Pamela Story

Sequestration / Bankruptcy

The Scenario

Pamela has recently divorced. She previously owned a joint share in the marital home which was repossessed by the mortgage provider. The house was sold at auction and there was not enough to pay the mortgage debt. There remains a balance of £85,000 due to the lender. Pamela is being pursued for payment of the £85,000.

She now lives in rented accommodation and has no savings or assets that can be sold to settle the debt. She also has credit card debt totalling £18,000, a pay day loan of £2,000 and a credit union debt of £750. She is struggling to maintain her minimum monthly payments and meet all of her household bills.

What we did

We reviewed Pamela’s income and expenditure with her. She was able to place some of her bills onto direct debit and once her living costs taken into account she had a surplus of £220 per month. Her debts totalled £105,750 (including the shortfall due on the house). Her former husband was on benefits and would not contribute to the house debt. It would take 40 years for Pamela to pay off al the debt without adding interest which was impossible. A Debt Arrangement Scheme was not possible as she couldn’t pay any more than £220 per month. Those she was due money to were not willing to reduce the debt or freeze interest. A Trust Deed was not an option as she needed to be able to pay a minimum of 10p in the £ to the debt (£10,570). The maximum that could be ingathered over a 4 year period before the costs of running the process was £10,560.

The Solution – Protected Trust Deed

The only option for Pamela to have her debt burden removed was for her to apply for bankruptcy (called Sequestration in Scotland).

We helped Pamela complete the application form and our director agreed to be Pamela’s Trustee.

All of the requirements in bankruptcy were explained to Pamela. There was going to be relatively little impact on her by declaring herself bankrupt.

Sequestration/Bankruptcy

If you owe	£105,750
You might be paying	£1,200 per month
You could be paying	£220 per month
This could save you	£980 per month

This example shows a complete removal of debt!

Pro’s

The Trustee dealt with all those that Pamela was due money to
Pamela was no longer chased for payment of debt
She could see an end to her debt worries
She only paid what she could afford and she had enough money to meet her living costs
She didn’t have any assets that would fall into her bankruptcy
She could live her life free for the debt burden

Other considerations

Pamela was bound by the bankruptcy terms – she couldn’t be a director of a limited company or serve on a school board for 12 months
Her credit rating was impacted which could cause difficulty in obtaining an overdraft or credit in the future
If Pamela won the lottery or came into an inheritance or a windfall within the 4 year bankruptcy period the funds would need to be paid into the bankruptcy and she would only receive a surplus once the bankruptcy costs and debts paid in full