The Scenario
Ross and Becky are parents with two boys. They own a house in Tyne and Wear, worth £90,000 with a £75,000 mortgage. Their money troubles started around the time Ross decided that a career in football was for him and was signed by the local club, Kibblesworth for £100 per week. Becky was right behind him as her hairdressing job was paying the bills, the mortgage, and their bingo hobby. Everything was fine until Becky became pregnant and had to give up her job.
Things were made worse when Becky started spending on the credit cards (at one point she was spending more than their income on clothes!). Eventually Ross had to give up his dream and return to Tesco, and Becky is now cutting hair part-time. They are earning enough to live on now, but just can't keep up with the payments on the £30,000 credit card debt. Their minimum payments are £900 each month and they have worked out they can only afford £300.
How we could help
For clients with houses and this level of debt we would look at debt solution options in the following order:
- Re-mortgage – This is the cheapest option in most cases (although only if there is enough LTV equity in the property).
- IVA - They would still be able to keep their house with this option.
- Bankruptcy – This is usually the last option as the client would probably lose their property.
Debt management would not really be an option in Ross and Becky's case as the level of debt would take them over 8 years to pay off.
Loan To Value (LTV)
In Ross and Becky's case they don't have enough LTV to pay off their debts so an IVA would then become their best option. Their LTV equity is about £1,500 (using 85%) so this would have to be added to the IVA 'pot'. They would release this by re-mortgaging in the 4th year.
Joint Debts
In this case we would always make sure that we found out exactly who owns what debt and if any of it is joint. As they have only £300 surplus, we may not be able to put them both through for an IVA (usually need £200 each), if the joint debt does not total over 75% of the total debt (if it does then you can add the joint debt together). A linked case may also be an option if a large proportion of the debt is joint and one of the applicants only has one or two creditors.
* Please note that all characters and scenarios described are fictional, and are purely for illustration purposes
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