Posts Tagged ‘ Bankruptcy ’
Top five questions about… Debt Relief Orders.
A Debt Relief Order, or a DRO, is a form of insolvency which is bankruptcy for people with debt levels of less than £15000, low surplus and little or no assets. Researching debt solutions can be a daunting task, we have therefore put together five of the most common questions.
How long does a DRO last?
Once you have successfully been granted a DRO a Moratorium is placed upon your unsecured debts. This means that lenders cannot take any action against you. The Moratorium or hold usually lasts for 12 months, after this time you will become discharged from your qualifying debts and will no longer be liable for them.
Do I need to go to court for a DRO?
Unlike the other form of bankruptcy where you need to attend court, with a DRO the process does not require you to. A DRO is approved by the Insolvency Service upon submission from Approved Intermediaries, who work for a Competent Authority such as Payplan.
What debts are included in a DRO?
A DRO will include unsecured debts such as:
- Payday loans
- Credit cards
- Store cards
- Bank loans
Debts that aren’t included are:
- Court fines
- CSA arrears
Will I be able to keep my car?
You are able to keep your car as long as it is valued below £1,000. If you have a car that has been modified due to a disability and you need it to get around day-to-day then you will be able to keep it.
How does a DRO affect my credit rating?
As a DRO is a form of insolvency, a note will therefore remain on your credit file for six years from the date it was approved, meaning that you will find it extremely difficult to obtain any further credit.
Top five questions about bankruptcy.
Bankruptcy is a form of insolvency and it is often referred to as a ‘last resort’ because of the long term affect it can have. Looking for a suitable solution for your debts can be a daunting experience and many people who contact us have a lot of questions. Below are five of the most common questions we are asked.
How long will I be bankrupt for?
Most people are automatically discharged from bankruptcy after one year. In some cases the Official Receiver will postpone the discharge due to on-going enquiries, for example where the debtor has not cooperated with them.
What will happen to my home?
If there is equity in your property then the Official Receiver will look to release it. They will do this in one of three ways:
- Asking you to see if your family/friends can raise the equity amounts.
- Asking you to place your home on the market in order to sell.
- Obtaining an order for possession of sale.
If I go bankrupt how will it affect my partner?
As long as you do not have any joint debts your partner will not be affected. However if you have joint unsecured debts the creditors will chase your partner for the full amount outstanding as you are both joint and severally liable.
How does bankruptcy affect my credit rating?
The bankruptcy details will remain on your credit file for six years from the day the petition is granted by the court. This could result in you struggling to obtain any type of credit during this time; lenders generally check your credit report to help them decide whether or not to lend to you. You will also have a restriction placed on how much credit you can apply for during the Bankruptcy.
What debts are included in bankruptcy?
Your bankruptcy will deal with all of your unsecured debts, such as:
- Bank loans
- Payday loans
- Overdrafts
- Credit cards/Storecards
Any other type of debt would need to be dealt with outside your bankruptcy.
Is my home at risk if I enter into a Debt Management Plan?
Ask Payplan a question… Is my home at risk if I enter into a Debt Management Plan?
If you are a homeowner in debt ensuring your home is secure is one of the biggest priorities; it is because of this that many people avoid bankruptcy. An alternative solution, such as a Debt Management Plan, may be more suitable.
Your home would only be at risk from your creditors if you failed to maintain payments towards your debt, in which case creditors would still need to follow a series of steps. They would firstly need to issue a default notice against your account. If you continue to miss payments, or make reduced payments, they would need to successfully obtain a County Court Judgement. If you then fail to maintain payments towards this they could apply for a Charging Order against your property.
A DMP enables you to repay your creditors at a rate you can afford; we would propose a level of repayment to each of your creditors based on your income and expenditure. Your creditors are then asked to accept the repayment plan. Once it has been set up, as long as you maintain all the payments into your plan as agreed, your creditors are less likely to pursue any legal action against you, however this is not guaranteed.
How do I deal with HMRC debts?
Every individual in the UK must pay Income Tax if their income exceeds a certain amount, however the way this is paid varies depending on their working status. If you are employed then you will pay yours directly through your employer via Pay as You Earn or PAYE. If you have your own business then you are required to submit a Self-Assessment tax form on 31st January following the end of the tax year which will determine how much tax you should pay. The tax year runs from 6th April – 5th April.
For those of you that are employed and pay your tax via PAYE, it is deducted straight from your salary. You will receive your tax code through the post each year and you are responsible for ensuring it is correct. The tax code tells you how much you can earn before you start paying tax. However, mistakes do happen and some may find that they have been underpaying tax. When this happens, as long as the debt is below £3,000, then HMRC can change your tax code in order to collect the underpayment without you having to do anything.
If you are self-employed you must submit a Self-Assessment tax form each year. This form must be submitted to HMRC by 31st January following the end of the tax year and is usually submitted online. Once you have submitted your self-assessment, HMRC will inform you how much tax you owe for that financial year. If you are unable to pay then it is extremely important you act as quickly as possible.
Failing to act quickly will not only incur additional penalties but HMRC may do any of the following…
- The debt may be passed on to one of HMRC’s preferred debt collectors who will chase you for the outstanding amount.
- HMRC may petition for your bankruptcy. This could mean you have to cease trading, your goods and assets could be sold to pay towards the debt, your future income could be used to pay towards the bankruptcy and the Official Receiver would investigate your financial affairs.
- They could order you to pay the debt through Magistrates Court if the debt is less than £2,000 and the debt is not older than one year.
- They could also seek a County Court Judgement against you. The process will be the same as if it was an unsecured loan or a credit card.
If you have received your tax bill and are struggling to manage your finances then you may be able to repay the debts at an affordable level through an Individual Voluntary Arrangement. Your HMRC debt would be included in the arrangement and you would have the security that, as long as you maintain payments into your IVA, they cannot take any further legal action against you.
