A reader, let’s call him Mr C, asked:
I have been in bad mental health and have in periods of illness suffered big losses due to online gambling. I used to earn £32,000, I now only work part-time, getting c £700 a month, and have moved back to my parents.
I have debts of £27,000 with £1,000 a month repayments. Some debts are very new eg a £8,000 loan three months ago.
I am very unlikely to find a job with a good salary and would like to go to university to improve my chances – I am in my mid-twenties.
My parents have offered £10,000 if it would get me completely debt free. That is only about 40% of the debts. If that isn’t accepted would the next best option be a F&F IVA or bankruptcy?
I have very few assets and probably the only thing that would be taken away from me if I were to go bankrupt is my car (approx £1.5k). I have no real qualms about going bankrupt except that the gambling aspect would probably introduce a BRU.
A clean start sounds like a good idea
From what Mr C has said, he has been through a very difficult time and now has an unmanageable amount of debt. He has done some research and all of the options he is suggesting – a full and final settlement, a F&F IVA and bankruptcy – could give him a clean start, leaving his debts behind.
The stress of problem debt can make mental health issues worse, so it will be good to avoid debt hanging over him for many years while he tries to rebuild his future.
Offering partial settlements
A partial settlement is when your creditor agrees to accept less than the full amount to close the debt – it’s often called a Full & Final Settlement.
£10,000 may sound like a good offer because he has no chance of repaying these debts.
But that isn’t how his creditors may see it at the moment. Because he hasn’t missed any payments in the past, the chance of any creditors accepting a Full & Final settlement offer now isn’t good.
What about mental health problems?
If Mr C tells creditors about his mental health problems he should be treated sympathetically and should not be pushed to repay more than he can manage. That doesn’t mean the creditors will rush to write off his debts, but sometimes they may consider it.
If evidence about his mental health might encourage creditors to accept a F&F offer, he could ask his GP or another health professional to complete a DMHEF form to send with the offer letters. GPs in England aren’t allowed to charge for doing this.
Mr C may find this daunting. One option would be to get help with it from his local Citizens Advice.
Or delaying offering full and final settlements?
The real problem with these F&Fs is it is simply too early. When the creditors realise he has a serious, long-term problem they will take an offer more seriously.
If he wants to do this, he could set up a debt management plan so he can make affordable payments to the creditors now. Then, in a year, he can write to all the creditors with the 40% offer and point out he is about to start uni, so the payments will be a token £1 a month for three years. At that point, there is a much better chance of many of his creditors – possibly all – accepting this offer. However, it isn’t guaranteed to work.
A F&F IVA
A full & final IVA is a variation on the standard Individual Voluntary Arrangement where he would just make a single payment – the £10,000 from his parents – and the creditors would vote to accept that. If it is approved, all debts will be included in it, even those who voted against or ignored it.
The biggest disadvantage is that it simply isn’t very likely to work at the moment – 75% of the creditors voting have to approve the IVA for it to go ahead. As Mr C borrowed £8000 just a few months ago, if only that creditor votes against, then the IVA would not be approved. The creditors would also get less than 40p in the pound as the IVA firm would deduct its fees first.
I can’t see that a F&F IVA has any advantage for Mr C over bankruptcy and it would cost a lot more.
Bankruptcy
The only immediate action he could take that is guaranteed to work is going bankrupt. That link gives you lots of information on the pros and cons of bankruptcy and what actually happens.
I think Mr C knows most of these, but this is a big decision and if he hasn’t already taken debt advice he should, see Good places for debt advice. Mr C mentions:
- he would be likely to lose his car. He may not care about this, but if he wanted to keep it, then his parents could buy it from him for its current value (use Parkers to get this) and this would give him some money for the bankruptcy fees.
- because of his gambling, he might get a BRU. But he may reasonably decide that a BRU wouldn’t affect him much if at all. It would make it harder to borrow money for some time after he is discharged, but that can even be regarded as a plus point, as without credit it will be harder to gamble.
Apart from those points, bankruptcy would seem to have a lot more advantages for Mr C than full and final settlements, whether made directly with the lenders or through an IVA:
- he wouldn’t need the £10,000 from his parents! He may need other help over the next few years and there could be better uses for this money;
- it would be quick, certain and under his control.
Other variations for other people
Here are some other options that could work for other people with large gambling debts, many of whom won’t have money available for large settlement offers;
- if you owe less than £50,000, are renting and little money each month to pay to your debts, look at a Debt Relief Order;
- with a house with equity, your choice is probably between an IVA and a DMP. I wouldn’t suggest an IVA is a good idea until you have been free of gambling for at least 6 months, preferably a year;
- making token payments won’t solve a debt problem, but it can give you time to sort out other problems in your life;
- with a good income, see if any of your debts can be challenged. That last loan of £8,000 sounds to me as though it could have been unaffordable for Mr C and the lender should have realised this. Read up on how to make affordability complaints and get refunds. (Mr C could try this, but his debts are so large that it’s unlikely to make enough difference so bankruptcy is just the simpler approach.)
