The old cliché ‘fail to prepare, prepare to fail’ can be applied to your personal circumstances when you are encountering financial difficulties. You may be considering going to a financial expert to get advice on what your options are in trying to address your problems. The recognized expert in the UK is an Insolvency Practitioner or IP and the equivalent in Ireland is a Personal Insolvency Practitioner or PIP.
Before you make an appointment to meet an Insolvency Practitioner or indeed one of their trained experienced staff, you might consider what questions you want to ask so that you may properly prepare for such a meeting. Here is a shortlist of matters that may be of concern to you and which you may wish to put to your expert. Clearly you will have to provide certain information about your personal finances to your IP or PIP before they can give you clear answers to at least some of your questions.
This list is by no means exhaustive and there may be other obvious questions you should ask depending on your individual financial circumstances. By all means, add those questions to the shortlist.
Question 1: Is your debt advice free and if not what will it cost me?
Clearly when you approach an IP or PIP for advice, you need to be aware that they are operating a business and that they incur costs when providing advice. However some firms, such as McCambridge Duffy, offer free initial debt advice and it makes sense to establish if the firm you approach is one of these. Find out exactly when their fees kick in and how much they are. You can ask for a written reply to this question.
Question 2: Am I insolvent?
Different people can have very different ideas as to what personal insolvency means. One widely accepted definition of personal insolvency is the ‘inability to pay debts, as and when they fall due’.
Of course, you might not be able to pay your bills while at the same time having extensive assets such as a house which, if sold, would realise sufficient funds to enable you to pay all of your debts. This scenario is sometimes described as being an ‘asset rich but cash poor’ situation.
Generally, unless your circumstances are particularly complex, your IP or PIP will be able to make a fairly quick assessment of your personal insolvency, taking into account your income and expenditure, your assets and your debts, provided you furnish complete, accurate and timely information regarding your personal financial situation. It is of course important to establish whether you are solvent or not as this will have a significant effect on the options that will be open to you in dealing with your debts.
Question 3: Will I lose my home?
The possibility of losing one’s home is one of the great fears of some people who have financial difficulties. However, the breadth and depth of potential financial solutions and the protections of the law mean that in many cases, there is little prospect of this happening. The IP or PIP will usually be able to reassure the debtor in this regard and will suggest that the debtor take legal advice before proceeding with any financial solution where there is a possibility of such a loss.
Question 4: Will I lose my car?
In certain insolvency solutions, particularly bankruptcy, there is certainly such a risk, particularly where the ownership of such a vehicle is unnecessary. For example if the car is of high value, the debtor may be required to trade it in for a cheaper model. Or again, if the cost of running a car greatly exceeds the cost of public transport, creditors may in certain circumstances insist on the debtor giving up his or her car.
However if the transport needs of the debtor’s family dictate that the use of a car is the best option, then creditors will usually agree with proposals that allow retention of the vehicle. Furthermore, if the debtor depends on the use of a reliable car for his or her livelihood, such as where the debtor provides taxi services, then again creditors will usually be found to be agreeable to sensible proposals.
It should be borne in mind that some HP agreements have clauses prohibiting the debtor from entering into any ‘arrangement’ with creditors, on pain of the HP agreement becoming null and void, triggering repossession of the vehicle, although this course of action is subject to the statutory rights of the borrower.
Question 5: Will I lose my job if I am formally declared insolvent?
There are certain professions and occupations whose regulatory bodies apply sanctions if the debtor becomes bankrupt or enters an Individual Voluntary Arrangement or enters an ‘arrangement’ with creditors whereby creditors face the prospect of debts not being fully repaid. These sanctions may include expulsion from the regulatory body and the possible consequent inability of the debtor to practice their profession or carry on in their occupation.
The IP may be able to determine if such sanctions apply or may be able to advise the debtor how to go about the process of determining the nature and extent of possible sanctions. Even if loss of employment is not threatened, some employers may limit the opportunity for advancement or promotion available to employees who become formally insolvent, particularly if the position requires there to be a high level of trust between the employer and employee.
Question 6: Will my credit rating be affected if I am declared to be insolvent?
Yes, your credit rating will be affected. Becoming bankrupt or entering into an IVA or a Debt Management Plan or indeed into any arrangement with your creditors whereby they suffer a financial loss because you will not be repaying all of your debts in full and/or on time as they fall due has consequences for your credit rating.
Whether you are in an IVA or are bankrupted, there are severe limits put on your ability to borrow. Your credit ratings are adversely affected for a period of six years from the time the insolvency process commences, even in cases when you exit the insolvency process within a year or two of it commencing.
However, after the six years period, you can have your credit records wiped clean so that creditors may not discover your credit history from the credit reference agencies. However, if and when you do apply for credit after being bankrupt or in an IVA, you should answer any questions creditors ask about your financial history truthfully.
Written by Paddy Byrne