Title
The Borrower's Bible
By Jon Murray
This guide may be reproduced and sold by anyone who purchases a copy.
However, copyright is the property of Information Services and any changes
to the manuscript must be approved by Information Services.
Jon Murray, Information Services,
114 Duke Street, Edinburgh, EH6 8HR
Tel : 0131 477 0460 - Fax 0131 467 0649
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IMPORTANT NOTICE :
This guide is intended for information only.
At the time of writing it was believed that all
information contained within this guide was
accurate, as far as could be established.
Because of frequent changes in banking and
property dealing rules and legislation the
publisher offers no guarantee that any
information contained herein will remain to
be accurate at any particular time.
The publisher accepts no liability whatsoever
for any consequences of any transactions
entered into by readers of the material within
these pages.
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Contents Page
SECTION ONE : Credit Secrets
1. Save £000s Off The Cost of Your Mortgage 5
2. The Secrets of Obtaining a First Class Credit Rating 7
3. How to Have CCJ'S Legally Removed 10
4. Raising Thousands in a Matter of Days 12
5. A Guaranteed Income of £100,000 In a Year 14
6. All the Credit Cards You Could Ever Want 16
7. Virtually Unlimited Finance from Your Credit Cards 17
8. Finance for Your Business - 100%! 19
9. "Borrow" Money - That You Don't Need To Repay 20
10. A Loan Which is Guaranteed by the Government 22
11. Huge Profits from Property Deals -
Using Other Peoples' Money 23
SECTION TWO : When Credit Becomes A Problem
12. When Thing Get Out of Hand -
The Problems of Repayment 26
13. The Need To Plan 28
14. Don't Make Enemies of Your Creditors 30
15. Are You Entitled to Help From the State 35
16. What's The Worst That Can Happen 36
17. What About The Future? 39
18. Professional Help 40
19. Bankruptcy, The Very Last Resort
(And How To Avoid It) 41
SECTION THREE: Special Supplement: Credit With No Credit Checks 44
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CHAPTER ONE :
SAVE £000s OFF THE COST OF YOUR MORTGAGE
Most people end up paying far more for their mortgage than they really
should. In the first place there seems to be a kind of universal rule that the
mortgage term should last over 25 years - the idea of this is obviously to
keep the monthly expenditure to a minimum. But have you ever considered
how much you could save if you reduced the term to only 20 years?
The amount you save will depend on which type of mortgage you have. For
instance, on an endowment mortgage where you only pay interest on the
loan, the amount of interest paid is the same each month regardless of the
term of the mortgage. However, the endowment policy, if taken over 20
years instead of 25 years can have a surprisingly small increase in monthly
payment. The total amount put into the endowment policy can therefore end
up being considerably smaller - the extra monthly amount totalling much
less than the extra five years worth at the lower monthly rate.
Where the savings really start to accrue though is with the repayment
mortgage. Because interest rates are always subject to variations, the
example shown below uses 10% for the sake of simplicity. Naturally, with
interest rates being lower than this the total amounts of expenditure and
savings will be less. Again, for the sake of simplicity, Miras is not
considered.
The repayments on a 10% (APR) £50,000 mortgage over 25 years would be
£454 per month. At the end of 25 years you will have paid a total of
£136,200. The total interest being £86,200.
Reduce the term of the mortgage from 25 to 20 years and your monthly
instalments only increase to £482 (only £28 per month more). The total
repaid over the 20 year period would then be £115,680. The total interest
being £65,680 - a saving of £20,520 and the whole thing is settled five years
earlier!
A further reduction to 15 years and the monthly instalment would be £537
with the total repaid being £96,660. Total interest paid now coming down to
£46,660. The mortgage being settled 10 years earlier and costing £39,540
less than the 25 year mortgage.
There are many other ways of saving money on a mortgage. The most
obvious one being to find one with the lowest possible rate of interest. Be
careful here though for 'low-start' mortgages, some of which can cost a lot
more in the long term.
The best plan when looking for a mortgage is to consult a truly independent
financial adviser - one you can trust not to sell you the product which
simply brings him the highest commission.
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There is a company called CLIENT FIRST who specialise in finding the
best possible deal for their clients.
You can contact them by letter (FREEPOST), telephone (The call is FREE)
or fax. They will give you the best advice you can get and there will be no
'hard-sell' techniques used.
WHEN CONTACTING CLIENT FIRST
PLEASE QUOTE REFERENCE CF750.
Client First Ltd Telephone (Free) : Or, Fax :
FREEPOST (PY86) 0500 575 500 01752 894308
Ivybridge
PL21 9BR
In addition to the free advice and service of finding the best possible deal
for Mortgages & Remortgages Client First also deal with the following
financial products :
Endowments
Life Cover
Peps/Tessas/Savings Plans
Pensions
Investments
Income Protection
Critical Illness Cover
Medical Insurance
School Fees
Full Financial/Tax Planning
A typical example of the kind of savings Client First are able to find :
A man, on the advice of his Building Society, took out a life insurance
policy costing £89.46 per month, for £74,500 worth of cover over 25 years.
Fifteen months later, he changed to a different Insurance Company and is
now paying £51.13 per month. Savings over the period of the policy are a
very substantial £11,499!
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CHAPTER TWO :
THE SECRETS OF OBTAINING A FIRST CLASS CREDIT RATING.
Today it is virtually impossible to survive and prosper financially without a
good credit rating. There have been times in the past when I have taken
business risks that turned out very badly and I have lost a lot of money.
Even worse than losing the money itself is the damage that serious business
failure can do to your credit rating.
After having had over 20 major credit cards, bank loans and overdraft
facilities, with an ability to raise in excess of £100,000 in credit, I was left
with massive debts and a credit rating so poor that I couldn't even open an
ordinary bank account!
The one sure thing I learned about borrowing vast quantities of money, at
high interest rates, to finance business deals and ventures, is that access to
credit is virtually essential for any real wealth creation.
It was unfortunate for me that I had to learn the hard way about the
importance of maintaining an excellent credit rating. After having access to
easy credit, I lost hundreds of thousands of pounds on property deals and
other business ventures. Only after this experience did I realise how
fortunate I had been to have been in the position to gain the kind of credit I
was using in the first place.
I have now re-established my credit rating to a first-class level, and I intend
never to create a situation again where my credit rating is put in jeopardy.
The method detailed below is the one I used to rebuild my credit rating back
to a level where I will never need to worry about access to money for any
purpose.
When you have no money at all and your assets are all frozen because of
debt, and no bank or other lending institution will lend you a penny, you
may think that creating a credit rating where you can eventually borrow
almost unlimited sums would be virtually impossible.
In fact, with absolutely no cash at all, it is virtually impossible. Some
amount of cash is essential. To get this plan up and operational within the
couple of months that it takes to become productive an ideal sum of money
would be in the region of £1,000.
After enjoying a fairly wealthy lifestyle and being used to the finer things in
life, I ended up broke and almost bankrupt. I avoided bankruptcy by the skin
of my teeth.
To get some money to start my credit building plan I took every one of my
personal possessions which I thought I could sell. I attended car boot sales,
at which I managed to raise just over £350. I put together another £300 by
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selling furniture and other personal effects through adverts in the local
paper.
Keeping £150 as an emergency fund I took £500 to the nearest bank and
opened the highest interest savings account that I could get. After a week I
applied for a personal loan from the same bank and offered my £500 deposit
as security. Because the sum I wished to borrow was already held by the
bank, they were only too glad to loan me the £500.
So I then had £500 cash in hand and £500 in the bank. Naturally I had to
make monthly repayments to the loan. These were kept to a minimum by
taking the loan out for the maximum period allowed, which was 2 years.
This left me with repayments of less than £1 a day.
I then took the £500 I had borrowed to another bank and opened another
high interest savings account with it. Following the same procedure I
opened savings accounts at six banks and used the final £500 to cover the
repayments.
After a couple of months repayments had been made to each loan I took the
£150 emergency fund I had set aside and added it to the capital I still had. I
used this to repay the last loan I had taken out. This allowed me access to
the savings I had with that bank. Then, after each subsequent month I paid
off each of the loans in turn.
Having done this it was easy to go to the first bank and apply for a loan of
£500 secured on my home. They were happy to lend me this money because
I had shown them that I could borrow and repay a previous loan. So, in spite
of my terrible credit history, after having lost a great deal of money in
business ventures which went wrong, I had rebuilt my credit rating to a firstclass
level within six months.
If you have no previous bad debts there is no reason why you could not
establish this level of credit rating within two months.