Stopping gambling – practical steps.
Debt and mental health problems
Which debts are top priority?
Michael Peoples says
A lump sum IVA may be acceptable to creditors although it often depends on the actual creditor themselves and their agents. I had an IVA approved for a client who had borrowed £25,000 and lost it all without making even one payment. He self excluded from the websites, had his wages paid into his wife’s bank account and joined Gamblers Anonymous. His job was at risk in bankruptcy and three years later he has never missed a payment.
Debts through gambling are becoming more and more prevalent and we are seeing an increase in women with serious issues. The ease and availability of gambling online and the actual lack of cash makes the whole thing a trap.
American Express took the step of banning their cards being used on gambling sites many years ago and perhaps the others should follow suit. If not the government should ban gambling on credit cards as it is bad enough losing what you have earned without leaving yourself in serious debt too. I know there are arguments that gamblers will always gamble but making things that little bit more difficult will reduce the risk.
Sara (Debt Camel) says
I completely agree that making things a little bit more difficult is important. Too often people dismiss suggestions saying that they won’t work for many people – with complex problems such as gambling and mental health, making improvements for some should be welcomed.
Andrew says
Agree with the final suggestion. Time to start afresh – use his parents support to build a future not to rescue the past. Draw a line in the sand and ask your parents to support you through Uni. Consider bankruptcy asap. It wont affect Uni life but will clear your mind; and by the time you have a qualification and are looking for better employment the bankruptcy will be discharged and some years behind you.
S says
Mr C also needs to address the gambling issue – full control of all finances to his parents for the foreseeable will provide a small amount of relief from having that pressure on him every hour of every day.
Failure to address the above leaves the door open for this to happen again for Mr C regardless of the financial path he chooses to pursue.
Graham says
Absolutely S,
Agree bankruptcy looks suitable and saves the parents the £10K too, but without sorting the root cause it might all happen again.
He needs proper space and time to deal with it, and not contact from creditors. I totally agree that his addiction and any MH probs need outlining to creditors who are then on notice to do the right thing. 30 days hold plus 30 (as in CONC) might not cut it quite, but hopefully they’ll all help out with a moratorium. Roll on breathing space / recovery space.
If the client has to resort to F&F (for instance if bankruptcy would have some adverse impact) the parents should make the offer and pay directly on behalf of the client – if accepted that should make it legally binding.
Graham
Chris Bone says
Just a small point on the car issue my understanding is that Receivers will allow about £1k tops for car usage and will always negotiate so if say the value is £1.5k the client could negotiate to pay the difference ie his parents pay £500 to OR, saves transferring to parents which may be questioned so a win win situation. The OR’s do not want a garage full of used cars outside their office premises pending auction!
Mr C says
I am Mr C,
I have been paying the creditors about £70 pm through step change since I last commented.
I have recently filed for bankruptcy and expected my current account to be frozen immediately after it was accepted, but it remains open as far as I can tell.
The account is not in any debt, I don’t have any debts with the company and I would like to continue using the account as it comes with additional benefits. I have Direct Debits due to come out for things that need to be paid there is currently no money in the account. My student loan is due to be paid into this account this week. I also need to pay my rent and fees from of my student loan on the 1st.
Am I allowed to use this account or should I transfer everything to a new account? If i shouldn’t use the account can I transfer my student loan when it arrives?
Thanks,
Mr C
Sara (Debt Camel) says
How recently was it? What are the benefits of this account?
Mr C says
A couple of days ago. My loan has come through now. Its nationwide flex plus amount. I Just don’t know if I’m allowed to do anything with the money or account.
Sara (Debt Camel) says
A couple of days isn’t long. The OR doesn’t have a button to press that freezes bank accounts immediately, your bank will have been informed you are bankrupt but may not have acted on it.
Your options are
to ask Nationwide what they will do, which may just prompt them to freeze the account,
to ask the OR to tell Nationwide they have no interest in your account,
to ask Nationwide for a basic bank account and move the cash and DDs to that,
Or to get a basic bank account with a different bank account.
The only completely safe one is the last one which is (of course!) the most hassle for you… if the account is frozen it should only be for a few days, but it’s unlikely that Nationwide will let you carry on with the account.
See https://debtcamel.co.uk/bank-accounts-after-bankruptcy/ for info on basic bank accounts.
Mr C says
Thank you,
I have just spoken with the OR – she was a very nice woman.
She stated that I could carry on using the account and she would ask the bank to keep it open for me and that they could not withhold any money from me and that if I have any issues to contact the case clerk. She also said that my car is exempt from the BR.
