Stephen Gold: There are a number of companies which profit from debt management plans. If you have a barge pole, do not touch most of them with it
Stephen Gold is a retired judge and author who has written two popular series for This is Money on how to be a successful executor and writing a will that ensures your last wishes are followed.
In his new four-part guide, he first explained what to do if you face bankruptcy and today looks how to keep creditors at bay while you find the cash to meet their demands.
‘I don’t want to be bankrupt’. Good for you. The honourable thing to do is pay off your debts if you can.
You may need time, but creditors can bully.
Let’s see how we can deal with them, before turning to those who are more open to discussion about paying what you owe.
A draft letter: Facing down threats and harassment
The letter like the one below will only be justified where the creditor and their debt collectors have gone too far.
A communication from the creditor’s solicitors, for example, that threatens county court proceedings for the recovery of the debt together with interest and costs unless the debt is settled within seven days would be quite lawful – unless accompanied by a hand grenade or repeated daily over three weeks.
Dear Creditor
I acknowledge your letter dated 01 November 2023 and their predecessors, with their series of threats printed in red ink in the largest font known to word processors, from yourself and the debt collectors you have instructed who have communicated with me in similar vein.
I will address my indebtedness to you as soon as I have been able to obtain advice from a debt counsellor. In the meantime, you should know that –
– It is an offence under the Malicious Communications Act 1988 to send a threatening letter where its purpose is to cause distress and anxiety to the recipient or to anyone else who was intended to read it.
– It is an offence under the Administration of Justice Act 1979 to make demands of a debtor which are likely to cause them or their family alarm, distress or humiliation because of their frequency or the way they are made or any threat of publicity which goes with them.
– It is an offence under the Protection from Harassment Act 1997 to pursue a course of conduct which amounts to harassment where the perpetrator knew or ought to have known that this is what it would do.
I am satisfied that the conduct of yourself and your agents amounts to the commission of all the above offences and, further, that it would entitle me to damages under the 1997 Act.
That being so, I give you notice that unless you and your agents desist from communication with me about the debt otherwise than by way of compliance with the appropriate pre-proceedings protocol and/or service of properly constituted proceedings, I shall institute proceedings against you for an injunction to restrain contact and for damages for harassment and take steps to report you with a view to prosecution for the above-mentioned offences or any of them.
Yours faithfully
Ian Det
Claims under the 1997 Act do work. Honest. One lady used to be a customer of British Gas Trading Ltd. She left them. Over the following five months she was subjected to letter after letter and threat after threat to cut off her gas supply, start legal proceedings and report her to credit reference agencies – all without justification.
This caused her considerable anxiety. She made a county court claim for harassment damages. British Gas attempted to get the claim thrown out, arguing that it was too weak to go to trial.
The Court of Appeal would have none of it and ruled that the conduct complained of was capable of amounting to harassment and was oppressive and unacceptable.
In another case 10 years ago the Court of Appeal upheld an award of £7,500 damages for harassment to a customer of Royal Bank of Scotland.
She had exceeded her overdraft on one or more of her accounts. She made it plain to the bank that she did not want to speak to them but still they spoke or attempted to speak to her – on 547 occasions!
The calls constituted intimidation and had been wholly unjustified. The existence of a debt, it was held, did not give the creditor the right to bombard their debtor with calls. It was the right of a debtor to decide whether or not they wanted to discuss the matter with their creditor.
Here’s an offer: Make a polite proposal
Some creditors will consider a reasonable offer rather than attempt to bleed you dry. Payment by instalments is always worth proposing.
Where you have a single debt and can get hold of a lump sum, your creditor may be attracted by accepting something less that they are owed to let you off the hook.
After all, the prospect of you being made bankrupt and the creditor not collecting a penny is unattractive to them. You could try this.
Dear Creditor
I owe you £5,000. My circumstances have substantially deteriorated since the debt was incurred and I am now insolvent, with no capital of my own and a low income.
I would much prefer to see my liability to you discharged than to apply for my own bankruptcy and, to this end, I have a proposal.
I have relatives and friends who, between them, are willing to make available to me the sum of £2,500 which is the very maximum I can obtain.
If you have a myriad of debts, a debt management plan may be the solution for you
I am prepared to access and pay this sum to you within 28 days from you receiving this communication if you will accept it in full and final settlement of my debt to you.
This proposal remains open for 14 days from you receiving this information.
Details of my financial circumstances are set out below. If you require any further information, please let me know.
Yours faithfully
Ian Det
No lump sum: Arrange to pay by instalments
If you have a myriad of debts, a debt management plan may be the solution for you.
That’s the posh name for monthly instalments. You make regular instalments out of your income which is shared out to each creditor in proportion to what they are owed until they are eventually paid off.
There are a number of companies which make a profit from organising and running plans. If you have a barge pole, do not touch most of them with it.
You will be okay with PayPlan. They are funded by the credit industry, but I reckon they can be trusted to help. And there is no charge. There are also debt charities, like Stepchange and National Debtline, and Citizens Advice.
Or you can organise and run your own plan after getting any advice you need from debt counsellors.
Try and negotiate that while you are paying off by instalments any interest to which the creditors might be entitled – whether under your contract with them or under a court judgment – will be waived.
Otherwise, you may find that you never succeed in reducing the main debt, let alone clearing it, and the instalments you hand over are only sufficient to meet the interest.
Retired judge and writer Stephen Gold
Ex-judge Stephen Gold is the author of ‘The Return of Breaking Law’ published by Bath Publishing, a bumper and irreverent guide to your legal rights and winning in court or losing well.
It is full of tips and templates for the consumer and covers more on bankruptcy plus a host of other topics, including pre-nuptial agreements and how to cope with financial disputes following relationship breakdown.
There are alternatives to a debt management plan. Take an administration order, for example. This one does not require your creditors’ consent, though they can argue against it but rarely bother or with much enthusiasm.
It is available from the county court where your debts are no more than £5,000 and you have at least one judgment against you.
Again, you pay off your creditors out of income by instalments (probably monthly) but usually over a period of no longer than three years and the court may and often does, reduce what you owe each creditor.
This means that they only receive a percentage of what they are owed and, after those three years or whatever, you walk free of that debt. No court fee when you apply. A bargain!
And then there is the individual voluntary arrangement. This is a formal arrangement with creditors to pay something towards what you owe over a period of several years and managed by a supervisor who is an insolvency practitioner.
You may put capital (current or expected during the lifetime of the arrangement) or income into the pot – or both – to be shared by your creditors.
You could end up paying off a small fraction of what you owe and avoid bankruptcy but at least 75 per cent in value of your creditors must agree to the proposals you out forward.
As I judge, I approved arrangements for substantial debts where the creditors were set to collect a mere 5p and 10p in the pound.
The bad news is that the fee for setting up and managing the arrangement could be around £3,500 plus. Beware. There are sharks out there.
IN PART THREE…Stephen Gold explains more negotiating tactics to use with creditors to get yourself out of debt.
