The Scenario
Reg and John are living together in rented accommodation. Reg used to be a busker with irregular income and John is in full-time employment as a fireman. They used to be able to manage Reg's irregular income as John's income covered all of their basic outgoings. Their money troubles started when they decided to have a lavish Civil Partnership ceremony and spend over £20,000 buying nothing but the finest food, drink, and entertainment.
They began to struggle with the repayments and sometimes missed them if Reg had a bad month busking. During these times, they used credit cards to subsidise their income, adding to their debt mountain. Realising that busking was no longer an option, Reg took a job with a local piano tuner. Although Reg's income is now a steady, it is not much and they are both struggling to meet the demands of their creditors. They have managed to accumulate £40,000 of debt and think they can afford to pay back about £350 per month. All the debt was taken out in John's name as no-one would lend against Reg's fluctuating income.
How we could help
This is a pretty straight forward case as it is a single applicant with what seems like a number of creditors and a reasonably good surplus. As Reg is no longer self-employed, we do not have to worry about proving his income as he will now have wage slips.
There are a couple of options available to Reg and John:
- IVA – At face value, an IVA looks like the best option for Reg and John - there is no joint debt, a good surplus and a number of creditors.
- Bankruptcy – This is still a good option for Reg and John as they have no house and the level of debt is quite high.
Debt management would not really be an option in Reg and John's case as it would take them over 9 years to pay off, assuming that the interest is frozen.
This case seems straightforward but there are a few things that we would need to look out for in similar cases:
Dividends
Although Reg and John have a good surplus of £350, the dividend at the moment is roughly 30%. This means that we would need to check who John has debts with carefully to make sure that we meet the dividend requirements.
In this case, if there were any creditors that required higher dividends, we would have to make sure that the total value of these creditors did not amount to more than 25% of the total debt. If they did then we would not be able to outvote them at a creditors meeting.
Bankruptcy
Another point that would have to be looked at in this case would be whether John can go bankrupt. In most cases employers are not bothered if their employees go bankrupt, but there are some jobs that by going bankrupt is against their employment terms and they can lose their jobs. If client is in any doubt, they can check their employment contract.
* Please note that all characters and scenarios described are fictional, and are purely for illustration purposes
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