My partner and I are homeowners and we’ve built a fair amount of loan and credit card debt.
We have been juggling our finances for months now and see no light at the end of the tunnel – in fact, we recently took out a couple of pay-day loans, which is proving to have been a bad judgment. How can we resolve the situation and get ourselves out of the financial mess that we are in without taking the risk of losing our house?
A. It may seem right now that there is no end in sight to your financial predicament, but that’s not always the case. Aside from trying to deal with your creditors on your own, robbing Peter to pay Paul and generally moving your debt around to ease the burden isn’t usually a good idea. There are many debt relief products available to you and advice on these can be sought from the likes of Citizens Advice and the Money Advice Service.
The most common debt relief products are debt arrangement schemes (Das), protected trust deeds (PTDs) and sequestration.
The first thing to do is determine the level of equity in your home. Once this has been established, you can work out a weekly/monthly income and expenditure budget, excluding the amounts payable to your creditors, to ascertain your disposable income, if any. You should seek the advice of one of the organisations referred to above in doing this.
There is no need for you to lose your home in any of the aforementioned scenarios, unless you fail to maintain mortgage payments, in which case the lender will take action against you.
In the case of the Das your home is actually excluded from the process and all you will have to do is agree a regular repayment plan with your creditors. This normally takes anything up to ten years, but it can run longer depending upon your individual circumstances.
In a PTD or a bankruptcy, the equity in your home is taken into account. However, only in extreme circumstances, or where you wish to give up your home, will it be sold.
In addition to the level of equity, in each of these scenarios you will also be required to make a weekly/monthly contribution from your earnings, but this generally only lasts for a three-year period. Whatever funds are realised from equity and contributions will be used to pay back a proportion of your debts. Whatever is not paid back is written off.
Seek advice from a reputable organisation as quickly as possible and certainly before matters get out of hand. Debt relief is available to everyone, so there is no need to feel trapped or alone.
• Derek Lyttle is a personal debt solutions manager at MLM Solutions.
If you have a question you need answered, write to Jeff Salway c/o The Scotsman, 108 Holyrood Road, Edinburgh EH8 8AS or email: email@example.com.
The above is for general purposes only and is not tailored for individual use. It does not constitute legal, financial or investment advice on any particular matter and must not be treated as a substitute for specific advice. No action should be taken in reliance of the information given. The Scotsman Publications Ltd and MLM Solutions accept no liability on the basis of this article.