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Debts of despair

Following the purchase and renovation of a property, including new heating, kitchen and improving the garden, we have found, even though we have good incomes, we are finding it extremely difficult to get by and the overdraft is getting out of control. What can we do?

This was an actual enquiry we received via a national newspaper a couple of years ago. It is, no doubt, a familiar situation encountered by many advisers. We are certainly in an era of “buy today, pay later” and, unfortunately, we regularly encounter clients who have overcommitted themselves.

Advising this couple was a relatively straightforward exercise but what made this case interesting was another financial problem that Mrs X had – more about that later.

Having gone through their finances in some detail, we found that, fortunately, they had sufficient equity in their property that all their debts could be amalgamated and rescheduled.

By remortgaging their property and rebroking some very expensive Barclays protection policies, we managed to save our clients £264 a month and make their lives a lot less stressful.

It made a good story in the national newspaper. We received a number of similar enquiries as a result and our clients have recommended us to quite a number of their friends, who are now clients.

This was all very well but I mentioned earlier that Mrs X had a major financial problem that needed to be addressed once the remortgage had been completed.

Mrs X had a previous relationship that went wrong and her partner returned to his native Ireland, leaving her saddled with many debts. The home that they lived in was repossessed and, although they had a mortgage of £60,556, the house was sold for just £30,000.

This happened in 1993 and the lender, UCB, via solicitors, demanded £89,221.96 to settle the debt. Obviously, this was causing Mrs X a great deal of distress. She had to provide a budget analysis to UCB&#39s debt collectors every six months and agreed to pay £90 a month towards the debt.

At that rate, it would have taken her 89 years to clear the debt and she would have been 117 years old by the time it was paid off.

Obviously, with this huge cloud over her, she never applied for credit elsewhere and the present mortgage was only in her husband&#39s name.

We put her in touch with Eddie and Brenda Weatherall of the Independent Banking Advisory Service. They discovered that the calculation of the figure of £89,221.96 had never been explained to Mrs X and that she had been pressurised into signing a consent order without being told to take legal advice.

After a few months of negotiation, IBAS negotiated a settlement of just £1,000 – a saving of more than £88,000. This cleared her credit record and she now looks optimistically to the future, without that huge weight upon her shoulders.

The Weatheralls said she was not dealt with as she should have been and UCB realised that. They find many occasions when banks are chasing people to pay debts which have been calculated incorrectly and urge anyone facing demands to take advice as soon as possible.

They should not agree to pay anything until they have established exactly how the debt is worked out. Also, they should not agree to pay an amount they cannot afford.

Our client is not in isolation. There are some 200,000 homeowners still being chased over debts from repossessions which took place as long as 12 years ago. Average demands are for £27,000 but can be as high as £90,000. People are faced with the choice of going bankrupt or spending their life paying debts they thought had disappeared.

We have recently been approached by a new client who has been chased by Barclays Bank for £65,000 following a forced sale in 1989. He reaches state retirement age next year and is terrified that this debt will be following him into retirement. We have put him in touch with IBAS which, hopefully, can work its magic for them as well.

Should you have any client in a similar situation, IBAS would be pleased to hear from you on 01487 843 444.

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