Many homeowners who contact us with major debt problems are very surprised to learn that it is legally possible for an unsecured creditor (personal loans; credit cards; overdrafts; store cards etc) to get the debt secured against their home and that, in certain circumstances, the creditor can apply to have the property sold or repossessed to pay off the debt.

Over the last couple of years creditors have become far more aggressive in the way they treat people falling into arrears with unsecured debts. We are now seeing many more County Court Judgments (CCJ) and property Charging Orders than in any recent times. Equally, debt collection companies, either acting on behalf of an unsecured creditor, or having bought the debt and acting in their own right – are now far more likely to go to law to obtain a CCJ. If the debtor owns a property and does not meet the terms of a CCJ, then a Charging Order is often applied for to secure the debt against the debtors’ property.

In reality there are a number of legal stages which a creditor must go through in order to secure the debt against your property. Firstly the creditor will need to obtain a CCJ for the debt. Often a judge issuing a CCJ would provide the debtor with a “means tested” Instalment Order stating that the debt should be repaid at £x per month. However, over the last few years we are seeing more and more “payment to be made forthwith and in full” judgments, where the debtor must repay the debt in full and immediately. Often a debtor is in no position to repay and once the CCJ time limit has passed the creditor can then go back to Court to begin the process of obtaining a Charging Order to securitise the unsecured debt against the house.

If a creditor applies for a Charging Order the Court will normally make an “Interim” Charging Order. The Court must be satisfied that you own, either solely or in part, the property highlighted in the Charging Order documentation. The Interim Charging Order normally provides the debtor with six weeks to appear at a Court hearing to explain why the Charging Order should not be made “final”. If you object then you will have to provide valid written reasons to both the creditor and the Court as to why a Final Charging Order should not be made. As with most court proceedings, the Court must decide whether it is “reasonable in all the circumstances” to confirm the Charging Order as “final”.

There are a number of practical and legal mechanisms available to debtors who face the possibility of having a Charging Order applied to their property. Under certain circumstances an Insolvency Practitioner can apply for an Interim Order to delay the court proceedings while an Individual Voluntary Arrangement (IVA) is applied for to restructure this and all other debts. Even if an IVA is not possible then the debtor can appeal to the Court to repay the debts in instalments or ultimately re mortgage to pay off the creditor in full.

In most cases where a Charging Order has been made final, the creditor usually issues a Land Registry interest in the property, which effectively stops any re mortgage or sale of the property without the creditor being made aware. The creditor will then usually await the future disposal of the property to get the debt paid – statutory interest being charged each year of course! If the creditor refuses to wait for the disposal to get the debt repaid it can go back to Court to apply for possession. It is unusual but legally possible for the Court to make an order for possession and sale without firstly exhausting all other repayment possibilities with the debtor.

If you ever find yourself in circumstances where you are being pressed for repayment of debts and being threatened with a Charging Order, or indeed a home repossession threat, then you may need to contact us for specialist financial advice, or a solicitor for a full analysis of your legal rights and liabilities.

Has anyone ever stopped to really think about the amount of money which loan and credit insurance actually costs? Credit insurance is sold by all the banks and finance companies and is designed to stop you getting into debt if you fall ill or are made redundant. Credit insurance will keep up your monthly loan or credit card repayments for a fixed period usually up to one year. Analysts believe that there are more than 20 million loans and credit card agreements with some form of payment protection and that as many half of all policies have probably been mis-sold.

Industry sources are now claiming that the “scandal” of improperly sold Payment Protection Insurance (PPI) could be even bigger than the Endowment mis-selling claims of the last six or seven years. In essence the sale of any PPI must involve a properly completed Fact Find to establish the “need” for such a product. People are now starting to claim that the PPI was added to the agreement without consent or that the cost of the PPI (often many £ thousands) was added to the loan – and payable first with interest also added!! – when the loan was later settled early there was no PPI rebate back to the customer. Indeed a loan may have been running for more than two years and the customer would not even have started paying back the actual loan. The banks have placed sales pressure on their own staff to sell PPI to customers. There are reports that bank staff have often tried to use the PPI as a means to getting the loan approved i.e. by suggesting that the loan would be more likely to be approved if the customer agreed to PPI.

Again we hear of many self employed people being persuaded to take out PPI as part of a loan when self employed people are usually specifically excluded from claiming anyway. Another common complaint has been that couple taking out a joint loan have been persuaded to take out PPI cover; then when the second signatory tries to claim, for example due to ill health, the claim is denied because only the FIRST NAMED signatory to the loan is actually covered by the PPI and not both parties.

An announcement in March 2007, by the one of the credit industry’s key watchdogs the Financial Services Authority (FSA), has stated that any person sold a “single premium policy” (usually a single payment of up to £5,000 or more added to the cost of the loan) could be likely to be eligible for refunds in the event the loan was cancelled before completion of the loan term. Even more alarming is that the FSA now appears to be coming to the conclusion that there has been systematic abuse and mis selling of all PPI products for a number of years.