And once you have established a credit rating with a few banks you can
apply for their credit cards. Initially you may have to settle for a fairly low
account limit, but this can be increased rapidly by using the credit cards to
borrow money up to the limit of each card every month, and then repaying
the full sum at the end of the month.
Within a few months you can request and normally will be granted an
increase in credit limit. I used this method with store-cards also and now
have a £5,000 limit on most credit and store cards I use.
One thing to always keep in mind : once you have established an excellent
credit rating, don't lose it. I became too careless with borrowed money in the
early days because I had easy access to credit. Now that I have rebuilt my
credit rating to a top notch level I will never let it be ruined again.
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Always be very careful when borrowing money to invest in wealth
generating programmes. Do your research...don't just jump in at the deep
end...I did, and lost out, big time!
Keep your credit rating healthy by always ensuring that you are able to
make any repayments that are due, and make these repayments on time.
Even if you have to borrow from one source to make a payment to another,
this can be worth your while as the maintenance of your credit rating is one
of the most important things you will need to take care of on your journey to
financial prosperity.
NB : Most of the larger banks and building societies now automatically
check your credit rating and, if you have been blacklisted for any reason,
such as default or CCJs, then they won't even lend you the same amount as
you have deposited with them. This is a recent development which limits the
widespread use of the above plan. However, some of the smaller building
societies and some banks will still lend to you, regardless of your credit
history, provided that you have the right security.
The supplement included at the end of this guide has a listing of institutions
which specialise in lending to people with a poor credit history. So, even
without the need to have funds lodged with them, as suggested above, there
are always alternative sources to the main banks and building societies.
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CHAPTER THREE :
HOW TO HAVE CCJ's LEGALLY REMOVED
People who have CCJ'S (County Court Judgements) for bad debts will
always find it very difficult to borrow money from established lenders such
as banks and building societies. As outlined in chapter one, it is possible to
get around this by using the method of leaving money on deposit as security
for any loan.
However, it is always in your best interest if you have CCJ'S on your credit
record, to have them removed as soon as possible. Records of CCJ'S are
kept by four main credit reference agencies for a period of six years from
the date of their inception. After this time they should be removed
automatically, and if they have not been, then you can simply write to the
credit reference agencies and order that they be removed.
In order to find out what information the credit reference agencies have on
you, you should write to them to enquire. Include your full name and
address, any previous address(es) you have lived at in the past six years, and
£1 to cover administration fee.
The four main credit reference agencies used by lenders to check on your
credit history are :
CDMS, Dove Mill, Dean Church Lane, Bolton, Lancashire, BL3 4ET.
CNN, PO Box 40, Nottingham, NG7 2SS.
Equifax, Spectrum House, 1a North Avenue, Clydebank,
Glasgow, G81 2DR.
Infolink, Regency House, 38 Whitworth Street, Manchester, M60 1QH.
Once you have obtained the information you need from these agencies, you
can decide what action you wish to take.
NB : In order for any record of CCJ'S to be legally removed, you must be
able to prove that at least one of the conditions below applies :
1) The six year period has expired, and the record should be removed as
being out of date.
2) The record should not have been lodged in the first place, as the CCJ
does not exist, and the record is a mistake.
3) The debt to which the CCJ applies has been fully paid off. Here you can
insist that the CCJ be removed because you have cleared all of your
financial indebtedness.
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To apply to have judgements overturned, you should obtain form N244
from your County Court (or Sheriff Court in Scotland).
During the period in which your application is being considered all records
of judgements against you are removed from the records of credit reference
agencies. Then several more weeks usually pass before the agencies can reinstate
these details, so even if your application is unsuccessful you have a
period of around 8 weeks where you have no CCJ'S on record.
In order that any judgements against you be set aside you must have a valid
reason, such as not receiving the original summons, being unwell or out of
the country at the time the summons was issued, or having discharged the
debt within a period of 28 days from the original issue of the summons, in
which case no record should have been registered.
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CHAPTER FOUR :
RAISING THOUSANDS IN A MATTER OF DAYS.
Once you have established a credit rating as described in chapter one you
are in a position to borrow thousands from the banks with which you have
been dealing.
Go to each of the half dozen or so banks from which you deposited and
borrowed £500 (or whatever sum you were able to use) and request a
personal loan application.
Fill out the loan application for a sum of between £500 and, say, £2,000.
Even if you apply to borrow only £500 from each of six banks, that still
amounts to a total of £3,000.
Take the applications home, fill them out and take them, in person, to each
of the banks all on the same day. By doing this, any check on your
borrowing will only show up for any loans which you already have. The
banks will not have details of the loan applications made to other banks on
the same day.
Because the individual sums for which you are applying are relatively small,
and because you have already established yourself as credit-worthy with
each of the banks to which you are applying, you should find that the loans
are approved within a matter of days. Sometimes you will get clearance on
the same day you apply and can leave the bank with a cheque for the loan
amount.
Often banks will deposit the money directly into your account with them. If
this is the case you simply go to the cash desk and make a withdrawal for
the full amount either later the same day or whenever it suits your
convenience.
Using this method I borrowed £8,000 and deposited the full amount with
another bank from which I had not originally borrowed. I deposited £5,000
in a savings account with that bank, and £3,000 in a current account.
By lodging the £5,000 as security I then was able to borrow a further £5,000
and repeat the process as detailed in chapter one. Ultimately borrowing
£30,000 I then invested in a small run-down, one bedroom flat for £18,000.
I paid £7,000 to have this flat completely renovated and sold it 6 months
later for £32,000. Even after interest payments I still made a profit of over
£5,000.
£5,000 in the space of 6 months is not a great deal of money, by any
standard. However, when you consider that I had been virtually bankrupt
less than a year earlier and started the whole venture with only £650 in total
I think you will agree that it is not a bad return.
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I mention the property deal here because that is what I did with the money I
borrowed at that time. I have been involved in many property deals over the
years, most of which have made considerably more than £5,000...often more
than ten times that amount. This example is pertinent here because it shows
what can be done with the smallest amount of starting capital.
Once you have used the method of borrowing detailed above, you will
eventually develop a credit rating where you will be able to borrow between
£10,000 and £20,000 within a day or two of applying.
If you keep building up the amount borrowed, and expand the number of
banks you deal with to ten, then you only need to borrow £10,000 from each
one in order to raise £100,000.
First of all you can borrow as little as the £500 originally discussed in
chapter one. But expand the number of banks you use to ten. You then go to
as many as all ten of these banks and request a 30-day loan of £1,000.
Because of the credit rating you have established you should have no
trouble at all in borrowing such small amounts from each bank.
When the 30-day borrowing period is over, repay the whole amount to each
bank on the same day. After another month or two, go to all of these banks
again and ask to borrow £2,000 for a sixty or ninety day period.
Again, repay the loans promptly at the end of the sixty or ninety-day period.
After another two or three steps using this method, you will be able to
borrow at least £10,000. Because you will now be recognised by the banks
as someone who is a very good lending risk, you should be able to have a
loan of £10,000 approved, at each bank, within a day or two.
So, once you have built your reputation for credit-worthiness, you can raise
at least £100,000 within two days of applying.
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CHAPTER FIVE :
A GUARANTEED INCOME OF £100,000 IN A YEAR.
It is something of a truism that success breeds success. Likewise with
money. Money can be used to "breed" money. Provided you have access to
the necessary capital in the first instance, and are careful about selecting the
kind of opportunities which offer a high return for a minimal risk, you can
earn a very worthwhile income...using other peoples' money!
One excellent method of amassing a large amount of capital and
guaranteeing yourself a very high annual income is to form your own
corporation.
The cash you generate from the sale of shares is much cheaper than
borrowing...there is no interest to pay, it does not incur monthly repayments
will pay your salary and is not subject to taxation.
Regardless of what the company does by way of trading, it is possible to
issue shares at a nominal value of, for example, £1.00 each.
You can buy a limited company off the shelf and convert it to a public
limited company. You then write into the company charter an authorisation
for the issue of one million shares with no par value.
These shares are then divided into lots for distribution. You could keep
300,000 shares for yourself, allocate a further 400,000 for sale to the public
at £1.00 each. Then set aside the remaining 300,000 for sale at a later date,
when the value of the shares has risen, so that the sale price is much greater
than the original £1.00 each.
Contact a stockbroker and offer to let them sell your shares at an agreed
commission (normally around 20%). Impress upon the broker that yours is a
new company which is set for rapid growth.
With the capital raised from the initial sale of shares invest in getting the
company up and running. Once you are trading profitably your shares will
start to appreciate in value. It is not uncommon for shares in a newly
established company to show a three or four-fold growth within the first few
months of trading.
