From the Viewpoint of Creditors
While creditors differ in how they view and treat Debt Management Plans, it is probably fair to say that creditors generally look on a Debt Management Plan (DMP) 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 a DMP and bankruptcy, the DMP is a clear winner as far as creditors are concerned. In a DMP, creditors can expect to have 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 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 level of equity in property.
Solvency and Insolvency
To establish whether you are solvent or not, you need to answer two questions. Do your assets exceed your liabilities and are you able to pay your debts as they fall due? If you can say yes to both questions then you are solvent. If you say no to both questions, then you are insolvent. If you say no to one question and yes to the other, you may be insolvent. You may enter into a DMP if you are solvent and you may seek to do so even if you are insolvent. In stark contrast to that, you may only enter into an IVA if you are insolvent. Many solvent debtors seek to enter into a DMP if they are unwilling or unable to immediately comply with the terms of their loan agreements. The informal process that is Debt Management may suit a debtor’s circumstances and allow them to manage their finances including for example selling of assets in a more satisfactory and controlled way and over a longer or a more acceptable period of time.
Keeping your DMP Quiet
If you find yourself in financial difficulties you probably do not want certain people to find out about it. Top of the list are usually neighbours and employers. Some people do not even want their spouse or partner to know about their difficulties and may want to avoid telling their children. Extended families can be a particular source of embarrassment if they learn that you have money problems. What can you do about publicity? Commercial DMP providers will as a standard practice offer complete confidentiality and privacy in regard to your DMP. If instead you are dealing with Payplan, CAB or CCCS you can expect the same standard of service. Your own behavior will also help. Behave discreetly in your communications with your creditors and with any DMP service provider you use. Your creditors will obviously have to know what your plan is to repay them. Hopefully, none of your neighbours is a creditor. It may be that your spouse or partner cannot be kept in the dark regarding your situation since your plan will have to contain an income and expenditure statement regarding your family. You may also have joint debts with your spouse or partner. However, you can control who knows about your DMP since you will have to authorize your DMP service provider to contact your creditors and negotiate on your behalf.
Mixing and Matching Different Financial Solutions
One party of a co-habiting or married couple may be insolvent while at the same time the other party may be solvent, albeit managing their finances with difficulty. In such circumstances it is possible to ‘mix and match’ financial solutions. There are many combinations of possible solutions: bankruptcy and DMP; IVA and DMP; Bankruptcy only; IVA only. If both parties are insolvent then you could have two bankruptcies or two IVAs, or one of each i.e. one bankruptcy and one IVA. Choosing the best solution or set of solutions is important, particularly when one or both parties have assets, either singly or jointly owned. Getting the best advice is crucial. It may be that apart from insolvency advice, both parties should obtain legal advice, even where one party is solvent, particularly when either or both parties have assets.
Jurisdiction is Key
In the UK there are many types of process available to the beleaguered debtor. They include Bankruptcy, Individual Voluntary Arrangement (IVA), Debt Relief Order (DRO), Debt Consolidation, Asset Sale & Debt Settlement and Property Remortgage & Debt Settlement as well as Debt Management. It may even be that financial assistance is available from a member of your family or from one of your friends. In Ireland there is – well frankly, very little choice. Bankruptcy is not a real option there. Because it is so expensive and the sanctions are so draconian it is probably true to say that nobody in Ireland can afford to pursue bankruptcy, either their own or somebody else’s. Debt consolidation may be an option but if you are insolvent all debt consolidation does is to combine all your loans into one so that you have one monthly contractual payment rather than several. So unless you can go to family or friends for financial assistance or you can sell or remortgage assets then in Ireland the only real avenue open to you if you are facing personal insolvency is a DMP, either self administered or with the assistance of a Debt Management provider.
