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L28
Junior Member
170 Posts |
 Posted - 23 May 2008 : 22:21:06
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Hello there
I'm desperately trying to help a friend a mine who has serious financial problems and we're looking at bankruptcy as an option.
She owes approx £35,000 to various creditors plus money to her family/friends as well and I think this is in the region of £30,000 so a whopping £65,000 in all!
The problem is that my friend has a disability and mental health problems and cannot really remember who she owes what to (this is only in so far as her family is concerned - not her actual creditors for personal loans/credit cards etc as she knows what she owes them) She also cannot remember what her family gave her the money for (I presume it was for general living expenses/holidays etc as she was up to her eyes in debt re-paying her creditors and I think they didn't want to see her struggling and not having some "luxuries" in her life!)
She was paying all of her creditors the normal payments until approx 18 months ago but then realised that she was "robbing peter to pay paul" and just could not maintain the payments. At this time, her family (and I) sought guidance from a money advice centre (I think it was Consumer Credit Counselling) and they helped her prepare a budget and agree reduced payments with her creditors. Since that time, she has been paying them token payments each month and everyone seemed to be happy - or so she thought. It now seems that one of her creditors (who ironically she owes the least amount of money too!) have insisted on FULL repayment of their debt or an increase in the monthly payment, otherwise they say that they will take legal action. The other creditors have not contacted her so I can only presume that they continue to be happy with the token payments being made at present.
Because of the stress that this matter has caused, my friends parents offered a sum of money to all of her creditors on a pro-rata basis at the end of last year, but only one of them accepted. She continued making payments to the others who refused the full & final offers (I think they put forward about £13,000 or around this sum but shared out pro-rata to her creditors).
She has recently received a small amount of money following the sale of her jointly owned home as her and her partner (they're not married) had to sell and I know she got approx £6,000. This money was again put forward to her creditors on a full & final settlement basis but (unsurprisingly!) they rejected it out of hand. The creditor who was insiting on full repayment or an increase in the monthly payments, has said she could continue to make reduced payments for a further 3 months and then review matters again. That would be fine but she is actually being made redundant from her place of work in the next month and because of her mental health, is not fit to work at all/get a new job. As a result, I know that it is her intention to not work and to apply for benefits plus she is going to be moving into a rented property with her family. Of course if she is surviving on government benefits, I imagine that this will be a meagre amount and that there won't be any surplus for payments to her creditors. By the way, I'm not sure where the £6,000 is now - I know she's going on holiday so it's doesn't take a genius to work out that this has probably been funded from her house sale proceeds!
My friend has confided to me that she will be getting a redundancy payout of about £37,000 and therefore, with the other money from the sale of her house, I presumed that she would look to pay off her creditors, possibly on a "full & final" settlement basis so that she had a bit over to start her new life/top up her benefits. However, whilst she does want to do this (because she accepts that she has had and spent their money provided to her on personal loans and credit cards) she wants to re-pay her family what she owes them first, which would swallow up almost all of her money. I think that the £30,000 odd of money has been given to her by her family over many years but she's totally unsure where or when it's been spent and how she would explain this to the OR??!!! I guess I can understand her thought process of "family comes first", but I was under the impression that you cannot give preference to creditors - is this correct?
Another option being considered is her filing for bankruptcy and I've got her some information about this (that I found on your website - very helpful thanks!). However, from what I've digested so far, I think I'm right in saying that the official receiver would not be very happy if she has paid her family money first (therefore in preference), when she owes huge sums to several creditors.
I obviously cannot stop her from doing whatever she wants with her redundancy money but if she paid her family money back first and then decided that she did want to apply for bankruptcy, could she find herself in legal trouble for giving preference to her family ? Could her family be asked to pay it back to the OR? I've sort of discussed this with her but she became very, very distressed and thought that she would end up going to prison as she would have committed some sort of legal offence!
Clearly, I'm not really sure what to say to her about this or how to re-assure her as I don't really understand that situation myself and have no formal money training - I'm just someone trying my best to help a friend in need! I was reading something about Bankruptcy Restrictions Orders / Bankruptcy Restrictions Undertaking and wondered if you could offer any guidance on this side of things please? At least that way I can show her this request for help and perhaps have more info that can help her decide what to do!
Can you also please clarify what would happen if she did go ahead as she is planning and withdrew the money from her bank account next month and re-paid her family - could they also be implicated in any "criminal activity" or asked to repay the money that she has paid back to them? Perhaps the reference to "criminal activity" is a little over the top as I don't actually think it could be classed as a "criminal activity" to re-pay family members (or can it as surely this is a civil matter??), but my friend is really, really worried (which doesn't help her mental health position at all) that by re-paying her family, she would be doing something illegal and could get into serious trouble with the police etc.