The initial capital from the sale of 300,000 shares, less 20% brokers fee,
will leave you with an operating capital of almost a quarter of a million
pounds. With this kind of money it is a fairly straightforward process to
employ sales and management professionals to run your company and
financial experts to advise on the best commercial strategy.
With a three-fold increase in share value your 400,000 shares now have a
nominal value of £1,200,000. The remaining 300,000 worth of shares can
then be sold at £3.00 each or close to that amount. Supposing you can sell
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them for only £2.00 each, you still are able to raise a further £600,000 in
operating capital.
Keeping your 400,000 shares as a nest-egg for your future, you award
yourself a salary of £100,000 per annum as the company chairman. You
don't even need to take on a managing director's responsibilities, and would
be well advised to employ an experienced business professional to fill this
post.
The most difficult phase of establishing your own corporation will be in
converting your limited company to plc status. The formation or the buying
off the shelf of a ready formed limited company is a straightforward
process. However, in order to elevate your limited company to public status
will require expert professional guidance.
It is quite possible though, that you could find a suitable business
professional to perform the necessary work for an agreed shareholding in
your new company.
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CHAPTER SIX :
ALL THE CREDIT CARDS YOU COULD EVER WANT.
As discussed in chapters one and two it is possible to build up an excellent
credit rating which will allow you to borrow large sums of money from
banks.
Providing that you always make agreed payments in full and on time you
can then move on to building up a large collection of credit cards. Start with
a Visa and Mastercard from all the banks that you have borrowed from.
Then apply for cards from any other banks which provide credit cards.
Quite often you will find banks advertising credit cards at a preferential
interest rate. The advertising usually concentrates on the concept of using
that particular bank's card to consolidate all your borrowings from other
sources which have a higher rate of interest.
When you apply for a card advertised as being a handy way of paying off all
your other cards and overdrafts the issuing bank will assume that you are
going to use their card as an alternative to the cards you already have.
Because of this they will be keen to issue their card with the minimum of
fuss. However, once you have obtained their card you are under no
obligation to cancel the cards you already have.
As mentioned in chapter two, apply for and obtain as many cards as you can
get. Providing you have kept to your repayment agreements on all loans and
cards there is no reason that you should be refused any new cards for which
you apply.
I now only use three major credit cards and two store cards. This is because
I have managed to accumulate working capital and tend to use current
account overdrafts when needed. However, in the early days of needing fast
cash for business investments I used over 20 credit cards.
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CHAPTER SEVEN :
VIRTUALLY UNLIMITED FINANCE FROM YOUR CREDIT CARDS.
When I used my credit cards to raise finance for rapid growth business deals
I was able to raise over £70,000 on cards alone. I could raise a further
£30,000 or so on overdrafts and 'personal reserve' accounts with agreed
borrowing limits.
There are many opportunities to make a lot of money in a short time when
you have the capital to invest. Naturally, because of the high interest rates
payable for cash borrowing on credit cards, the only reason you should
borrow large sums of money using this method is to invest in opportunities
which virtually guarantee a good profit in a short time.
Before I made the mistake of investing in business opportunities which I
had not looked into in enough depth, and so consequently lost money on, I
used credit cards to borrow several thousands at a time to finance some very
profitable deals.
Some of these included the cash purchase of luxury cars, often after I had
already located a buyer with ready money to buy from me immediately after
I had taken possession. The best of these deals was when I bough a
Mercedes 190E for £8,750 from a private owner in London and sold it for
£11,000 to an eager buyer in Edinburgh who had already told me that was
the price he would pay for this particular car. The purchase price was raised
solely through my Visa and Mastercards.
I actually borrowed £9,000 and took a luxury overnight stay at the
Hampshire hotel in Leicester Square as a perk of the "job". The best part,
though, was driving the car from London to Edinburgh.
I knew that I was making a sound investment, because, even if the man who
had agreed to buy the car from me had changed his mind, I had a car with a
book price of around £12,000 for less than three quarters of that sum. The
very worst I was likely to end up with was my money back!
Although I have made more money in property dealing than any other
business venture, followed closely by selling information, I still buy and sell
the occasional luxury car. Not because I need to, sometimes I only make a
few hundred pounds. I do it, just occasionally, because I enjoy it...it
certainly beats working for a living!
Please note, because of the high interest rates of credit cards it is often not a
good idea to use the money borrowed on them to finance property deals.
The trouble with property, although it is nearly always a good investment, is
that it can take some time to turn it around.
Credit card borrowing should only be used when you are virtually certain
that a property is going to be ready for sale in a very short time and that you
are confident that it will sell quickly.
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I bought a shop, over three years ago, which I still have not managed to sell.
It has been on the market now for over two years and looks like it will be
some time before I finally dispose of it. The initial sum of £25,000 for
purchase and repairs was raised on credit cards. But, after paying out
thousands in interest I finally paid off the credit cards with a long term bank
loan. I was able to use the property itself as collateral, so getting the loan
was not a problem. I mention it here simply to warn of the dangers.
When I first decided to buy the shop I was confident that I could have it
ready for sale within three or four months. This I did. I then used it as a
storage space for a further 9 months and then put it on the market. I know it
will sell eventually, and I expect to get the asking price of £57,000, but my
initial hope of a fast profit soon disappeared.
So, although there is great potential in using your credit cards as a means of
raising cash quickly to finance lucrative deals in property or any other
business transaction, please be warned: Tread carefully.
Providing that you take care to research the opportunity in which you intend
to invest, and make certain that you have every last iota of information
available, there is no reason for you to not make excellent profits. And once
you have done a few deals in whatever area of business you choose, you
should recoup the profits to build yourself a capital base. Working like this
you will soon be able to finance your dealings with your own money.
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CHAPTER EIGHT :
FINANCE YOUR BUSINESS - 100%!
Using personal loans and credit cards to raise money for money-making
deals is one way of financing your business 100%.
However, if you apply for a business loan, your bank will normally only be
prepared to lend you an amount equal to that which you can put up front
yourself.
So, as always, money breeds money. If you have £10,000 to finance your
new business, but feel that you would get off to a much better start if you
had access to £20,000, borrowing the other £10,000 would not normally be
too much of a problem. Any bank manager will normally be willing to lend
you this kind of money if you have half of the total amount required in the
first place. This is providing that you can supply the bank manager with a
thoroughly researched and properly documented business plan and cash
flow forecast for the first 1 - 2 years of trading.
However, most budding entrepreneurs will have little or no capital. This can
be very frustrating when you know you have a good money earning idea and
have worked out how to set up and profitably run the business.
So, unless you have enough money of your own to finance half the business
start up costs, it is best to avoid a business loan. Instead apply for a personal
loan. Tell the bank it is for a home improvement or the purchase of a new
car, or for major property repairs. Provided that you can satisfy the bank that
you are a good credit risk, they are not particularly concerned as to exactly
what you will do with the money.
Because you can borrow smaller sums from different banks, you do not
even have to be particularly concerned if you are unable to secure the full
sum from one source. Remember though, that if you are applying to a
variety of sources, try and get the applications in on the same day. This way,
when the lenders do a check on your existing borrowing, there won't be any
information which they can obtain to show that you are borrowing anything
other than the amount you are applying to them for.
20
CHAPTER NINE :
"BORROW" MONEY - THAT YOU DON'T NEED TO REPAY.
If you borrow money by obtaining a loan, it is referred to as 'debt' capital.
Another source of finance for business is 'equity' capital. Although this is, in
the strictest sense of the word, not really borrowing, but exchanging rights
to receive certain financial benefits in exchange for providing capital.
Obtaining money from a lender involves the necessity of repaying what has
been borrowed, along with an agreed amount of interest. So borrowing
money in this way involves the repayment of more than was borrowed. It
costs you money to borrow money. You must be sure that any money raised
in this way can be used to produce enough of an income which will be large
enough to repay the principal, the interest and give an overall, worthwhile
profit in addition.
Equity money, on the other hand is money that you can raise which does not
need to be paid back. It is essentially funding for which you pledge part of
your companies assets in exchange for.
The best way to get equity capital is to go public. Form a public limited
company and sell shares to interested investors. Although you are
technically 'selling' something in return for this capital, you are not actually
having to dispose of any assets, so the money so obtained comes in without
the need to give anything up in return for it.
Of course you must retain control of the company by ensuring that you keep
ownership of at least 51% of the shares issued. As the main owner you have
the final say in how the company is to be run.
