Terry and Michaela had recently purchased their first new home and had a secured mortgage. They needed some additional funds for home improvements and borrowed a further £40,000 against an existing mortgage of £180,000. The valuation of the house was £225,000.
They also used personal credit cards to fund their ongoing day-to-day living expenses. Both were in full-time employment but with two young children often relied on credit cards as a backup.
They diligently paid the monthly minimum amounts due on the credit cards and this continued for over five years. Life carried on and no regular reviews were carried out of the overall total amounts outstanding on the credit cards.
The originally borrowed amounts on credit card debts in their opinion was £25,000 but with interest charges over the last five years had increased to nearer £38,000.
With the monthly mortgage payments on their matrimonial home, the added secured loan for home improvements in the sum of £40,000 and the minimum amount to pay on the credit cards started to experience cashflow difficulties.
They entered a debt management plan (‘DMP’) for a period of eighteen months but were advised by the debt management company at an annual review that the debts were still in line with the original amount of £38,000. The capital amounts had not decreased to any significant level. The interest being charged on the credit cards had not been frozen in some cases.
To make matters more difficult Michaela discovered that she was expecting their third child and would need to give up her full-time employment in the next seven months.
They decided to obtain an up to date valuation on their house to determine if they would be able to release some equity and pay off all their debt to the credit card companies.
Unfortunately, the valuation provided by a local firm of agents was £215,000. Their financial problems continued, and the new baby was born. Michaela started to receive Statutory Maternity Pay and the prospects of returning to full time work was not practical with three young children.
Terry was referred to Navigate Business Recovery by one of our accountant contacts and a first meeting was held to meet the clients and discuss the options available.
After having carried out a full financial review they were sent away with the advice that bankruptcy was the better option for them to deal with their financial crisis. The legislation in bankruptcy allows in cases where there is negative equity in the property to purchase that from the Official Receiver (Insolvency Service) at a nominal consideration of £1.
We were engaged by Terry and Michaela to assist them with the process of bankruptcy. This allowed all their credit card debts both in their personal and joint names to be written off in the process. They also had two hire purchase debts to a car leasing company which were included in the bankruptcy.
This allowed them both to retain their home and have peace of mind.
There are other matters to consider when deciding on whether bankruptcy is the right solution to your financial situation. Please have a read of the other articles on our website www.navigatebr.com
Conclusion
If you want to find out anything further about this topic then please feel free to call me on 0330 236 9930, 0330 236 9938 or 07961 116321. All conversations will be in strict confidence. You can also email me vee@navigatebr.com.
This article is for information and interest only. It is not a substitute for full professional advice, which will take in to account the specific and individual circumstances. Navigate Business Recovery Limited cannot accept any responsibility for any loss arising as a result of any person or organisation acting or refraining from acting on any information.
Leave a Reply