Debt advice blog

Many people contact Debt Support Trust because they can’t pay their mortgage. This debt worry can cause people to ignore the problem and pretend it doesn’t exist. When they eventually deal with the problem, the mortgage arrears have escalated or possibly repossession proceedings have begun.

There are plenty of reasons why somebody may be unable to repay their mortgage. The mortgage is a secured debt, meaning that failure to repay the money on time could result in the property being repossessed. If you would like help with your mortgage debt, please telephone our debt advice charity line on 0800 085 0226.

Reasons for Failing to Pay Mortgage

A mortgage is an important payment to make every month, it ensures you can remain in your property and repay the loan you borrowed. Rarely do people fail to pay their mortgage on purpose, usually it’s because they are struggling financially.

Some of the most common reasons for failing to make the contractual mortgage payments include:

Unemployment: A sudden spell of unemployment can mean that repaying the monthly mortgage payment is difficult. This is usually a short term problem but there is help and advice available so get in touch.

Overstretched financially: An over reliance on credit is the main reason for people being unable to repay their mortgage. Multiple credit cards, loans and overdrafts, coupled with the cost of the mortgage is just too expensive. There is support just calling 0800 085 0226 and speaking to a friendly advisor.

Please note that with priority expenditure, like a mortgage or council tax, this must be paid before credit cards and other unsecured debts. Our charity debt advice team can help you with your unsecured creditors so that you can afford to repay your priority debts.

Divorce/ Separation: When people separate or divorce the couple income remains the same, however the expenditure increases because people live in separate properties. This can mean the mortgage is unaffordable.

Increase in repayments: If the repayment amount each month is based on the interest rate, then a once affordable mortgage could become impossible to manage, because the interest rate has increased.

Advice on Mortgage Debts

By ignoring mortgage debt you will only make the situation worse. The sooner you realise a problem exists, it’s important to speak to you mortgage company and explain the financial problems you face. The direct approach is always best. Your mortgage company can then help you with a payment holiday or move your mortgage to interest only for a short period. This can be expensive with fees and charges being included.

The Government’s Mortgage Interest Scheme can help pay the interest on your mortgage for a short term period too. This usually lasts for a maximum of two years.

Debt Problems with Mortgage

When debt becomes a problem on secured credit agreements, like a mortgage, because of an over reliance on credit, then starting with a budget is best.

Write down all your income, like employment income, tax credits, pensions etc and then consider your expenditure. What do you spend on your mortgage, council tax, food, gas, electricity, insurances, telephones, car, transport, clothes, medical / dental or pets each month?

Next, consider how much money you are paying each month towards your unsecured debts, like credit cards, overdrafts, personal loans, store cards etc. If you’re unable to pay your mortgage because you’re paying unsecured credit, then you’ll need to address this.

Your expenditure to live (including mortgage and council tax) should be paid first, before paying the credit cards. The reason may people give for paying the credit cards over their mortgage is because the credit card companies will call, write and text straight away, whereas the mortgage company will generally be more flexible. Unfortunately the mortgage company has a security over the property and as such they can repossess if you don’t keep up to date with your repayments.

Get Advice on your Mortgage Debt

If you’re unsure how to manage your unsecured debts and mortgage repayments, seek professional debt advice from a charity. A charity will consider your income, expenditure and debt repayments. You can then expect honest advice on how best to rectify your financial problems.

Debt Support Trust advisors are available to help by telephoning 0800 085 0226 or via email on contact@debtsupporttrust.org.uk.

Payment Protection Insurance (PPI) is being reclaimed across the UK. PPI which was mis-sold can be reclaimed and financial institutions must repay consumers if they are eligible. If you need help on how to reclaim mis-sold PPI please get in touch for advice. However, many people are also wondering what will happen with PPI in a debt solution.

In some debt solutions, assets must be reviewed to determine if there is any equity. PPI is considered as an asset. Most people don’t expect they will have PPI so enter debt solutions without considering the implications.

Payment Protection Insurance and Debt Problems

In some debt solutions, all of the debt is not repaid in full. These solutions include an IVA, Trust Deed (Scotland) and bankruptcy. This means the creditors receive what they can back and agree to clear the rest of the debt.

If you have not entered an insolvency solution then you can apply for your own PPI. If you are due money back then creditors will often offset this money against any debts and give you the rest of the money back. This sometimes means you can repay a percentage of the money you owe.

If you are already in a debt solution, like an IVA, Trust Deed or Bankruptcy, then you will not be allowed to apply for your own PPI. If you do apply for your PPI and receive the money back then you would be required to repay this towards your debt solution before your solution is closed.

