Hello Magscb14,

Your family member seems to have a fair amount of money tied up in her home.

Could you confirm whether staying in the current home is a major priority for her?

Hi TDA
Thanks for your quick response. If possible, she would like to keep her home. However, realises if selling is the only way out then that's a road she would consider.
Thanks again
Magscb14

Hello magscb14,

There seem to be a number of options open; each of which has advantages and disadvantages.

Selling the home would obviously allow the debts to be fully repaid and hopefully leave your relative with a bit of a lump sum for future use as well. This seems like to only option to quickly deal with the debt. The other options are more of a case of managing the situation rather than quickly dealing with it.

Insolvency options such as bankruptcy or a Trust Deed aren't necessary as the debts could be fully repaid with the sale of the home.

She could look into refinancing the secured debts (mortgage and secured loan) to cut the overall cost and/or to raise additional funds to repay some of the debt. However this comes with a risk (losing the home if the new payment cannot be maintained), and may not be available due to issues with her credit record (connected to the debt management plan) and her limited income.

An increase in income (as previously mentioned) would enable increased payments to a debt management plan. To continue the DMP I would say that's pretty much essential. On the current run-rate, assuming all interest has been stopped, it will take her just over 100 years to fully repay the debt.

I think that another way of managing the situation would be the Debt Arrangement Scheme though, for creditors to accept this, I would think an increase in income and therefore a higher monthly repayment would probably be needed. This would have lower costs than the current DMP and provide legal protection from creditors.

I hope that this is a useful starting point. Selling the home looks like it might be the best way to deal with the debt; DAS seems like it might be the best way to manage the problem.

Hi magscb14, nice to hear from you again.

I suspect that an insolvency procedure such as a trust deed is not going to be the answer for your family member. She has around ?ú40k tied up in her home (or is this jointly owned??) and if she entered into a trust deed or a sequestration she would be required to release this equity to pay towards her debts (sell or remortgage probably). Therefore a trust deed is not needed because she could sell/remortgage anyway and clear her debts without the need to do it through an insolvency procedure.

As for other options, at the current rate of repayment it is going to take forever and a day to clear the debts. She would really need to be able to afford more like ?ú250pm minimum to be able to clear her debts within something approaching a reasonable timescale - which i guess may only be possible if she did switch to full time.

I guess then in summary she may need to switch to working full time if she doesn't want to have to consider selling her property - or alternatively she could look at the possible availability of a remortgage (but must be careful to ensure it is affordable!)

Hi guys
Thanks for the advice. Can you recommend any companies that might give advice on the cost of remortgaging to check affordability. Would it be ok for her to go ahead and do this on her own and contact the companies she owes money to to pay off debts in full or should she advise Spectrum (who manage her current arrangement) she is thinking of doing this. I just think she has been given poor advice so far and don't want her incurring huge fees again for something we could do ourselves.
thanks again

The following link may be of interest. It's presented without further comment:

http://www.oft.gov.uk/news-and-updates/press/2009/31-09

Negotiations with lenders could be carried out by her personally or she could use some kind of professional intermediary (of her choice). She should check her terms and conditions to find out the cancellation procedure for her existing debt management plan.

She could contact a local mortgage broker to run through the potential for remortgaging. Also I'm sure Graeme Leckie, who posts on this site about mortgages from time to time (profile on left hand menu), would be happy to take a look at the scenario.
Please don't forget the significant risks involved in taking the currently unsecured debts and securing them upon her residence.