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If you have identified your priority debts| and created a financial statement| you should now be ready to make a deal with your non-priority creditors.
Some organisations can help you negotiate with creditors. Remember, you should arrange to repay your priority debts before making any offers to non-priority creditors.
You will need to write to your creditors at each stage of the process. You can download these sample letters [Doc, 39Kb]| and adjust them to fit your circumstances. At the top of each sample letter, you will see instructions about when and how to use it.
If you have any disposable income based on the financial statement you completed (disposable income is income minus expenditure), you can start to follow the procedures below:
1. Send holding letters (see letter sample 1 [Doc, 28Kb]|) to all non-priority creditors.
2. Work out pro rata payments to creditors based on the disposable income you have. Pro rata is an amount that is in proportion to the debt you have with each individual creditor.
The way you would calculate a pro rata offer to your creditors is as follows:
Individual debt x total disposable income ÷ by total debt = payment arrangement for each creditor.
Disposable income should have been worked out on either a weekly or monthly basis, and offers should be made on the same basis.
The following is an example of how pro rata offers would work.
In total, Linda’s non-priority debts from credit cards and unsecured loans add up to £20,000.
After she has paid her essential living expenses, her mortgage and outstanding taxes (priority debts), Linda has £100 a month left over. She wants to divide this up fairly to pay off at least some of the debt owed to her non-priority creditors.
Here is how Linda worked out a fair payment offer for a loan for which she still owes £3,500:
£3,500 owed to an individual creditor x £100 disposable income per month ÷ £20,000 total debt = £17.50 per month payment offer
When she writes to the bank about her loan, Linda can include a copy of her financial statement and explain how she worked out the pro rata payment offer (see below).
3. Send offer letters (see sample letter 2 [Doc, 24Kb]|) with pro rata offers to non-priority creditors. Include a copy of your financial statement with each offer letter, as this will demonstrate to creditors how you reached the offer figure. It will also show that you have no further disposable income available.
You may find once you have completed your financial statement that you have no disposable income to offer your non-priority creditors. The next course of action would depend on your individual circumstances. You would need to assess when you or family members are likely to return to work and regain control of your finances. This will depend on any treatment and/or surgery that you are likely to have and how long your treatment programme will last.
You should contact your creditors and make them aware that you have no disposable income, and ask that they withhold any further action on your account for three to six months (see sample letter 3 [Doc, 25Kb]|). You will also need to request that your creditors do not add any further interest or charges to your account during this period.
Not all creditors will accept this and they may press you for an offer of payment. In this case, write back to them. Explain that you are treating all non-priority creditors the same and can’t offer them more than another. Tell them about other creditors who have already accepted this arrangement.
If you have terminal cancer and treatment isn’t an option, you may be able to discuss this with your creditors. At this stage it may be a good idea to suggest to your creditors that they write the debt off immediately, as the possibility of your future earnings may be limited (see sample letter 4 [Doc, 25Kb]|). Your creditors may never formally agree to write off a debt, but they may take no further action.
If you are unable to repay your debts in a reasonable amount of time, a repayment programme may not be the most appropriate way of dealing with your debts. If this is the case you should take specialist advice from a free debt advice agency. Their advisers may suggest that you consider bankruptcy or an Individual Voluntary Arrangement (IVA) - an agreement between you and your creditors to pay all or part of your debts. These must be set up by an authorised debt specialist and there are costs to meet. You can get advice about IVAs from your nearest Citizens Advice|.
If you are unable to pay your debts, have less than £15,000 in debts, have less than £50 disposable income every month and have little or no assets, you may qualify for a Debt Relief Order. This effectively results in your debts being written off. If you think this may be an option for you, please seek specialist debt advice.
Robert and Jill have two children - Max aged two and Jane aged four. They contacted Macmillan because they were concerned about their finances following Jill’s diagnosis of breast cancer.
Jill had worked full-time up until her surgery and chemotherapy treatment, but she had used all of her employer’s contractual sick pay and was now receiving only Statutory Sick Pay. Robert had managed to negotiate with his employer to take an extended period of unpaid leave to look after their two pre-school children. They had used their savings to help pay for their rent and everyday living costs, as they didn’t realise they were entitled to benefits.
The Welfare Rights Team at Macmillan calculated that they were entitled to Housing Benefit (to help pay the rent) and Council Tax Benefit, as well as increased tax credits. As Jill had developed personal care needs due to her cancer, her welfare rights adviser helped her to claim low-rate care Disability Living Allowance. The payments from benefits, although not generous, helped them with their everyday living costs.
Robert and Jill were fortunate in that they didn’t have any priority debts except for unpaid fuel bills. They did, however, have two credit cards with outstanding balances and one order catalogue debt. The welfare rights adviser asked them to check the ‘small print’ on their credit card agreements. They were glad they did as they hadn’t realised they were paying a small monthly insurance payment on one of the credit cards. This insurance paid a monthly payment for a year while Jill was on sick leave.
Robert and Jill completed a financial statement for the other two debts. They worked out that they could pay a small monthly payment to their creditors. They sent a letter advising of their current situation, offer of payment, and request to suspend interest charges so the debt wouldn't increase, together with a copy of their financial statement. Their creditors accepted the offer for six months. Their fuel supplier did not have a charitable trust, but did change their current tariff to the ‘social tariff’, and their welfare rights adviser helped them apply for a Macmillan Grant| to help with fuel costs.
Everything you leave when you die is called your estate. This is the value of everything you own less everything you owe. Whatever remains goes to your beneficiaries.
If you have large debts, they reduce the size of your estate, so your beneficiaries get less. If your debts amount to more than the value of everything you own, there will be nothing left for your beneficiaries, but these debts are cancelled and your beneficiaries don’t have to pay these debts.
There are some exceptions to the situation described above:
We have more information about sorting out an estate|.
Content last reviewed: 1 May 2012
Next planned review: 2013
If you have any questions about cancer, need support or just want someone to talk to, ask Macmillan.
To speak to a financial guide, call free (Monday to Thursday 9am-5pm, Friday 9am-4.30pm).
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© Macmillan Cancer Support 2013
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