So, when you raise equity money, your company does not have to have
made a sale of any product. It can raise up to several millions of pounds
operating capital without having to dispose of either stock or assets. This
capital can be used for a multitude of purposes. You can use it to pay off
debts, salaries, rent, taxes, buy property and stock, pay for expenses and
running costs and to launch a new marketing campaign in your drive
towards profitability.
Another method of borrowing money which you can keep indefinitely is to
take out loans to repay existing loans. When the new loan needs to be
repaid, take out a further loan to repay it. This may sound somewhat strange
as you will have to pay interest on the money borrowed. However, if you
need finance in the long term and can use the money to produce enough
profit to repay the interest but do not wish to repay the capital, this is an
excellent method of doing so.
What to do is to apply for credit at twice the number of banks from which
you would actually accept loans. So, if you applied to a dozen banks for
£5,000 from each one, and accepted a loan from only half of them, you
would raise £30,000. If you have these loans for the short term, i.e. 60 days,
21
you could then go to the remaining six banks and accept the six £5,000
loans to pay off the original ones. This process could be continued so that
you are constantly paying back loans with other loans.
This may seem like an unsound way of financing business deals, but when
you have access to opportunities which produce sufficient profit to pay for
the interest charges and give you a good income also, it can be very useful
in that you are not burdened by the need to repay the principal sum
borrowed. Or at least to not repay it from your own pocket.
Although this system can be employed to keep the borrowed money
indefinitely, the idea is that you should use it for investing in money-making
deals which will tie up the capital for the long term. After a prolonged
period, and once you have made sufficient profits, the business transactions
in which you have taken part should ultimately produce sufficient profits to
repay the capital outright.
I have a friend who borrows money using this method and buys property to
furnish and let out to tenants. The rental income is always sufficient to repay
interest and leave him with a good income. After a few years the property is
usually resold to make a capital gain, leaving him with funds to repay the
capital borrowed with a tidy sum left over as pure profit for future
investment.
22
CHAPTER TEN :
A LOAN WHICH IS GUARANTEED BY THE GOVERNMENT.
Because our government is concerned to promote exporting of British goods
to overseas markets there is a great deal of government sponsored finance
available to the firm or individual who wishes to sell British goods to
overseas customers.
The government runs an export credit programme which provides insurance
against political and commercial risks involved when selling to foreign
buyers and to maximise the attractiveness of terms offered to overseas
customers.
Banks are part of the infrastructure which provides finance and expert
advice for exporters and export agencies. The government Export Credits
Guarantee Department (ECGD) provides insurance guarantees and a level of
subsidy to assist in maximising the level of goods exported from the UK. It
is in the interest of the government, and likewise in the overall interests of
the people of Britain, to ensure that the highest possible amount of British
goods are sold abroad to attract wealth to our country.
With the backing of the ECGD, finance can be obtained in many and
various ways. A supplier can insure up to 95% of his receivables with
ECGD and assign the proceeds of this insurance policy to a bank. This will
enable him to obtain finance from the bank on terms much more attractive
than would otherwise be available.
The ECGD will provide an unconditional guarantee for 100% of the
principal and interest of any loan acquired for the specific purpose of
financing an export deal. If for any reason the exporter is not paid by the
buyer, he has recourse through his ECGD insurance policy, to receive
payment, providing he has not breached the terms of his contract.
Full details of this loan guarantee and insurance system are available from
the overseas trade departments of any major clearing bank.
Further government guarantees on loans for business enterprise, and even
outright grants, are available in certain areas of the country. If you wish to
start up a business which will create jobs in an area of high unemployment
there are very attractive financial packages available.
Your local council and government economic development bodies will let
you know what is available, for what purposes, and in which areas. Local
area economic and business development projects can be contacted through
addresses in the telephone directory or by getting in touch with your local
Chamber of Commerce.
23
CHAPTER ELEVEN :
HUGE PROFITS FROM PROPERTY DEALS -
USING OTHER PEOPLES' MONEY.
More fortunes have been made in property than any other area. This is the
case for most countries in the world, and certainly for all the economically
highly developed countries. The great majority of people fail to make
fortunes in property dealing because they imagine that it takes a great deal
of expert knowledge and experience and a lot of capital.
Naturally, having capital of your own for any business venture, whether it
be property, manufacturing or the provision of a service, would be a good
thing. But you may be surprised to know that the vast majority of people
who have created vast wealth for themselves through property buying and
selling, have done so with money which is not theirs.
Borrowing money is one way of getting the capital needed to finance
property deals. But an even more attractive method, and one which is
particularly appealing to those who are not in a position to borrow enough
money to finance the initial property purchase, is to buy the property for a
third party, using their money. And taking a commission on the sale.
The way you make your profit here is to ensure that you can source
properties, such as repossessions, which can be obtained at a significantly
lower price than their true valuation. You find one or more clients who are
looking for a particular type of property at in a specific price range. Finding
these clients is not difficult. The reason they will come to you and be
prepared to allow you to buy on their behalf is that you can inform them that
you will obtain the property they are looking for at a substantial discount on
the true market price.
As an example; you find a repossessed property which you can buy for
£40,000. You can find out from the general price of properties of a similar
type in the same area what the true market value of this property is worth.
Once you are fairly certain that the property is worth considerably more
than you are able to acquire it for you can have this confirmed by a
professional valuer. The valuation fee, around £120 including a survey, is
well worth paying as this gives you a true professional's written valuation.
The survey is also very important in case there is some structural problem of
which you were not aware. This will eliminate the danger of becoming
involved in offers for properties which have 'hidden' problems, such as
expensive structural repairs.
You find from your valuation that the property which can be obtained for
£40,000 has a true market value of £55,000. You negotiate a contract with
the mortgagee to sell you the property for £40,000. You find a buyer who is
willing to pay £52,000 for the property, a discount of £3,000 on the true
market value. You then offer your buyer a further incentive of paying his
5% deposit. This makes your offer doubly attractive. Not only has the buyer
24
already got access to a property at a saving of £3,000 off the true open
market value, but also has no deposit to make (a cash saving of £2,600!).
Since the true saving to the buyer is an overall £7,600, he is very pleased
with the whole deal. And, even after paying legal fees your profit is still in
excess of £6,000. This method of making money on property transactions is
very popular and employed by a great many people who make substantial
sums without the need for capital.
Of course, the £2,600 deposit is actually paid to yourself. Because the
buyer's lending bank or building society will require this amount to be paid
to them in order to release the full £52,000 to you, you have to pay this
amount, on behalf of the buyer, directly to his the lender. In exceptional
circumstances you may be able to persuade the lender that the buyer has
paid you directly, but this is not normally allowed.
If you do not have £2,600 of your own you can borrow it using the methods
described in chapter one. Remember, at the end of the day this money is
paid from the £52,000 which the lender ultimately pays you. So borrowing
from credit cards or a short term, high interest loan is a perfectly good way
of realising this amount for the cash deposit.
This type of deal is called a 'back to back' transaction and the selling and
buying from the original mortgagee is performed on the same day. This
means that you do not actually own the property, the deeds are transferred
from the original owner to the new buyer and you, as the original owner's
agent simply collect the profit.
An alternative to this method is to raise the finance through personal loans
and credit cards and perhaps a second mortgage on your home and purchase
the property for cash. This method is particularly suitable if you wish to buy
at auction. Property auctions are a very good way to buy properties, usually
repossessions, at a price well below their true market value. The hazard of
using this method is that, by not finding a buyer in advance of arranging the
purchase, you may take some months to sell the property.
Of course you can use auctions to obtain property on behalf of a buyer who
will commit himself to purchasing from you once you have secured a
property. The auction method normally allows you to secure a property for a
deposit of 10% of the sale price. You need only find this 10%, instead of the
whole amount. After having paid your 10% you usually have between six
and eight weeks to complete the deal. This gives you ample time to arrange
a 'sub-sale' transaction, where the final buyer obtains a mortgage for 90% of
the price which you sell to him for. Since your selling price is likely to be
between 20% and 30% greater than the price you have secured the property
at, the final buyer's mortgage is enough to pay for the property and give you
a handsome profit. The final buyer's incentive is great in that he has
purchased a property at 10% lower than the market price, and has no deposit
to make.
25
Tips to help increase your profits and ease sales :
When you obtain a property have it cleaned and do any minor repairs which
make the property more attractive.
It can often be worth your while to completely redecorate a property. The
cost of a few thousands pounds to do this can enhance the resale value and
make the property much more attractive to the buyer.
Make yourself known to local estate agents and have them inform you of
any repossessions which are about to go onto the market.