Stuart King of FSA recently said

“Our work in the PPI market has demonstrated it has not been sold correctly over a prolonged period. We have seen too many real cases of individuals who do not appear to have been fairly treated when purchasing PPI”.

Similar enquiries by Office of Fair Trading have similarly concluded that less than 25% of all PPI policies result in a paid out claim.

The message is clear. The banks have been profiting for many years from the sale of lucrative PPI policies to people buying financial products. The peace of mind and support provided by PPI has helped some people avoid overwhelming debt problems. However, for a large minority, PPI could well have been wrongly sold or premiums not paid back to the customer. If you find any current or old finance agreements and believe you should make a claim then contact the FSA (www.fsa.gov.uk) or The Office of Fair Trading (www.oft.gov.uk ) to find out more information. There are an increasing number of specialist claims companies prepared to take on mis selling claims on your behalf on a “no win no fee” basis. Most of these companies have been heavily involved in endowment mis selling so will have the systems in place to support your application. However the usual finance rules apply – NEVER pay any money to anyone upfront. Only pay on results. If you want more information on a completely impartial basis then send us an E Mail (enq@financialguardian.co.uk) and we will try to point you in the right direction.

Labels: debt insurance, loans

If you are struggling with financial problems, particularly if you are being threatened with bailiffs and Court, then it is imperative you get professional debt advice as soon as possible. However, for many people getting the correct advice quickly is often easier said than done. For many people with debt problems, Citizens Advice (CA) is usually one of the first organisations contacted. Each CA bureau is local authority funded and the access and coverage is significantly better in some geographical areas than in others. People often complain that their local CA only opens for part of the week or that there are significant waiting lists for appointments with a CA Debt Advisor. Consequently people in debt often look elsewhere to get solutions to their financial problems.

There was once a major “void” in debt advice between the governments own funded organisations and the creditors themselves. The void has now been completely filled by a huge growth in the number of commercial organisations offering consumer debt advice. In the late 1990`s there was a huge growth in the numbers of commercial Debt Management Companies (DMC) offering consumers direct access to debt advice and the promise of dealing with all creditors on a fair and equitable basis. As the DMC businesses grew they spent major sums on advertising which led the Office of Fair Trading publishing Guidelines in December 2001 to try to curb some of the more excessive claims being made for their products.

As DMC plans cannot ensure creditors stop additional interest and charges from late 2002 a growing interest started to be taken in Individual Voluntary Arrangements (IVA). An IVA automatically provides for a complete stop to additional interest and charges as well as a “debt write off” after 5 years. Within 4 years the IVA industry has now become swamped with companies offering access to these services. The competitiveness of the IVA market has again led to many excessive claims by some advertisers seeking to secure their own market share. Yet again the Office of Fair Trading (OFT) has been forced to act against some of the IVA advertisers by issuing a “Warning” in January 2007 over misleading advertisements in both the Press and Internet.

The OFT undertook a Debt advertising compliance “sweep” in November 2006 (using the 2001 DMC Guidelines as a basis) reviewing 124 National Newspaper Adverts and 57 IVA company websites. The result was that the OFT officially “warned” 17 financial management businesses offering IVAs that the OFT considered the adverts and/or websites were potentially misleading customers. Some of the advertising claims made about the amount of debt write off possible and appearing to “guarantee” a favourable outcome were deemed to absolutely wrong. The businesses identified by OFT were given until the end of February 2007 to amend their advertising and websites to properly reflect the actual possibilities of entering into an IVA.

Alan Williams. Director at OFT comments

“IVAs are still a solution for many, but [IVA Companies] supplying them must be clear and honest about what they can and cannot achieve for consumers in debt and the possible negative implications of entering into such arrangements…. We will take firm action against businesses which engage in unfair and misleading practices when promoting IVAs”.

The OFT will continue to monitor the activities of commercial debt advice companies very closely; however it makes sense for someone with major debt problems to consider their options very carefully before committing themselves to a course of action. In essence a debtor should NEVER pay any upfront charges to any debt advice company – never sign a direct debit or make a payment on account. If a debt advice company is genuine in its desire to help, then getting some money upfront from someone in financial distress will NOT be necessary. There are a number of companies like us who do not charge any upfront fees whatsoever. Don’t be duped into confusing free advice with free service – usually only the initial telephone call is free.

The last thing you probably need to see on your bank statement each month is yet more bank charges for going overdrawn or bouncing a cheque. Indeed there are cases where the imposition of one bank charge puts you outside your overdraft limit and automatically triggers even more charges! For those people with major debt problems who are constantly battling to satisfy many creditors, bank charges can amount to a significant amount of debt over a period of time, sometimes running into a few thousand pounds.

