How to stave off creditors and avoid bankruptcy, by ex-judge Stephen Gold

Stephen Gold is a retired judge and author who has written two popular series for This is Money about how to be a successful executor. and write a will which ensures that your last wishes are fulfilled.

In his new four-part guide, he first explained what to do if you are facing bankruptcy and today it looks at how to keep creditors at bay while finding the cash to meet your demands.

“I don’t want to be broke.” Good for you. The most honorable thing is to pay off your debts if you can.

It may take time, but creditors may intimidate you.

Let’s see how we can address them, before turning to those who are more open to arguing about paying what you owe.

A draft letter: Confronting threats and harassment

A letter like the following will only be justified when the creditor and his collectors have gone too far.

A communication from the creditor’s solicitors, for example, threatening to commence proceedings in the county courts to recover the debt together with interest and costs unless the debt is discharged within seven days, would be perfectly legal, unless that is accompanied by a hand grenade or is repeated daily for three weeks.

Dear creditor

I acknowledge your letter of November 1, 2023 and its predecessors, with its series of threats printed in red ink in the largest font known to word processors, from you and from the debt collectors whom you have instructed and who have communicated with me similarly.

I will address my debt as soon as I can get advice from a debt counselor. In the meantime, you should know that…

– It is an offense under the Malicious Communications Act 1988 to send a threatening letter the purpose of which is to cause distress and anxiety to the recipient or any other person who intends to read it.

– It is an offense under the Administration of Justice Act 1979 to make demands on a debtor which are likely to cause him or his family alarm, distress or humiliation by reason of their frequency or the manner in which they are made or any threat of publicity involved. them.

– It is an offense under the Protection from Harassment Act 1997 to engage in conduct that amounts to harassment when the perpetrator knew or should have known that that is what they would do.

I am satisfied that your conduct and that of your agents amounts to the commission of all of the above offenses and would further entitle me to compensation under the 1997 Act.

That being the case, I notify you that, unless you and your agents desist from communicating with me about the debt other than by compliance with the appropriate pre-proceeding protocol and/or service of duly constituted proceedings, I will initiate a proceeding in his against. for a court order to restrict contact and for damages for harassment and take steps to report it with a view to being prosecuted for the aforementioned offenses or any of them.

Sincerely

Ian Det

Claims under the 1997 Act work. Honest. A lady used to be a customer of British Gas Trading Ltd. She left them. Over the next five months she was the subject of letter after letter and threat after threat to cut off her gas supply, initiate legal proceedings and report her to credit reference agencies, all without justification.

This caused him considerable anxiety. He brought a claim to the county court for damages for harassment. British Gas tried to have the lawsuit dismissed, arguing that it was too weak to go to trial.

The Court of Appeal took none of this and ruled that the conduct complained of could constitute harassment and was oppressive and unacceptable.

In another case, 10 years ago, the Court of Appeal upheld an award of £7,500 in damages for harassment of a Royal Bank of Scotland customer.

You had exceeded your overdraft on one or more of your accounts. She made it clear to the bank that she did not want to talk to them, but they still talked or tried to talk to her – on 547 occasions!

The calls constituted intimidation and were totally unjustified. It was held that the existence of a debt did not give the creditor the right to bombard the debtor with calls. The debtor had the right to decide whether or not he wanted to discuss the matter with his creditor.

Here’s an offer: Make a polite proposal.

Some creditors will consider a reasonable offer rather than trying to bleed you dry. It is always worth suggesting payment in installments.

When you have a single debt and can get a lump sum, your creditor may be tempted to accept slightly less than what you are owed to release you.

After all, the prospect of you going bankrupt and the creditor not getting paid a cent is not attractive to them. You could try this.

Dear creditor

I owe you 5,000 pounds. My circumstances have deteriorated substantially since taking on the debt and I am now insolvent, with no equity and on a low income.

I would much rather have my liability to you discharged than file my own bankruptcy, and to this end, I have a proposal.

I have family and friends who, together, are willing to make the sum of £2,500 available to me, which is the maximum I can obtain.

I am willing to agree to and pay you this sum within 28 days of receipt of this communication if you accept it as full and final settlement of my debt to you.

This proposal remains open for 14 days from when you receive this information.

Details of my financial circumstances are set out below. If you need more information, please let me know.

Sincerely

Ian Det

No lump sum – arrange to pay in installments

If you have countless debts, a debt management plan may be the solution for you.

This is what the monthly installments are elegantly called. You make regular payments from your income, which are distributed among each creditor in proportion to what they are owed until they are finally paid off.

There are a number of companies that obtain benefits from the organization and execution of plans. If you have a barge pole, don’t touch most of them with it.

You will be fine with Payment plan. They are funded by the lending industry, but I think they can be trusted to help. And there is no charge. There are also debt charities, such as Change of step and National debt lineand Advice to citizens.

Or you can organize and execute your own plan after receiving the advice you need from a debt counselor.

Try to negotiate that, while you pay in installments, you will waive any interest that creditors may be entitled to, whether under your contract with them or a court judgment.

Otherwise, it is possible that you will never be able to reduce the principal debt, much less liquidate it, and that the installments you deliver will only be enough to cover the interest.

There are alternatives to a debt management plan. Take an administrative order as an example. This does not require the consent of your creditors, although they may argue against it, but they are rarely bothered or with much enthusiasm.

He is available at the county court where his debts do not exceed £5,000 and he has at least one judgment against him.

Again, you pay your creditors out of your income in installments (probably monthly), but usually over a period of no more than three years and the court can, and often does, reduce what you owe each creditor.

This means that they only receive a percentage of what they are owed and after those three years or whatever it is, you are free of that debt. There is no court fee when you apply. A bargain!

And then there is the individual voluntary agreement. This is a formal agreement with creditors to pay some of what you owe over a period of several years and managed by a supervisor who is an insolvency professional.

You can put capital (current or expected over the life of the agreement) or income into the fund (or both) for your creditors to share.

You could end up paying a small fraction of what you owe and avoid bankruptcy, but at least 75 percent of your creditors’ value must accept the proposals you present.

As I understand it, I approved settlements for substantial debts where creditors were to collect as little as 5d and 10d in the pound.

The bad news is that the fee to set up and manage the deal could be around £3,500 more. Beware. There are sharks out there.

IN PART THREE…Stephen Gold explains more negotiation tactics you can use with creditors to get out of debt.