Always act in a professional manner when dealing with all parties
concerned in selling and buying. Project a smart, professional image and act
like an experienced property buyer, even before you get experience. If you
feel there are points you need to learn about, pick the brains of estate agents
and surveyors.
Read all you can about property valuation and the property market. Keep up
to date by studying all the estate agents' magazines and advertising
newspapers.
Get onto friendly terms with a surveyor and valuer, explain that you will
give him regular work in exchange for a discount. I normally get 20% off
the usual valuation fee by going to the same surveyor/valuer that I have used
dozens of times over the past few years.
26
SECTION TWO - WHEN CREDIT BECOMES A PROBLEM
CHAPTER TWELVE : WHEN THINGS GET OUT OF HAND -
THE PROBLEMS OF REPAYMENT!
Being in a situation where the repayments on the money you owe amount to
more than the money you have coming in is a situation which no one wants
to find themselves in.
However, even in cases where a debtor has been very prudent to not borrow
beyond his or her means, there can be unforeseen changes in circumstances
which can suddenly change the situation from one of manageable
proportions to exactly the opposite.
If you find yourself in a situation of having more debt than you can meet the
original repayments on - don't panic! There is much that can be done to
considerably reduce the severity of the problem, and indeed, to take it from
a seemingly totally unmanageable situation to one which can be dealt with
with much less pain and worry than you may at first have thought.
In 1992, for the first time, the Citizens Advice Bureaux reported that people
seeking help with debt problems was the single largest category of advice
sought, pushing advice sought about state benefits into second place.
Overall, between 1979 and 1988 enquiries regarding problems with debt
more than doubled.
Although the overall situation in the UK concerning the level of bad debts is
appalling, the one silver lining to this big black cloud is that most banks and
other lending institutions are now very used to dealing with people who end
up with serious repayment problems.
So, whatever reason or reasons you have for ending up in the unpleasant and
harrowing situation of being unable to make ends meet, there are literally
millions like you in the UK today.
The sad irony of our system of credit is that people who most need to
borrow money are offered the least attractive terms for borrowing. If you
have little or no collateral, or if your income is very low, then the terms of
any loans you will have access to are considerably less attractive than those
available to people with higher incomes and an abundance of collateral.
So you have people who can freely borrow money at very attractive rates of
interest who really could manage without the borrowing, and you have a
much larger number of people who would dearly love to be able to borrow
at such low rates of interest as these richer folks enjoy, but who are severely
penalised in this area when they feel the need to borrow.
The golden rule is, as many of you will have learnt to your cost is to never
borrow that which you cannot realistically afford to repay. This of course
27
doesn't really cover people who have suddenly lost employment after having
taken out credit in the belief that their job was secure.
28
CHAPTER THIRTEEN : THE NEED TO PLAN
The most important thing in any situation where things become
unmanageable is to get a clear picture of the situation and do everything in
your power to set things straight. Never ignore the problems....they won't go
away!
If you are in the unfortunate position of having more credit than you can
repay at the original agreed rates then you must make arrangements to have
these rates substantially reduced, so as to turn the situation from one of
apparent hopelessness into one which you can handle.
As you will be told in any publication that offers advice to people with debt
problems, you must first get a wholly clear picture of your situation and
then formulate a strategy for dealing with it.
The first step you should take is to make a list of all the money you owe.
This should include everything, even money owed on a casual basis. This
will give you a realistic overall picture of the extent of the problem.
When you have listed all your debts, including your mortgage if you have
one, you should then make a list of the repayment instalments which were
originally agreed. Once you've made such a list you should add all the
amounts together to arrive at a figure for your monthly outgoings.
Also, calculate the amount you need to spend each month on the necessities
of life; food, clothing, etc. Add this to the monthly outgoings figure from all
your credit. If this figure exceeds your total monthly income, then you don't
need to be a genius to work out that you are in a financial situation which is
most definitely problematical.
By writing down all your incomings and outgoings as suggested above, you
should immediately feel some sense of relief that at least you are beginning
to address the problem. As the old saying goes - "A problem recognised is a
problem halved".
Of course the "half" of the problem which is "solved" by arriving at the
stage of it being properly recognised in the first place is, obviously, the easy
half. The other "half" of the problem is the part which is going to take some
effort to overcome.
When you explain your reasons to creditors for the difficulties you are
having in keeping up payments they will much more often than not handle
your case in a reasonable and sympathetic fashion. Believe me, they are
used to hearing from people with repayment problems.
After having explained your circumstances to creditors they will usually
agree to considerably reduced instalments. Before finalising a temporary
repayment contract with you, many of these creditors will send you an
income and expenditure form. These forms are tedious to fill in and ask you
29
for a detailed listing of what money you have coming in and what you owe
to others and the payments you need to make. However, rather than fill in a
separate income and expenditure form for all creditors, since these forms are
much the same for each creditor, you could fill in only one form and
photocopy it to send to all of them.
An alternative to filling in an income and expenditure form (or forms)
would be to make up your own personal statement which includes all the
information requested in these forms. There will be parts of the forms to fill
in where you are asked for details of what you owe to whom. You don't
need to be specific about the debts you owe to other creditors if you don't
want to. Who you tell about what you owe, and to whom you owe it is for
you to decide. Creditors only have these forms because they want a
reasonably detailed explanation of your reasons for requesting a substantial
reduction in repayment instalments.
30
CHAPTER FOURTEEN :
DON'T MAKE ENEMIES OF YOUR CREDITORS
You must do all you can to keep your creditors on your side. The best
course of action is to contact any creditor you have as soon as you know you
are going to have a problem keeping to the schedule of repayments
originally agreed.
You can telephone them, and most will be very helpful. Because of the large
number of people who have got themselves into a problem with credit and
end up having to make reductions in instalments, they will certainly not be
surprised when you contact them to discuss your situation.
I have often found though, that the telephone is best avoided as a means of
communication with creditors unless you need to avert an impending
prosecution or stop one of the utility companies from cutting off your gas or
electricity. The trouble with trying to make arrangements over the phone is
that you can often be told that revised repayments will be accepted, only to
find that the verbal arrangement you made has never been noted - and is
then forgotten about. You are then back at stage one, or even worse.
The best course of action is to write to your creditors. Explain your
situation. Tell them why you can't keep up the original level of instalments
and offer them considerably reduced amounts, explaining that as soon as
your circumstances improve you will return to the original level of
repayments.
The amounts you can realistically afford will be worked out from your
listings as advised in Section Five. Always offer considerably less than you
can realistically afford, that way you will at least have some leeway when,
as will inevitably happen with some creditors, your offer is refused and the
creditor insists on a higher amount.
You may be pleasantly surprised to find just how little some creditors will
accept. One bank agreed to accept payments of only £8 per month on a debt
of mine which was £3,000. This works out at only 0.2667% of the balance
owing. The original minimum instalment was supposed to be £150 per
month - quite a reduction!
Don't go into too much detail when you write to creditors. They are not
particularly interested in your life history. If you have become unemployed
then, of course, you would mention this. This is one of the most common
reasons for people getting into serious arrears.
If you have simply overstretched yourself and have taken on much more
credit than you can afford to pay, but are in employment, then simply
confess to having seriously miscalculated your ability to keep to the
commitments you have created for yourself.
31
Whatever reasons you have for ending up in the situation of having
repayment difficulties, you must show your creditors that you got into the
situation by misfortune, or mismanagement and not because you have a
blatant contempt concerning any financial obligations. You must also
impress upon them that you sincerely wish to get the difficulties resolved.
Never give them the impression that you don't care about the fact that you
can no longer keep to your original contract. And never admit to getting into
difficulties because you have been foolhardy about borrowing in the first
place.
Provided that you communicate, at the earliest possible opportunity when
difficulties become apparent, and provided that you are seen to be making
every effort to sort things out, then your creditors, or at least the majority of
them, will take a sympathetic view.
Always remember too, that all your communications with creditors should
be in polite language - there is nothing to be gained by being rude or
offensive. Your attempts to have your case sympathetically considered will
only be enhanced by being polite and respectful. By this I don't mean to
suggest that you should grovel, simply that you should project a reasonable
and decent image of yourself.
Naturally some will be more understanding than others. I have had such a
mixed response from a wide variety of creditors. I have experience of a very
easy to deal with bank who are still accepting payments of only £20 per
month on a £3,000 debt (for nearly five years they accepted only £8 per
month, as mentioned above, and this was increased only because my
financial situation has improved and I offered to pay more). The interest was
frozen on this debt when I first informed them of my difficulties, and
remains frozen nearly six years later, so although it will still take some years
to pay off, I have no particular incentive to settle it at a higher rate.