When Can My Debt Company Take My PPI?

When anybody enters an insolvency solution they sign over their estate to a regulated insolvency specialist. The specialist will then consider the assets to determine if there is equity. If there is realisable equity over a certain limit, then the asset will have to be sold.

In an IVA, Trust Deed or Bankruptcy it’s procedure to check for PPI as it would become a windfall which could be returned to the creditors. The debt solution cannot be closed until the PPI has been resolved.  This process is managed by your insolvency specialist.

The same can be said for family inheritance or winning money, the windfall would go to the creditors to repay the debts. If there were to be money left over after repaying the debts and fees and charges, then you would receive this money back.

Asking for debt help is the first step in an important process of resolving debt problems. By contacting a debt advice charity, we can help you to find the debt solutions you are most applicable for. However, many people find the first step to be the hardest because of the feeling they’re giving up.

In a survey at Debt Support Trust, two of the most popular responses people felt when dealing with unresolved debt problems was guilt and the feeling they were just “giving up”. People often spend between 1 and 2 years trying to manage their debt problems before seeking debt help.

Managing Debt Before Seeking Help

Our October survey found that in order to manage unaffordable credit commitments, people were

1. Borrowing money from friends and family to afford the credit.
2. Balance transferring debts to get the best deal. When the balance transfers were no longer possible they sought debt help.
3. Negotiating with creditors to try and repay the debts.

The vast majority of people we helped told us they wanted to pay back their debt but felt like they were not able to do it on their own. Accepting help is not giving up, but taking responsible action to correct problematic debt worries.

Why Use a Debt Charity?

Sometimes a problem shared is a problem halved. Just by speaking to another person about your debt problems, you can often find that they can offer a different perspective on your debts.  Especially at Debt Support Trust, our debt advisors provide honest advice on all debt solutions so you have information about each route to become debt free.

You can ask us anything about being in debt and how to rectify your money problems. We will cover questions about your assets (like a house or car), your monthly repayments to your debts, your credit file, the length of your solution, any fees or charges the solution may include and information about your employment, among other questions you may have.

Take the First Step

When you’re ready to get debt advice, our debt charity will be here to help. There’s frequently a point when a person realises they can no longer manage the debts alone and that a debt solution may be required. That length of time will vary from person to person.

When you’re ready to get debt advice, we’ll be here. You can telephone our advice team on 0800 085 0226, email us at contact@debtsupporttrust.org.uk or complete our debt test below.

The correct debt advice, whether it’s bankruptcy, IVA or debt management is dependent on your personal and financial debt problem. The debt advice service available from Debt Support Trust may differ to other debt advice organisations.

We like to ensure you’re not rushed into a decision on your debt solution. Your advisor will caringly listen to your financial problem and give honest and transparent advice. This enables you to decide which option is right for you.

Not for Profit Debt Advice Service

Our not for profit charity advisors will review your income and expenditure to understand:

1. Your salary from any employment (or pensions)
2. Your benefits including working tax credits, housing benefit and child tax credits, among others
3. What expenditure you have every month, like rent/ mortgage, food, gas/ electricity and other monthly expenses, before you pay your credit agreements.

The next stage is to understand what credit agreements are in place and which companies you owe money to. Most people we help are able to live month to month, but are overstretched when it comes to repaying their credit agreements.

This means there isn’t enough money to live and pay debts in full, but a debt advice service could help.

By using the available disposable income each month a debt solution could be applicable. The available disposable income is calculated by subtracting your expenditure from your income. The remaining amount is your disposable income.

Solution after Seeking Debt Advice

All debt advice services must use a set of budgetary guidelines to ensure food and other essential expenditure is within an appropriate range.

After reviewing the expenditure and understanding how much disposable income is available, then debt advice can be recommended. Debt advice services must also consider assets, like a house or car as equity may be required to be released in some debt solutions.

Some of the most popular options to resolve debts include:

Token payments: When you’re disposable income is very small (e.g. £20 per month) but you anticipate your financial situation improving, then you could consider a token payment each month. This is typically the best option for people who are recently unemployed but expect to gain employment again shortly.

Debt management: The debt management plan is an informal debt solution. You make one payment towards your debts each month. Typically a debt management plan would be suitable for somebody with £6,000 and who could afford £200 towards their debt each month.  There’s no guarantee interest and charges would be frozen, however if they were, the person would be debt free in 2.5 years.

IVA: A formal debt solution where interest and charges are frozen and written off at the end of the debt solution. One monthly payment is required, usually for 5 years, and any remaining debt is cleared at the end. Assets, like equity from a house or car will be considered at the end of the solution.