One of the most recent business phenomena has been the growth in companies willing to support people who have had lots of charges imposed on their bank account. Such “bank claim” companies will approach your bank to recover wrongly applied bank charges in return for 15 -20% of the amounts recovered. All these claims companies rely on the fact that the banks are deemed only able to charge for the actual cost incurred in administering any bank charge rather than “profit” from a person’s financial misfortune. The difference can be quite staggering; a £30 charge for breaching an overdraft limit actually only involves about £5 work in sending out the notification letter leaving £25 in actual profit and penalty which may be subject to recovery. Moreover an individual unfairly penalised by bank charges can go back over the previous six years banking to determine the total potential claim.

A recent report by the consumer group Which has shown that at least 85% of people who have actually made a claim to their banks have succeeded either in whole or in part, and that the Financial Services Ombudsman should be called in to adjudicate in the event that there are disputed cases. The Which report also suggests that many more people may be prepared to claim refunds but are concerned as to how their bank may react. In one recently reported case a customer obtained a refund of charges (the total claim being less than £200) from his bank but was then advised that his bank account was going to be closed within 30 days. An appeal by the customer to the Office of Fair Trading resulted in the bank having to pay the customer £1000 compensation and the automatic reinstatement of the bank account. None of the banks have so far asked the Courts to judge on whether the fees charged are fair or not. At the moment they are settling claims as they arise and appear to be hoping that the majority of people don’t claim.

A person with £20,000 debt across credit cards, loans and overdrafts is likely to have incurred significant bank and credit card charges associated with these debts. If the debt problem has endured for a period of time then the charges could easily run into thousands of pounds. Even if you no longer bank with the institution which originally charges you then you should still contemplate a claim even if you do it yourself.

The first quarter of 2007 has seen dramatic changes in the IVA marketplace both for company’s offering the IVA solution, and for people with debt problems seeking to use an IVA to sort out overwhelming debt issues.

The latest available IVA statistics (Quarter 4 2006) show that the overall levels of insolvency are still rising but with a slightly higher proportion of debtors now opting for bankruptcy as opposed to IVA, when compared to the statistics for Quarter 3 2006. One of the main reasons behind the statistical change is that the banks and financial institutions are becoming more aggressive in their treatment of IVA applications and are rejecting IVA proposals in more and more cases. The banks have seen their bad debt provisions continue to rise over the last few years, and appear to have decided that a principal reason for the debt increase is IVA companies “touting” for debtors to enter into IVAs. The banks hardening attitude towards IVA proposals means that IVA companies now have to fight much harder – and spend significantly more marketing money – in trying to retain or expand their own IVA market share. The evidence of this vastly increased IVA marketing spend is easily seen in the national press and TV.

Additionally, the levels of fee which an IVA company can charge are also coming under increasing creditor pressure. The creditors often want a greater percentage of the debtors’ available IVA contributions in return for a “yes” vote. As the overall IVA pot is reasonably fixed there is no real way for the IVA companies to increase their total fees. There is every reason to believe that this downward pressure on IVA fees will continue and margins will get tighter for everyone. The IVA companies may be able to cut their costs, or diversify into related financial services, to alleviate the lower IVA margins, but the overall financial returns are likely to suffer.

A third major problem which IVA companies need to recognise is that there are no real barriers to new companies coming into the market and offering the IVA solution. There are now in excess of 500 different companies offering an IVA solution and costs for all companies will continue to rise as a consequence. Many smaller finance brokers and Independent Financial Advisors (IFA) are now offering introductions to an IVA solution which was not apparent two years ago. Many smaller IVA introducers may well fall by the wayside as their profits get further squeezed by the more established companies with deeper marketing pockets.

For the consumer with major debt problems and no assets, there are only three methods of debt consolidation to be considered. An IVA; a personal bankruptcy or a Pro Rata (often called a Debt Management Plan). In the event that an IVA is rejected by creditors then most debtors would probably be financially better off applying for a personal bankruptcy. Under the most recent bankruptcy legislation a debtor would only be usually liable to make contributions for up to three years - and in many cases probably just for a year – whereas under a Pro Rata the debtor would continue to make contributions until the whole of the debts were cleared, often many many years into the future. Those banks and credit card companies now being far harsher with IVAs seem to be relying on the assumption that most debtors so rejected will not apply for personal bankruptcy, because the banks will get virtually nothing if the debtor goes bankrupt. It does seem very strange, if not a little financially perverse, that the banks will reject an IVA proposal knowing full well that they will be far worse off if the debtor then applies for bankruptcy.

There is a great deal of uncertainty at the moment in the IVA marketplace. The standoff between the creditors and IVA companies appears set to continue. Even though the Office of Fair Trading has recently issued advertising guidelines and warnings to some IVA companies concerning promotion of IVAs; and the British Banking Association is trying to find common ground on behalf of the creditors, there will always remain debtors with debt problems trying desperately to sort out their affairs.

This is the IVA Advice.org.uk blog. Look here for up to date news about Individual Voluntary Arrangements and personal finance.

IVA Advice provides free financial advice and assistance for individuals and small businesses who are struggling with debt problems.