On the other hand, I have had creditors who would only accept reduced
payments for a trial period of 3 months, and when I was unable to renew the
original repayment schedule, have handed my account over to debt
collectors.
The one good thing about having your debt handed over for collection to a
debt collecting company is that at least the interest will stop accruing. Also,
these companies, by their very nature, are very used to people making offers
of very small instalments.
A debt collection agency can take over your account, by buying it from the
original creditor (sometimes for as little as 10% of the balance outstanding)
or by managing it on the creditor's behalf. As long as you make some kind
of offer, even for a very small percentage of the original instalments, and
keep to the repayments offered, they are unlikely to bother you again until
the debt is cleared. Even if this process takes many years.
32
In the stages before your account gets passed to a debt collection agency,
you should request that the interest be frozen on the account. Explain in
your letter that you are very sorry to have to make this request, but, the only
way you will stand any chance of reducing the amount owing is to be able to
have every payment you make deducted from the balance, and not being
used to pay interest.
Although many creditors will be reluctant to freeze interest in the long term,
most of them will readily agree to suspending interest for a trial period,
usually three months, and occasionally six months. If you are fortunate
enough to get back on your financial feet within three months then well and
good, and you can recommence payments and cope with the interest being
reinstated on your account.
However, if you have not enjoyed an improvement in your situation within
three months, you will have to write again to your creditor(s) to explain that
the situation has either not improved or become worse and you need to have
interest frozen, and repayments minimised for a further term. If your
situation goes on being too poor to re-establish the original instalments,
then, after two or three times of requesting that the interest remain frozen
and the repayments remain at the considerably reduced rate, you will
usually find that the creditor troubles you no further.
Then, providing that regular payments are made, even at a tiny percentage
of the original rate, you will often find that the account is left interest free,
and the reduced payments continue to be accepted without further ado.
A lot of creditors, if the situation reaches this stage will simply pass your
account onto a debt collection agency as a matter of course. This is nothing
to worry about - as explained above, this can be quite a desirable situation,
because there is then no possibility of any further interest being added, and
the agency will accept very small instalments towards the debt.
I did once have an account which had been passed onto debt collectors who
started adding interest. I simply wrote to them and pointed out that I had
never entered into any contract to pay interest to them. Since the account
was now no longer being administered with the company to whom I had
pledged to pay interest, I demanded that they desist from adding interest to
it. This they did. They deleted the interest which they had already added and
never added interest again.
One set of creditors which you must be extra sure to keep on the right side
of is the utility companies. That is, the gas, electricity, water and phone
companies. The problem with these suppliers is that, if you don't do your
best to negotiate and reach a mutually agreeable compromise, they have the
power to cut off the service which they supply.
None of the utilities want to cut you off. Not only do they want to continue
supplying you so that, ultimately, they will be making a profit from the
supply of their service, but they will naturally wish to avoid the hassle of
33
having to issue disconnection notices and send someone out to disconnect
you.
With the electricity companies you may apply to have a Powercard meter
fitted. Indeed, if you are having difficulty in paying your bills the electricity
company may suggest to you that you have such a device fitted anyway. For
all the disadvantages of a Powercard, like getting your supply cut off when
the credit from the Powercard is spent, the main advantage of this system is
that at least it will allow you to know exactly where you are with your
electricity bill because you are paying as you go along. Existing arrears can
also be incorporated into the Powercard system : the meter is set to
accommodate this by charging you slightly more for the electricity you use.
When your arrears are paid off, the meter is re-set to the ordinary level.
With the gas supply company, you can apply for an electronic payment
card. This card is taken to your Post Office and "charged" with units of
credit which you pay for over the Post Office counter. Again, the advantage
of this system is that you will be paying for your gas as you go along.
The phone company doesn't have to send someone round to disconnect you,
they can simply switch you off at the exchange. However, they naturally
want to maintain a telephone line supply to as many customers as they can -
more customers means more profit. Of course they will get upset if you
don't pay your bills. But, as with all creditors, providing that you make
every effort to reach an amicable compromise and an instalment schedule,
there is no reason that you should have your service disconnected.
If you find that your phone bills are too high you should naturally try and
cut down on phone use. If the situation gets really critical you can request
that you receive incoming calls only. This is not a very desirable situation,
because it means that every time you wish to call someone you have to go
out to the nearest phone box, or to your next door neighbour to beg to use
their phone. However, having your phone reduced to being able to receive
incoming calls only can be a lot better than having the line disconnected
altogether.
In cases of rent arrears, existing or impending, you should take steps at the
first sign of trouble and contact your landlord. As with your electricity, gas
and water, you should give priority to your rent, particularly in the private
sector. For all the protection that tenants enjoy from unreasonable landlords,
the one area where the courts will not take kindly to the tenant is where
there has been no reasonable effort made to have payment difficulties
resolved. If you are unemployed you should be able to get all or at least a
substantial part of your rent paid by your local authority Housing
Department. The DSS will advise you on the procedure on claiming this
benefit.
Remember, a landlord can only evict you with a court order. You should be
able to avoid any case of rent arrears from ending up in the courts.
34
In the case of mortgage arrears you should confer with your lender as soon
as you become aware that a problem exists. Mortgage lenders have special
departments set up to deal with payment arrears, and, again, as long as you
are prepared to make every effort to get things sorted out, there is every
reason that they will co-operate fully. The last thing they want to do is repossess
your property. The majority of people who do end up being evicted
and having their properties repossessed are those who have taken little or no
action to try and avert this situation. If you are unemployed and in receipt of
state benefits, and you have an endowment mortgage you should be able to
get help with the repayments to interest from the DSS. The rules and
availability of mortgage relief payment have changed a number of times
over the past few years, consult your local DSS office for the latest
information.
When I had a lot of mortgage arrears which I could not hope to clear, my
mortgage lender allowed the full amount of arrears to be added to the capital
loan. This increased my monthly payments by only a very small amount, but
allowed me to breathe much easier as I had several hundred pounds of
arrears absorbed into the mortgage. If you have substantial arrears which
you feel it will be impossible for you to catch up with, then this is
something which you could suggest to your lender. Naturally they will only
allow this if they have a promise that they will get regular instalments from
then on.
Other debts which should be considered more important than the likes of
credit cards and bank loans/overdrafts are Council Tax, Income Tax and
VAT. These are debts which, if ignored, can, by virtue of who you owe,
lead to imprisonment. Naturally no-one wants to see you get into such a
terrible state as to be liable to imprisonment. And the likelihood of your
getting to that stage, even if you are being obstructive is very limited
nowadays. I mention it only because these debts are owed to government
departments who have considerably more power over you than banks and
other company creditors. The same old routine applies to these debts as to
all others though, it is only in their level of priority that they should be given
any preferential treatment.
The golden rule is, as always, negotiate. Make your situation clear to these
creditors and impress upon them that you will do everything in your power
to resolve matters in the shortest possible time. You may be pleasantly
surprised that the people you have to deal with will be very helpful.
35
CHAPTER FIFTEEN :
ARE YOUR ENTITLED TO HELP FROM THE STATE?
If you become unemployed and have no other source of income then you
will be entitled to a range of benefits from the state to help you deal with the
hardship of having no salary or wage.
Because the range of benefits available, from a variety of sources, is vast
and because legislation changes with great frequency it is pointless to
attempt to give detailed advice about what is available and what you may be
entitled to.
Your best course of action is to diligently research every possible avenue
when considering which benefit or benefits you may be entitled to. Your
local Jobcentre, where you would go to register if you become unemployed,
will be of some help. The Department of Social Security, however, is the
main government department to get in touch with to find exactly what you
may be entitled to from the state purse. There is a booklet available called
"Which Benefit?" which is a comprehensive listing of all DSS benefits
available. This can be picked up in larger Post Offices or can be collected
from, or posted out to you from, the DSS. If your DSS office is not
conveniently near, then look them up in the phone book and call them,
requesting this booklet.
Look through this booklet and make a list of all the benefits which even
remotely apply to you. There is no harm in claiming a benefit which
eventually you may not get - it's better to have claimed and be turned down
than to continue for a long period missing out on that to which you are
entitled.
Your Citizens Advice Bureau can be a ready source of help when trying to
find out the source of and entitlement to benefits.
Your local council housing department will deal with any claim for housing
benefit when you are claiming an allowance for rented property, whereas
the DSS will be the source of any help you may be entitled to with mortgage
interest. However, in any claim for housing benefit, the necessary forms for
this are obtained from the DSS.