Trust Deed: A Protected Trust Deed offers Scottish people the chance to be debt free, in a fixed period of time. If the debt is not repaid at the end of the solution then it will be written off, along with interest and charges. Again, equity from assets will need to be taken into consideration.

Bankruptcy: A one year debt solution. There is a fee to enter bankruptcy which varies depending on the correct route. You may also have to pay money each month towards the bankruptcy for three years. At the end of the bankruptcy any debt which is not repaid is written off.

Debt Advice: The Service Provider

You have a choice over which service provider you choose to give you debt advice. Any debt solution above should come with a warning – your credit file will be impaired. This usually means a default is added and it lasts for 6 years.

If you would like help from our debt advice service team, then please call us on 0800 085 0226. This is a free call from a landline, however, if you’re phoning from a mobile please let us know and we’ll call you back to save your bill. Alternatively, you can email contact@debtsupporttrust.org.uk with your details and we’ll be glad to call you back.

Our debt test is available to offer online debt advice too.

A common misunderstanding is that somebody can go to jail for not repaying their debt. This is not true. You will never be sent to prison for failing to pay your debt.

99.9% of people contacting Debt Support Trust will have borrowed money and experienced a change of circumstances (loss of employment, marital breakdown etc) or over committed themselves on credit, over a long period of time.

Going to Jail for Debt

There are times when you can be sent to jail and it’s because of a matter surrounding your debt. For instance, if you fraudulently obtain credit you are breaking the law and could be sentenced to jail for fraud, but not for the debt. If you spend lots of money quickly and have no intention of repaying the debt then a judge can decide that this is fraud.

You can be sentenced to prison for ignoring the rules which surround bankruptcy. This can be as simple as refusing to let the Official Receiver in bankruptcy know about all of your assets or trying to set up another company.

Recently in the press a man was sentenced to nine months in prison because he set up a new company and spent thousands of pounds on personal items when it should have gone into his bankruptcy. This deliberate decision to ignore the bankruptcy rules meant he was breaking a court order. If you decide to enter bankruptcy it’s essential you follow the Official Receiver’s demands.

Other common misconceptions about Bankruptcy

There are a few common misconceptions about bankruptcy which confuse people. Some of these are:

1. You will only lose your property in bankruptcy if there is equity available for the creditors. For instance if the secured debt on the property is £120,000 and the property is worth £100,000 then the property is in negative equity. You must still maintain payments to your mortgage whilst in bankruptcy or you will lose your home.
2. Bankruptcy lasts for 1 year but if you are in employment you will likely have to make a contribution towards your bankruptcy for 3 years. This is called an Income Payment Order. The amount of the Income Payment Order is decided by your court appointed Official Receiver.
3. You have to pay to go bankrupt. As at today’s date, the cost to enter bankruptcy is £700. If your debt is below £15,000 and you meet the rest of the criteria you could enter a Debt Relief Order which is £90.
4. You can never get credit again. People who exit bankruptcy will experience difficulty in applying for credit but your credit file can be repaired over time. The trick is to borrow money carefully and repay it in full and on time, every time.

On the 24th of February, moneysavingexpert released a guide book on how to help those who have a mental illness and have fallen into debt. Research carried out by the website help service has shown that, 40% of people with mental health problems have either never been in debt or have only ever had limited debts, in comparison with 75% of the rest of the population.

The survey which questioned 6,700 people, highlighted that 44% of people with mental health problems have severe or crisis debts.

Founder of the moneysavingexpert.com, Martin Lewis said that  “We can no longer divorce how people deal with debt emotionally and how they deal with it practically. With so many suffering from mental health problems, as a nation we need to think about how we help those who, often temporarily, cannot be responsible for themselves.”

Whether someone requires a debt solution, such as a protected trust deed, iva or bankruptcy, they simply need some general support with money problems, we are here to help.

You can contact Debt Support Trust on 0800 085 0226 or you can complete our online debt test and get a quick answer to your debt problem.

Debt is a problem which affects millions of people throughout the UK. Our debt blog will explore all things debt-related including;

• Debt case studies
• Recent changes to the personal debt market
• Statistics
• Customer feedback

and much more…

We will keep you updated with the latest goings on within the debt industry, changes to debt solutions and tips to help reduce debt and / or money worries.

They say knowledge is power and we want to empower people to be able to take full control of their finances again with advice and information.

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You can leave your comments under any post to provide your thoughts and opinion. If you have a story or blog post you would like us to post you can contact us at contact@debtsupporttrust.org.uk.