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 on how to be a successful executor for This is Money And writing a will who ensures that your final wishes are followed.

He explains it first in his new four-part guide what to do if you go bankrupt and today we’ll look at how to keep creditors at bay while finding the money to meet their demands.

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

You may need time, but creditors can be bullying.

Let’s see how to deal with this, before turning to those who are more open to discussion about paying what you owe.

A draft letter: Facing threats and intimidation

A letter like the one below will only be justified if the creditor and its collection agencies have gone too far.

For example, a notice from the creditor’s lawyers threatening proceedings in the District Court for the recovery of the debt, together with interest and costs, unless the debt is paid within seven days, would be very legal – unless accompanied by a hand grenade or repeated daily for three days. to soften.

Dear Creditor

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

As soon as I have been able to get advice from a debt counselor, I will raise my debts with you. 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 fear and anxiety to the recipient or to anyone else who might read the letter.

– It is an offense under the Administration of Justice Act 1979 to make demands on a debtor which are likely to cause him or their family to panic, fear or humiliation because of the frequency or manner in which they are made or any threat of publicity that accompanies them.

– It is an offense under the Protection from Harassment Act 1997 to adopt a course of conduct which amounts to harassment when the perpetrator knew or should have known that he would do so.

I am satisfied that the conduct of you and your agents would amount to the commission of all of the above offenses and would furthermore entitle me to damages under the 1997 Act.

That said, I advise you that unless you and your agents refrain from communicating with me regarding the debt other than by compliance with the applicable pre-proceeding protocol and/or service of a properly drafted proceeding, I will initiate a proceeding will start against you. for an order to restrict contact and for damages for harassment and to take steps to report you for prosecution for the above offenses or any of them.

Yours sincerely

Ian Det

Claims under the 1997 Act do work. Honestly. One lady was a customer of British Gas Trading Ltd. She left them. Over the next five months, she was subjected to letter after letter and threat after threat to cut off her gas supply, initiate legal proceedings and report her to credit reporting agencies – all without any justification.

This caused her great anxiety. She has filed a claim for damages for intimidation with the subdistrict court judge. British Gas tried to have the claim dismissed, arguing it was too weak to go to trial.

The Court of Appeal refused and ruled that the behavior complained of could amount to intimidation and was oppressive and unacceptable.

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

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

The calls constituted harassment and were completely unjustified. The existence of a debt, it was believed, did not give the creditor the right to bombard his debtor with calls. It was a debtor’s 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. Payment in installments is always worthwhile.

If you only have one debt and can get your hands on a lump sum, your creditor may be attracted to accepting a little less than he owes to let you off the hook.

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

Dear Creditor

I owe you $5,000. My circumstances have deteriorated significantly since the debt arose 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 for my own bankruptcy, and to that end I have a proposal.

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

I am willing to access and pay this amount to you within 28 days of you receiving this notice if you are willing to accept it as a full and final settlement of my debt to you.

This proposal will remain open for 14 days after you receive this information.

Below you will find more information about my financial circumstances. If you need any more information, please let me know.

Yours sincerely

Ian Det

No lump sum: Pay in installments

If you have a lot of debt, a debt management plan may be the solution for you.

That’s the fancy name for monthly payments. You pay regular installments from your income, which are distributed to each creditor in proportion to what they owe, until they are finally paid off.

There are a number of companies that make a profit from organizing and executing plans. If you have a barge pole, don’t touch most of them with it.

You’ll be fine Payment plan. They are funded by the credit sector, but I think they can help. And there are no costs involved. There are also debt charities such as Step change And National Debt LineAnd Citizens advice.

Or you can organize and implement your own plan after seeking advice from debt counselors.

Try to negotiate that while you pay off in installments, any interest to which the creditors might be entitled – either under your contract with them or under a court judgment – ​​will be forgiven.

Otherwise, you may never be able to reduce the principal debt, let alone pay it off, and the payments you make will only be enough to cover the interest.

There are alternatives to a debt management plan. Take an administration decision, for example. This does not require the permission of your creditors, although they may object, but they rarely make any effort or with much enthusiasm.

It is available from the District Court if your debts do not exceed £5,000 and you have at least one judgment against you.

Again, you pay your creditors out of 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 to each creditor.

This means they only receive a percentage of what they owe, and after those three years or whatever, you’re off that debt. No legal costs upon application. A bargain!

And then there is the individual voluntary scheme. This is a formal arrangement with creditors to pay some of what you owe over a period of several years, and is administered by a regulator who is an insolvency practitioner.

You can put capital (current or expected over the life of the scheme) or income into the pot – or both – to be shared by your creditors.

You might end up paying off a small portion of what you owe and avoid bankruptcy, but at least 75 percent of your creditors’ worth must agree to the proposals you make.

In my opinion I have approved schemes for substantial debts, whereby the creditors would collect only 5 and 10 cents per pound.

The bad news is that the cost of setting up and running the scheme can be around £3,500 plus. Look after. There are sharks there.

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