Apart from the benefits available from the DSS and the local authority
housing department there can be a number of other benefits available. For
example, the local education authority can be a source of assistance to those
with children at school. To find out about any benefits which you may be
able to claim from the education authority consult them directly or through
your local Citizens Advice Bureau.
36
CHAPTER SIXTEEN : WHAT'S THE WORST THAT CAN HAPPEN?
If you were to have had unmanageable debts in the Victorian era then you
could have ended up in a debtors prison. Thankfully there are no debtors
prisons any more. Unfortunately in this country there is still a great deal of
stigma attached to having debt problems.
However, as already stated earlier, there are so many millions of people
with debt problems today that it is really quite surprising that, apart from the
real worry that having debt problems can cause, this is further compounded
by being embarrassed or even ashamed of the situation. Don't be - being in
debt is not a criminal offence - and whatever problems it causes, these can
always be overcome with determination and effort.
If you don't get in touch with your creditors as soon as any payment
problems become apparent, then there is every chance you will be served
with a default notice. This is a legal notice which any creditor can issue in
the event of the correct payments not being received by them. Default
notices are recorded by credit reference agencies and are kept on record for
six years. Having default notices can adversely affect any future
applications for credit.
If you write to your creditors and make arrangements for a reduced schedule
of repayments then it is unlikely that, provided that you make such
arrangements early enough, you will not be served with default notices.
These notices must be issued by any creditor prior to them taking any legal
action through the County Court (Sheriff Court in Scotland).
If you receive a default notice and have not already entered into an
agreement with the creditor where they will accept reduced payments then
you must contact them immediately if you want to avoid the case going to
court. They do not particularly want to have to take legal action because of
the inconvenience it will cause them.
They also know that a court will nearly always allow a debtor time to pay -
often by very small instalments over a very long period of time - so they are
generally happier to make these arrangements with you directly, especially
if it means that, should your situation improve, they can then begin to
collect larger instalments and re-introduce interest on your account.
One distinct advantage of having your case heard in court is that there will
definitely be no further interest added to the money owed and provided that
you can keep up the very small instalments which you should be able to
secure, you will hear no more about the case. You simply keep paying until
the balance is cleared. This could take several years, but your debt is
accruing no interest, so, apart from any personal desire to get the debt
cleared you have little incentive to do anything other than to take the longest
time to pay it.
37
If you find that you cannot keep up repayments which you are making under
the order of a court, then you can apply, at any time to have these reduced.
Write to the Clerk of Court and explain why you are unable to maintain
payments at the level ordered. Providing you have a valid reason for
requesting a further reduction there is every possibility that your request will
be granted.
What you must never do is to simply allow yourself to miss payments
ordered by the court. If you do this there is a strong possibility that bailiffs
will be appointed to call at your home to collect payment. If you do not have
the money to pay them they will then obtain a Distress Warrant from the
court. This gives them authority to seize your personal property for sale at
auction to raise money towards payment of the debt.
Bailiffs cannot force an entry into your home. If they do call, do not let them
in. If you let them in once, then, when they return, they have authority to
enter your home through unlocked windows or any way they can without
forcing an entry. Once inside your home they have authority to force
internal doors. They are allowed only to seize certain items. They cannot
take fixtures and fittings. You are also entitled to keep the minimum of
"essential" furniture - a bed, a table, a chair for each member of the
household, a cooker, etc. They are also not allowed to seize your "tools of
the trade", if you have these, since you are entitled to keep them to earn your
livelihood.
They cannot take property belonging to anyone other than the debtor, but
sometimes they will anyway, and then it will be up to you to try and sort the
matter out with the owner. If the owner can show proof that goods
belonging to him have been seized then he can claim them back. However,
if proof is not available then it will be up to you to make amends with them
for their loss.
Bailiffs also cannot seize goods which are on a hire purchase or similar
credit agreement, unless they belong to the creditor who has made an
application to get them back. You must be able to show documentation
which shows that such items are still the property of the vendor, or the
goods could be uplifted anyway.
Distress Warrants are issued only when all other methods of collection have
failed. Provided that you co-operate with the court and make every effort to
pay what you have been ordered to, there is no reason whatever to worry
that a Distress Warrant will be issued for the seizure of your property.
Residents in Scotland should note that, under the Bankruptcy Scotland
(1987) Act, bailiffs or Sheriffs Officers, once the relevant court order has
been issued, can employ the services of a locksmith to gain entry to your
home. They are obliged to give notice before taking this action, but even if
you are at home when they call it can be difficult to stop them forcing their
way past you, and taking your possessions. It is therefore of paramount
importance that Scottish debtors make every possible effort to reach an
38
agreed schedule for repayments with the court at the earliest, and to keep to
this agreement.
Once you have cleared any debt, it is then said to be discharged. When a
debt has been fully discharged you can apply to the credit reference
agencies and request that they delete the record of it from their files.
However, in the vast majority of cases the record will not be deleted, at least
until the six year period has expired, but they will mark it as having been
settled.
The first time a creditor of mine made an application to the court to try and
collect money which I owed I was really upset when I heard. However, after
the hearing I was delighted that I now had only a small monthly instalment
to make and I was very relieved to know that the debt could get no larger by
the addition of interest.
Although having court judgements against you does have an adverse effect
on your credit rating, the way I see it is that, if you have had serious
problems with debts, the last thing you want is to be borrowing money again
anyway.
39
CHAPTER SEVENTEEN : WHAT ABOUT THE FUTURE?
Once you have made arrangements to pay debts at a small fraction of the
original instalments, whether through a court or directly with your creditors
or debt collection agencies, and have made payments over a period of time,
it is worth considering making an offer for full and final settlement.
If you are paying only a tiny portion of the original instalment and your
creditor knows that the debt will take years to clear, they will often accept a
small portion of the total amount outstanding to fully discharge the debt.
The smallest amount of a debt I have managed to persuade a creditor (it was
a debt collection agency) to accept was one third of the balance outstanding.
Sometimes, in order to get the matter finalised and to obtain a cash payment
far in excess of the instalments being made, a creditor will accept as little as
10% of the balance outstanding.
Once you have been paying greatly reduced instalments for a year or more
you could try writing to the creditor with an offer to pay a portion of the
balance in full settlement. You could try initially by offering only 10% of
what you owe. This might well not be accepted, but in some cases they will
settle for this, particularly if you are paying a debt collector who has bought
the debt from the original creditor for only 10% of the balance.
If you have been paying something like one or two percent of the debt
monthly for a year or two it can be quite an attractive proposition for the
collector to receive even 10%. If they refuse, then offer 20% (if you can
afford it) - and increase by increments of 10% until they do accept. Even if
you end up paying half of what you owe, if you can manage to raise the
money and you want to discharge the debt completely, then this is worth
considering.
If you do wish to obtain credit in the future, then the chances of being able
to do this within six years of the latest default notice or court order are slim
indeed.
However, after a six year period, your records are deleted. You can write to
the credit reference agencies at any time, enclosing a £1 statutory fee, and
obtain a listing of all the records they have. If any records are still in
existence after the six year period you can write to these agencies and insist
that such records that are older than six years be deleted.
40
CHAPTER EIGHTEEN : PROFESSIONAL HELP
When you're in serious debt and worried about it, this guide should help a
great deal. Possibly you will find enough information in this guide to help
you to solve all your debt problems.
However, in some cases you may need further information, particularly
regarding your legal position if things really have been left so late that the
situation seems totally unmanageable. In this case you might want to contact
a debt councillor, a solicitor or even, if you are being forced into
bankruptcy, an insolvency practitioner.
Advice about how to manage debts is available from all Citizens Advice
Bureaux. The advice they give is free. You can find the closest one to you
by looking in your telephone directory. The name and address of their head
office is given in Section Fifteen.
If you need to consult a solicitor you should try and find one who offers
legal aid and ask if you are entitled to this free service. Your entitlement
will depend on your circumstances.
If you are being forced into bankruptcy then you may wish to consult an
insolvency practitioner. The fees for this will be relatively high, but they
will not expect you to pay them directly. They will be paid from the
liquidation of your assets.
You can telephone the National Debtline on 0121 359 8501 for free
confidential information and advice. Their telephone lines are staffed on
Monday and Thursday between 10a.m. and 4p.m. and on Tuesday and
Wednesday between 2p.m. and 7p.m. If you call outwith these times your
call will be answered by an answering machine.
There are a few Money Advice Centres around the country - if you have one
near you your Citizens Advice Bureau will advise, or you can find them in
the phone book. The advice offered by these centres is free of charge and,
because they specialise in advising people about money matters, if there is
one which you can visit it is a better bet than your CAB.