Finally, do you have any suggestions on a suitable way forward here? Might it be beneficial to split the money that she will have in half and pay 50% to her family and offer the other 50% to her creditors on a pro-rata full & final settlement basis? Perhaps it could be done on a 60/40 or 70/30 split in her familys favour and the balance offered to her creditors? However, they just don't seem interested in any "full & final settlement" and want FULL PAYMENT OF THE DEBTS which seems odd to me considering she doesn't own a property and in a month, will not be in employment either and totally reliant on benefits - just thinking about it at a basic level, a % of something for her creditors has got to be better than 100% of nothing if she goes for bankruptcy!!! However, if they do continue to refuse, what other action might her creditors take if she can't make the full payment to them - would they be likely to make her bankrupt? I suppose you can never second guess what action a creditor may or may not take but surely pursuing her through the courts would be a waste of time as there is no property for a charging order or job for an attachment of earnings order?
Something else I wondered about and have read a little bit on is a LUMP SUM IVA. I was thinking that perhaps my friend could pay her family something (maybe 50% of what she owes them from her redundancy pay) and then look to get a lump sum IVA with the balance of the money. Would this be an option? However, if she does pay her family money first, would whoever deals with the lump sum IVA also want to know the in's and out's of everything and ask questions about where the rest of the money has gone? or is it a case that in IVA's what's gone beforehand is not really relevant and they just deal with matters as they are at the time - eg, she's got say £10 or £15k to put forward for a lump sum IVA and wants to proceed on that basis? Also, any ideas on what sort of % creditors look at for lump sum IVA's - has your offer got to be for a certain % of the debt? I think with her full & final settlement that was initially put forward by her parents, it was about 40% ish of the debt that was being paid off but of course it was rejected. Are creditors generally prepared to accept less on lump sum IVA's?
My Apologies that this message is so very long but I wanted to make sure that I have covered everything!
Thank you in anticipation of your valued guidance!!!
Thank you in anticipation of your wise words of advice!
Kind Regards
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JulianDonnelly
Junior Member
United Kingdom
325 Posts |
Posted - 23 May 2008 : 22:56:00
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Hi L28
A warm welcome to the forum,
Firstly your friend needs to be careful in paying family as this is preferential treatment.
Firstly this is not a criminal activity, but as you quite rightly mentioned the OR could request the return of these funds from the family members and if not returned can take legal action against them.
A Bankruptcy Restriction Order or Undertaking (BRO/BRU) holds the Bankrupt under the restrictions of Bankruptcy for longer than twelve months.
The maximum penalty is 15 years.
If your friend were to pay the family members and then declare herself bankrupt she would almost certainly be given a BRO/BRU for a period of time as well as those who were being asked to repay the money.
I think a Full & Final IVA or Lump Sum IVA could be the answer here.
With this process your friend could include all of her creditors including family and friends and make an pence in the £1 offer to all. She would require 75% by value of her creditors to vote in favor of the IVA for it to be accepted, but I think with the amount available and her friends and family having a large voting power themselves this could be possible.
May I suggest you contact the helpline number or one of the experts where someone will be able to discuss the options in detail for you to relay to your friend.
Julian Donnelly
Spokesperson for www.Bankruptcyhelp.org.uk |
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melanie_giles
Senior Member
1191 Posts |
Posted - 24 May 2008 : 00:58:26
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A lump sum IVA could be a sensble way forward given your friend's position. I put a lot of these types of arrangement forward, and creditors tend to support them because they get their money paid much earlier than if they are receiving token ongoing payments or a contributions based arrangement.
For an informal chat about any financial difficulties, or advice as to the options available, I can be contacted via my website - www.melaniegiles.com |
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Viki.W
forum expert
United Kingdom
2211 Posts |
Posted - 24 May 2008 : 02:52:52
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| Could I just ask, if doing a lump sum full and final iva and family are one of the creditors, Do the family actually get to vote and do they receive a share, the same pence in the pound that has been agreed with other creditors? Thanks |
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JulianDonnelly
Junior Member
United Kingdom
325 Posts |
Posted - 24 May 2008 : 10:50:20
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Hi Anya,
Welcome to the forum,
Yes if family and friends are creditors then they have as much right to a dividend as your other creditors the same way as family and friends have to be treated equally in Bankruptcy and can not have preferential treatment.
Julian Donnelly
Spokesperson for www.Bankruptcyhelp.org.uk |
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Reviva UK
Advanced Member
United Kingdom
2452 Posts |
Posted - 24 May 2008 : 14:01:15
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You just need to be able to prove that you actually do owe family and friends money otherwise other creditors can get concerned incase all the information is not all 100%
Really would recommend you give Melanie's team a call on Tuesday and go over all the details.
They will be able to tell you the likelihood of it being accepted.
Paul Johns
Assisted Bankruptcy Specialists
Reviva UK
www.revivauk.com |
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