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 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 they 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 amounts outstanding on the credit cards. The debts in their opinion was £25,000 but with interest charges this had increased to nearer £35,000.
The monthly mortgage payments on their matrimonial home, the added secured loan for home improvement and the credit card payments started to become a strain and they ran into cashflow difficulties. They entered into a debt management plan (‘DMP’) for a period of eighteen months but were advised by the debt management company at a bi-annual review that the debts were still in line with the original amount of £35,000. The capital amounts had not decreased to any significant level.
To make matters even more difficult Michaela discovered that she was expecting their third child and would need to give up her full-time employment in the next six or seven months. They decided to obtain an up to date valuation on their house to see if they would be able to release some equity to pay off all their debt to the credit card companies.
Unfortunately, the valuation provided was £215,000. Their problems had now immensely worsened and the new baby was born. Michaela was now only receiving Statutory Maternity Pay and the prospects of returning back to full time work was not practical with three young children.
Terry was referred to Navigate Business Recovery by a mutual contact and a first meeting was held with the couple to discuss the options available to them.
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 crisis. Bankruptcy legislation allows in cases where there is negative equity in the property to purchase that from the Official Receiver (insolvency service) at a nominal consideration.
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. There were also two hire purchase debts to a car leasing company which were included in the bankruptcy.
Our solution 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 read our previous blog ‘bankruptcy pros and cons’ for more information.
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.
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