41
CHAPTER NINETEEN : BANKRUPTCY, THE VERY LAST RESORT
(AND HOW TO AVOID IT)
Depending in which country of the United Kingdom you live in the
procedures and implications of bankruptcy vary. In Scotland it is a fairly
straightforward process whereas in England and Wales the procedure is
much more complicated. In Northern Ireland the process is different again.
Although personal bankruptcy is possible in England in Wales it is seldom
used because of its complex nature. If you have debts arising from running a
business, rather than personal debts, it is quite possible that you will be
forced into bankruptcy, but that is a whole different situation and is outwith
the scope of this guide where only personal debts are considered.
In England and Wales instead of bankruptcy, it is more usual to enter into an
Individual Voluntary Agreement. This is a process where the debtor agrees
to allow the court to appoint a supervisor who will take charge of the case
and see that creditors are dealt with equitably. If it becomes necessary for
goods to be seized and sold, the supervisor will divide the proceeds between
creditors, after court fees have been paid.
If it is possible to avoid going as far as an IVA you can have the court issue
an Administration Order. Here an administrator will take a monthly
payment from you and distribute it to your creditors. This process will save
you from having any of your property seized provided that you can keep up
the monthly payments to the court. If you are being taken to court by one or
more creditors, you may wish to consider this option.
The Bankruptcy (Scotland) act (1985) has as its main provision that once
debt exceeds £750, either the creditor or debtor (or both) can petition the
control and distribution of the debtor's assets by a trustee. This will involve
no new actions against the debtor and liabilities will be discharged after
three years.
Debt recovery in Northern Ireland is regulated by the Payments for Debts
Act (1971) and the Judgements Enforcement Act (1969). The former allows
deductions from any statutory benefit for any statutory debt. You can have
money deducted at source from wages or state benefits to pay your
creditors.
The Judgements Enforcement Act provides for an enforcements office
(EJO) to which creditors apply once they have a judgement from the courts.
Once the debtor's case is accepted the EJO interacts with the debtor and
decides the appropriate methods of recovery. Where the debtor has
insufficient means, a certificate of unenforceability can be issued. This is
technically the same as bankruptcy.
If you are forced into, or decide voluntarily to apply for, bankruptcy, all
your disposable assets, with the exception of some basic necessities such as
42
a bed, clothing, tools of your trade, cutlery, crockery, etc., will be seized and
sold at auction to raise funds towards payment of your debts.
If you are forced into bankruptcy anywhere in the UK, your debts are
automatically discharged after 3 years and you can start with a 'clean slate'.
The exceptions to this are :
Secured creditors, where, if your home has been sold you are liable for any
shortfall between the selling price and the amount you owe. You are also
liable for interest until the debt has been discharged.
Fines, maintenance orders and family court orders.
Claims made against you for causing personal injury.
Debts incurred through fraud.
Any matter upon which the trustee is still working.
If you own your own home it is possible that you can keep this. Largely this
will depend on the equity of the property. If the home is valued at much
more than you owe to the mortgage company, you may be forced to sell to
release the equity. If there is little or no equity, or indeed negative equity, on
the home then, providing that you continue to make mortgage payments,
there is every chance that you will not be forced to sell. It is only the case
where there is equity tied up in your property that anyone other than your
mortgage lender can force a sale anyway.
If you are unemployed and have your mortgage interest payments made
directly by the DSS, and your house value is around the same as the
outstanding mortgage it is unlikely that you will be forced to sell. One
problem which you may have in this situation is that the endowment policy
for your home (interest only endowment mortgages) will still need to be
paid and the DSS will not offer assistance with it.
If you are in rented accommodation you may have a lease which states that
a bankrupt is not allowed to be a tenant and your landlord could force an
eviction if this were the case. Also, even if there is no mention in the lease
of bankrupt tenants being disallowed, your landlord may force you out
because he feels it will be impossible to recover rent arrears from a
bankrupt. In this case you will have to apply for specialist housing advice.
See your local council housing department about this.
Anyone who is bankrupt will not be allowed (until after discharge) to have
credit of more than £250 - you will find it almost impossible to get any
credit at all though.
You should try and keep a bank account because as a bankrupt you will be
unlikely to even be able to open one of these.
43
Although the debts are discharged after three years you may well find it
almost impossible to get any kind of credit for a period of six years after the
issue of the bankruptcy order, because this is the period of time that the
credit reference agencies will keep your details on file.
So, all in all, particularly in England & Wales, bankruptcy is best avoided if
at all possible. If you closely follow the advice given in this guide then you
should be able to avoid bankruptcy. Even your creditors will not want to
force you into bankruptcy in all but the most unusual of cases. They are
fully aware that if you become bankrupt they are unlikely to get anything
but a very small percentage of what is owed to them and are much more
inclined to accept reduced payments, particularly in the hope that your
situation will improve.
44
SPECIAL SUPPLEMENT :
Getting Credit With No Credit Checks!
The following companies specialise in finding loans for people who have
had problems obtaining credit because of County Court Judgements,
Mortgage Arrears, Bankruptcies, etc.
Most of the following deal with loans and mortgages, some of them
mortgages only.
Alchemy Financial Services, Nicholson Room, Building 1, Shamrock Quay,
William Street, Southampton, SO14 5QL. 01703 232623.
Alpha Finance, 6-10 Bowden Terrace, Newcastle upon Tyne, NE3 1AX.
0191 213 1683. 01222 233743.
Apex Finance. 01628 665115.
Charles Ashworth Finance & Co.
Homeowners : 01614 770974. Tenants : 01252 341122.
Atlas Financial Services, 194 Shoreditch High Street,
The City, London, E1 6LG. 0171 729 6999.
BFS. 01274 587418.
Brittania Mortgage Services Ltd, 30 Palmerston Road, Southampton,
Hampshire, SO14 1LL. 01703 231333.
Capital Credit Ltd, Capital House, City Road, Truro, TR1 2JL.
0990 134433. 8am to 9pm Mon to Fri. (Tenants : 01252 341122 ext. 555).
Cedar Consultants. 01252 350276 - 9am - 9pm, 7 days.
Central Home Loans, Ilex House, The Green, Claverdon,
Warwickshire, CV35 8LL. 01926 843532 - 7 days.
City and Urban Finance, Middle Building, Mill Site, Poplar Avenue,
Crosby, Liverpool, L23 2ST.
0151 931 3397/4497. 0181 959 2542/5990. 0151 924 1414.
Fax : 0151 924 0443.
The Credit Hotline. 01703 406040.
Marcus Cooper (Financial Adviser), Pendeen Cottage, Pothole, Sticker,
St. Austell, Cornwall, PL26 7DW. Write for Details.
Datanet UK. 01530 836451. 0171 644 3456.
Davery Finance. 01702 73331.
45
Fairfield Finance. 01952 812280.
Greens Mortgage Consultants. 0181 548 9060.
Grosvenor Finance. 0121 355 8848 - to 9pm, 7days.
Heath Services. 01489 579569 (7 days).
Knolton Finance. 01978 710226 or 710746 - 9am to 9pm, 7 days.
KVC Ltd, Earls House, Earlsway, Team Valley Trading Estate,
Gateshead, NE11 0RY. 0191 482 4444.
Macadam Finance Ltd, 255 Union Street, Aberdeen. 01224 588544.
Or : 62 Academy Street, Inverness. 01463 234307.
Ocean Finance, Marlborough House, St John Street, Lichfield,
Staffs, WS13 6BR. Homeowners : 0800 858858.
P.A. Finance. 01229 835239.
Seal of Approval Ltd, PO Box 504, Tunbridge Wells, Kent, TN4 9ZL.
01 892 526 504. Or send 4 x 1st class stamps for information pack.
Safeloans Ltd, 64 St. Johns Road, Clapham Junction, London.
0171 738 1622.
Speed Loan Securities, The White House, Hungerford, Berkshire.
01488 686023.
Springwood Finance. 0161 449 0902. 8am - 9pm.
Union Asset Finance Ltd, 2 Stitch Lane, Stockport, Cheshire, SK4 2LS.
0161 4803311. Fax : 0161 480272.
Walkers Finance Ltd, 90 Newport Road, Barnstaple, Devon. 01271 72042.
Watson Finance Ltd, 111 Union Street, Glasgow. 0141 221 8467.
Wentworth Finance. 01530 411622.
Wilmslow Financial Services Ltd.
Homeowners : 0800 269315. Tenants : 01252 341342.