Step 7 - Negotiate with secondary creditors

After agreeing offers of repayment for all your priority debts, your financial statement should be updated to see if you have any disposable income to pay your non-priority debts (see STEP 2 for definition).
The fairest way to divide this amount (if any) amongst the secondary creditors is in proportion to the total amount they are owed. List these remaining debts on a summary sheet (see example overleaf) and add up the total of the secondary debts.

The total available disposable income is then apportioned to these creditors by the following method:

Individual debt ÷ Total debts x Disposable income = Offer

The example given below assumes you have £100.00 per month available for all secondary creditors:

SCHEDULE OF SECONDARY CREDITORS
Name:
Date:
CREDITOR	AMOUNT OWED	OFFER (per month)
	£	£
ABC Catalogue	2000.00	20.00
Northern Loans	3000.00	30.00
Right Car Finance	1000.00	10.00
Flexible Credit Card	4000.00	40.00
TOTAL	10000.00	100.00

 

Using the above formula the calculation for the Flexible Credit Card would be:

£4000.00 ÷ £10000.00 x £100.00 = £40.00

You may find it helpful to use a calculator to complete this schedule.

Using the figures you have calculated you can make an offer to each secondary creditor.

A typical letter is shown opposite and this should be supported by a copy of the debt schedule and your financial statement.

Your address

Date

Dear Sirs

Account/agreement number:

You will be aware from my earlier letter that I am experiencing financial difficulties due to..................................................................

I enclose a copy of my current financial statement which includes payment of arrears to my priority creditors. I also enclose a schedule of all my secondary debts from which you will see the available money has been apportioned on a pro rata basis.

I ask that you will accept this offer of £............per month and stop interest or other charges accruing in order that the payments will begin to reduce the debt.

Please confirm your acceptance in writing and advise me how the payments should be made.

Thank you in anticipation.

Yours faithfully

It is important that creditors can see that you have treated each of them fairly so don't be pressurised or threatened into increasing individual offers at the expense of other creditors. There is usually a reluctance to freeze interest and other charges but there is little point in paying if the outstanding balance continues to rise so try writing again as follows:

Your address

Date

Dear Sirs

Account/agreement number

Thank you for accepting my offer of repayment but I am disappointed that you have not agreed to freeze the interest on the account. As you will appreciate, if the interest is not stopped then the balance on the account will continue to rise and I will never be able to repay the debt. I would ask, therefore, that you reconsider your decision and advise me accordingly.

Yours faithfully

If your bank is a secondary creditor it may be necessary to open an account elsewhere if possible and redirect your wages so that you can have access to them. Direct debits will also need to be transferred as the bank may stop paying them.

Start payments as soon as they are agreed in writing with your creditors and remember that keeping up regular payments is essential, even if they are small.

If your circumstances deteriorate further and you cannot sustain payments then prepare a revised financial statement, re-calculate your offers in line with your current available disposable income and write to your creditors again explaining the change in your circumstances.

If a creditor will not accept your initial offer you can write to them as follows:

Your address

Date

Dear Sirs

Account/agreement number

Thank you for your letter dated............................

I am sorry that you feel unable to accept my offer. The majority (or all) of my other creditors have accepted and payments to them have commenced. I cannot offer you more as you will see from my financial statement that I have only £.................. in total to divide between all my creditors and it would be unfair to favour your company at the expense of others who have agreed to my offer. Please reconsider your decision in the light of what the other creditors have accepted.

Yours faithfully

Often creditors will agree to reduced payments for a limited period of time, for example three to six months. If your circumstances haven't improved by the end of this period then let them know and continue existing payments. Otherwise prepare an updated financial statement and re-calculate your offers as explained above.

If you have no disposable income for secondary creditors then write and inform them explaining your circumstances and sending your financial statement to confirm your situation. Agree to contact them again if your circumstances improve. In the meantime ask them to freeze interest charges. You could ask them to consider writing off the debt or accepting a reduced settlement, although they are unlikely to do so in the early stages. Make a token offer of payment to each creditor of £1 per month. Include the first payment with the letter and continue to make monthly payments. This shows that you want to do what you can to pay what is due.

You could write as follows:

Your address

Date

Account/agreement number

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

I enclose a copy of my financial statement from which you will see that after meeting essential expenditure there is no available income with which I can make you an offer except a token payment of £1 amonth as a gesture of goodwill. I enclose the first payment and ask that you send me a payment book.

If my circumstances improve in the future I will contact you again but in the meantime will you freeze the interest charges and consider whether you will write off the debt?

Yours faithfully

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