Please note: The advice given in this blog is correct as of 27/03/2020. Due to the ongoing nature of the COVID-19 situation, guidance may change and while we will do our best to update our blogs, it is always best to speak with a solicitor for specific advice.
Our country is in the midst of a health crisis caused by the virus COVID-19. The effects of the virus are not simply related to health. There are unintended, if unsurprising, consequences of the illness and I want to specifically focus on the effects on your finances, and specifically debt and COVID-19.
There may be changes to your income which has a direct effect on being able to service your existing credit. If you are off work sick due to the virus your income may reduce to Statutory Sick Pay (SSP) for example, which would mean you may have trouble servicing your existing credit card debts and loan payments. Or it may be that you are self-employed and your business has suddenly come to a halt because of the measures imposed by the Government. Whatever your situation, if your income suddenly reduces or stops, you need to look at how to deal with your existing monthly credit repayments.
If this is the case there are some golden rules which should always be followed:
1) Speak to bank lender or credit provider
If you are struggling to repay your credit commitments each month you should contact your bank as soon as possible and ask for ‘breathing space’ to allow you time to contact a debt advice organisation to get the appropriate advice needed as to how to deal with your problem debt. Most companies will give you at least 30 days ‘breathing space’. During this ‘breathing space’ period they will put a hold on letters and telephone calls demanding payment. If you stop paying your creditors in this time, any payment default will be recorded on your credit file. This may have an adverse effect on your credit but the more important aspect is that you seek good debt advice which will give you a plan of action. Your credit file can be repaired at a later stage so never be overly concerned about your credit score when you are unable to pay your debts.
In any event banks, in the present climate, may well allow you a payment holiday with regard to your monthly payments which wouldn’t adversely affect your credit score. Golden rule is – speak to the lenders first!
2) Prioritise your payments
There are certain financial commitments which are more important than others. For example, a mortgage payment or a rent payment each month is more important that paying a credit card bill as the consequences of non payment are more severe. If you miss mortgage payments or rent payments you may lose your property. It is therefore important that each payment is assessed as to its relative importance. For example, a payment to service a council tax liability will be more important than an unsecured loan payment as a failure to pay council tax may result in a speedier visit from bailiffs. A good debt advisor would be able to discuss with you in more detail which payments should be prioritised, which brings me on to the third golden rule.
3) Get debt help as early as possible
There are always options available for someone who has problem debt and those options could be one of the following:
- Debt Management Plan (DMP)
- Individual Voluntary Arrangement (IVA)
- Debt Relief Order (DRO)
The correct debt solution for your situation will entirely depend on your personal circumstances, for example, the income you have and the amount as well as the type of problem debt that you are dealing with. It may well be that your present situation does not require any of the more formal solutions listed above but simply communication with the banks while this short downturn blows over. So seek advice to discuss.
Debt advice should always be free, confidential, and impartial. As part of my role as Head of Personal Insolvency at Farleys Solicitors I offer free, impartial and confidential debt advice to members of the general public. If you contact me I will be able to talk you through the options available to you and answer any questions you may have. I can be contacted on 07960077252 or 0161 835 9513 or firstname.lastname@example.org
I am keen to get the message out there that although we are in difficult times with the virus and its affects on our finances there is help out there to deal with financial difficulties caused and I am here to help as much as I can.