such financial status to your RPB is mandatory, whereas entering a Debt Mangement Plan may not carry any such requirements.
Are there any developments in Ireland on Personal Insolvency? Yes. Currently Ireland does not have any processes similar to an IVA or bankruptcy in the UK and the only similar albeit unregulated process there is a Debt Management Plan. However, the consultation paper on personal insolvency published last year in Ireland by the Law Reform Commission is likely to lead to new personal insolvency legislation. In February 2010, ministers Brian Lenihan and Eamon Ryan announced the establishment of a group of experts to work with the government on the issue of indebtedness. Chief among the proposals are to: establish a new system of personal insolvency regulations allowing for a statutory non-court-based debt settlement system; establish a central Debt Enforcement Office; regulate debt collection agencies. The experts nominated include the current head of the Office of the Financial Regulator, Matthew Elderfield.
If you are struggling with your debts and need information onDebt Management contact us. We offer various debt Solutions to help you get out of debt.
