Step 6 - Negotiate with priority creditors

On completion of your financial statement deduct your total expenditure from your total income to see what money (if any) you have towards clearing your debts.
If you are in arrears you will first need to negotiate with your priority creditors (see STEP 2 for definition) and this should be done quickly to prevent implementation of their sanctions. Even if legal proceedings for recovery have commenced it is never too late to make an offer and seek a voluntary agreement.

List all your priority debts and send this schedule, along with your financial statement, to each priority creditor. This letter should detail the reasons for your financial difficulties and include a reasonable offer for payment of arrears, provided there is surplus money available.

A suggested letter is as shown below:

Your address

Date

Dear Sirs

Account/Agreement Number

I am experiencing financial difficulties because.....................................

I enclose a financial statement detailing my current situation togetherwith a schedule of all my priority creditors.

You will appreciate that it is necessary for me to make an offer to each of these creditors therefore I am able to pay you £......per week/month.

If you will confirm your agreement in writing I will commencepayments immediately. Please also advise me of the method anddue date for such payments.

Yours faithfully

When negotiating with your creditors:

You should not offer all your available income to one creditor.
Start your negotiations with the debt nearest to its final sanction.
Don't feel obliged or pressurised to pay more than you can afford, as it is important to sustain the payments once agreed.
Do not divulge account and reference details to anyone other than the creditor concerned.
Even if creditors don't agree to your initial offer start paying as it will begin to reduce your arrears and may persuade them to change their minds if they see that you are serious in your intentions.
Ensure that you get a receipt for all payments made and any verbal agreements must be confirmed in writing.
As payment is agreed with each creditor you should include this in your financial statement so that other creditors can see your current situation and you can adjust to living within your new budget.
If you have no surplus income for priority creditors after re-assessing your budget you must still contact them and support your position with your financial statement. You should remember that some creditors have the legal right to make direct deductions from wages or income support via the Department for Work and Pensions (DWP).
For ‘fuel' debts, pre-payment meters allow the arrears to be collected over a period of time and are a way of avoiding disconnection.
For mortgages and secured loans the following options should be explored:
Never abandon your property or hand the keys back to the lender.
Always contact your mortgage lender at the first sign of a problem and continue to keep them informed of any changes in your circumstances.
‘Interest only' or other reduced payments for a limited period of time.
Capitalise the arrears.
If your financial situation is improving, seek to repay the arrears over an agreed period of time.
Consider re-mortgaging on a different basis, e.g. transferring from an endowment to a repayment mortgage, but be careful to check and compare terms and conditions, initial and longer-term interest rates, early redemption penalties, administration charges etc.

Voluntary sale of the home will usually produce a higher price than forced sale after repossession, but consideration must first be given to alternative accommodation as the local authority may decide that you have intentionally made yourself homeless. Such a sale may not always produce sufficient equity to clear the outstanding mortgage/loan and you may still be legally liable for the balance, even if the lender agreed to the sale.

Once you have successfully negotiated with primary creditors, it is time to try to try to reach agreements with your secondary creditors (see STEP 7).

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