Case studies

Change in circumstances

Lisa and Joe had been together for 12 months before they made the decision to move in together. Lisa already had a mortgage property in her sole name and Joe moved in with her. Joe had a poor credit rating after defaulting on several credit agreements during the last couple of years. They decided to buy a new car and Lisa took out an unsecured loan in her sole name for 15k. They had completed their budget sheet and decided that based on both incomes they could comfortably afford their essential expenditure such as the mortgage and other bills plus the repayments on the car loan. Six months after they had bought the car Joe left Lisa. Lisa started to fall behind with payments on her car loan and her mortgage as she was now trying to manage on one income.

When Lisa contacted NDL she had 3 months mortgage arrears and 3 months arrears on her car loan. Lisa had also received details of a repossession hearing at her local county court from her mortgage lender. Our adviser completed a budget sheet with Lisa and advised that she was in a strong position to ask the court to suspend the possession order.  This was because Lisa could afford the contractual payments of her mortgage plus something towards the arrears. Our adviser talked Lisa through how to complete the court papers and what would happen at the hearing. We also gave Lisa details of local advice agencies which could accompany her to the hearing.

Lisa was also advised that she would need to make a reduced offer of payments on the car loan. As the loan wasn’t secured on the car the creditor would be unable to repossess it. However, Lisa was advised that the creditor may apply to the county court to apply for a charge on the property. This would mean that the car loan would become like a second mortgage on the property. Lisa wrote to the loan company with a copy of her budget sheet and details of her personal circumstances. Lisa asked the lender to accept a reduced offer of payment and to freeze the interest and charges. The court accepted Lisa’s offer on her mortgage arrears and agreed to suspend the possession order and the car loan and also agreed to accept her reduced offer without applying for a charge on her property.

Over-commitment

John and David had been together for five years. They each had a personal debt of aprox 10K each before they moved into together. They were both able to comfortably afford their credit commitments on their present wages. They then decided to move into a more expensive rented property. They believed that they could afford to do this as David was able to do a limitless amount of overtime each month at work. They enjoyed socialising with friends and ate out most nights a week and would normally have a couple of holidays each year as well as frequent weekends away. David struggled to keep up with the amount of over time his lifestyle was demanding. They both began to miss payments on their personal credit debts as well as their priority bills such as rent and council tax.  When they contacted NDL they had a combined indebtedness of 40k.

David was advised on the difference between priority and non priority debts and that it was important that they make an offer on their priority debts such as the council tax and rent arrears based on their budget sheet.  David was advised that they had 4 options.

• They could write to each of their creditors making a reduced offer of payment based on their budget sheet asking for the interest and charges to be frozen.
• They could possibly enter into a free debt management plan with either CCCS or Payplan. This would involve making one payment each month to either one DMP provider which would be distributed between the creditors. The DMP provider would also negotiate to get interest and charges frozen.
• They could also offer a full and final settlement. This is when a client offers a lump sum payment to the creditor in settlement of the debt. They are in a strong position to offer this as they have no assets.
• They could also consider bankruptcy. They were fully advised of the various implications of bankruptcy and would need to petition separately and pay two lots of bankruptcy fees of £475.00 each.

John and David decided to enter into a free debt management plan as they had a large combined surplus income of £300.00 per month. Their landlord accepted their offer on the rent arrears and the local authority accepted their offer on the council tax arrears. Their  DMP will last aprox 11 years and 10 months.

Financial exclusion

Sarah is aged 35 and claims Income Support and Disability Living Allowance. Sarah suffers from depression and has not worked for the last six years Sarah claims Income Support with a disability premium Disability Living Allowance (DLA). She lives in a one bedroom council flat which she moved into 9 months ago . She also claims Housing benefit and council tax benefit. Sarah’s debt problems started six  months ago when her washing machine broke down. Sarah applied to the Department for Work and Pensions (DWP) for an interest free social fund loan but was turned down as she had due to the amount she had already borrowed to cover the cost of moving.

 Sarah applied to various high street banks for a small loan of £500.00 but was refused. Sarah was then visit by an agent for a local door stop lender operating on her estate. Sarah was offer a loan of £500.00 with a high interest rate. As Sarah had no other means of borrowing the money she accepted the offer. The loan was to be paid back at £50.00 per week. Sarah missed a couple of payments on her loan due to a large electricity bill which she prioritised. The lender increased the rate of interest and added on late payments fees of £50.00 in total for two missed weeks of payment.

The lender then demanded the full amount due under the agreement in one payment. When Sarah contacted NDL she was very distressed and concerned about how the lender could recover the debt. The lender had sent various threatening letters stating that they could instruct bailiffs to break into Sarah’s property to remove goods.

Our adviser reassured Sarah that the lender was unable to do this and that bailiffs could only be instructed after she had defaulted on a county court judgment. She was also advised that county court bailiffs have to gain peaceable entry so can therefore not break into her property on a first visit. Sarah was advised to complete a budget sheet and make an offer of payment to the lender which she could realistically afford. Sarah was also advised that her particular electricity supplier provides a trust fund which she can apply to if she has any electricity arrears in the future.   Sarah made an offer of £10.00 per week  which was eventually accepted by the lender and interest and charges were frozen.