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To eliminate debt is usually a complicated procedure, carried out with help from specialised debt advice agencies and non-government organisations. However, an over-indebted borrower with past-due monetary obligations can prepare their own eliminate debt scheme, without resorting to a third-party counsel agency. When referring to a debt clearance process, elimination of defaults include various repayment and reduction schemes. However, not all debts can be eliminated, even when filing for bankruptcy. An overdue liability cannot be written off or eliminated, if it is a secured loan. Such debts are always followed by a collateral and if the debtor falls behind with their payments, the creditor will most likely perform foreclosure their home or other property, marked as a guarantee. Therefore eliminate debt procedure will not apply to lender’s process of repossession. Other debts that cannot be eliminated are various support loans (alimonies, child support fees, palimonies, etc.) and in some cases- concrete types of education loans. However, debt elimination as a scheme comprises different consulting and help methods (provided by debt counselling agencies), reduction plans and contract rearrangement negotiations.
Schemes for emiminating debt: DO’s & Don’ts
When choosing an eliminate debt method, a debtor should take into consideration many factors:
- If the consumer needs the debt to be written off after a certain period of time, whether it is repaid in full, or not, i.e. the lender will have no further claim against the debtor after the debt program’s period has passed; Whether the debtor prefers the obligations to be settled as soon as possible, i.e. with one lump sum payment, or for a longer period of time;
- Whether the eliminate debt program will affect their job, credit rating, etc.;
- Whether he prefers to secure their home, or he decides to risk their property by using a particular eliminate debt program;
- Whether the debtor prefers to combine their debts and pay to only one creditor, meaning he should borrow another and larger loan; or he prefers to pay several lenders but not borrowing another monetary amount;
- Whether the subject in debt requires their monthly payments & interest to decrease or the full debt amount to be lowered;
There are other eliminate debt methods as well, including different relief orders and bankruptcy as a last resort. A Debt Relief Order is applicable for UK and Wales and ends after 1 calendar year, which is DRO’s limitation period. After 1 year has passed, the Relief Order is considered as finished and the debtor- as debt-free. All monetary liabilities towards creditors (with some exceptions) are marked as written-off. In order for a consumer to qualify for a DRO, one has to match certain requirements: consumer’s income excess must not be more than £50 per month after covering all their expenses; borrower’s monetary obligations must not be more than £15,000; their material possessions must not exceed the total sum of £300 (excluding furniture, clothing and other convenience goods); and if the debtor possesses a vehicle, its value must not exceed £1,000.
When a consumer files for a Debt Relief Order, the lender is forbidden to pursue payments from the debtor. Furthermore, the borrower will not lose their home, nor their belongings or vehicle. He will be also professionally advised how to maintain their budget and keep it in the positive column. Unfortunately, as every eliminate debt program, a Debt Relief Order has certain drawbacks as well:
- When filing for a DRO, the borrower will enter the Debt Relief public register of UK & Wales;
- They will have to cover the DRO’s fee of £90; Some debts cannot be written off even after the appliance of a Relief Order, such as local fines and taxes, student debts, domestic bills, etc.;
- If the debtor is a company’s owner with corporate overdue defaults, they will not be allowed to continue their business in a management or direction sphere.
A bankruptcy form represents a formal procedure, carried out by court, which states and proves that a borrower has no financial funds at all to cover their debt obligations. Although the consumer will be debt-free after a certain period of time (for UK it is 1 year) and the creditor won’t be able to take further actions to pursue payments, bankruptcy is followed by serious consequences:
- Debtor’s credit report will be severely damaged;
- All borrower’s assets with small exceptions (personal items, like clothes and kitchen appliances) will be sold;
- Consumer’s profile of bankruptcy will be visible in all public registers;
- If the debtor is a company, it will not be able to continue with their business; If the consumer files for their own bankruptcy, they will have to pay for court fees, which differ between countries. In UK and Wales, the fee is around £700.
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