Thanks for your advice, this is a great website
Sara (Debt Camel) says
Well done, sitting worrying is often the worst of all worlds!
George says
Hi
Hope you can help me my brother is 30 years old and has just told me he took a credit card out in my mother’s name , because he was in debt and was unable to get a credit card to pay back his creditors but ended up gambling , my mother and father live overseas and only come once a year at Christmas. He says he has gambled the full credit card of £1500 and is very worried about what will happen to him , have you got any advice on what we can do as he keeps saying he can’t tell our parents or they will throw him out . I know it’s a mess but just want to help him .
Thanks
Sara (Debt Camel) says
He lives at your parents house? is he in work? has he stopped gambling? How large are his other debts?
George says
Hi Sara
Yeah he lives at my parents home , he just came clean yesterday after suffering a breakdown he called me around and told me he was struggling with his debts , he does work full time just on minimum wage and he has told me he owes just over £5000 , he has never gambled in the past and he showed me all his statements but believe it was a one off to try and clear his debts . He is worried that he will get kiked out and even face prison. He own only owes £1500 to the credit card company and unfortunately I can’t afford to pay it off for a few months.
Sara (Debt Camel) says
It’s good he has shared his statements with you so you can see this was a single episode of gambling.
You don’t get sent to prison in this country for not paying consumer debts such as credit cards and loans.
His parents may be extremely upset but they are unlikely to prosecute him for fraud, especially if the debt is repaid by the time they find out about it. They may kick him out but again if he has repaid this and comes clean, would they?
I suggest he talks to StepChange https://www.stepchange.org/how-we-help/debt-management-plan.aspx about the debts in his name and gets a DMP set up. That will feeeze the interest on his debts so what he can afford will pay them off faster. What can he do to get more money? He is young and single, can he pick up a second job? Even a few shifts in. bar a week will let him start to chip away at this £1500 credit card debt.
Is it possible for you to make the minimum payments on the credit card debt for the next few months?
George says
Hi Sara
Yeah I have spoken to him about step change after reading other posts , it sounds like that could be a way forward.
I can afford to make the minimum payment for a couple of months but don’t want to make him think I will pay it off so I will pay it for three months, I have also taken the credit card from him. Will I be okay to phone up and just pay the minimum amount, will they ask me any questions about the account.
Thanks
George
Sara (Debt Camel) says
The credit card statement will probably give a bank account number you can just transfer the money to.
I think you should probably be straight with your brother. You could suggest that you would match any payments he makes to the card, emphasise how this needs to be clear by Xmas and say he can pay you back later?
George says
Thanks Sara for your time
Nicola Smith says
Hi,
Hope u can help me, I have debts ( all unsecured) of about 35k and have looked in to going bankrupt, I don’t have any assets apart from a car, but I have a partner and a child under 16
Sara (Debt Camel) says
Hi Nicola, however much you think bankruptcy is the best option for you, it is ALWAYS worth talking it through with a debt adviser. Phone National Debtline on 0808 808 4000 – they will not be judgmental, they will help you look at your options.
Nicola says
I have spoken to step change and they said bankruptcy or Iva, I haven’t come to this decision on my own, I am worried about fees and that my last loan is less than a year old
Sara (Debt Camel) says
This article https://debtcamel.co.uk/hard-choices/iva-vs-bankrutcy/ looks at choosing between an IVA and bankruptcy. In bankruptcy you will pay less, it’s over sooner and it can’t fail.
It may take some time to get the fees together. But if it takes 5 or 6 months, then that loan you are worried about is getting older and older, so it’s not all bad news! See https://debtcamel.co.uk/help-with-bankruptcy-fees/
This looks at worries about having taken a loan out recently: https://debtcamel.co.uk/bankrupt-after-borrowing/
Nicola smith says
i have read all the links thankyou and it all still points in the direction of bankruptcy, I could scrape an Iva at £100 per month but still unnsure what to do, I want some one to make the decision for me really it’s getting me down .
Luke says
Hi, am looking for some advise I currently have an IVA set up for £100 a month and I’m struggling to pay it, I’m self employed and my mental heath has not been great past few months and I’m not working as good as I use too, my IVA is only about 2 months into it they took mine and my partners income into it even tho all
The debts are mine but from what I have read this is what they do, I do have a bad past with gambling and lot of my problems are caused from that, I have been to GamCare and had counselling etc few years ago that’s helped a little but I’ve had some wobbles, my total debts are about 10k in my name! Here where it gets difficult I have about another 15k in others peoples names that’s I have to pay each month that’s why I struggle to pay my own at just £100 but as the debts arnt in my name they can’t take them into account therefor it looks like I have more that I actually do when basically am at a loss most months borrowing off Peter to pay Paul so to speak, I was thinking of an Bankruptcy but I have nothing that’s worth any value only Thing am unsure about is a lease car £450 a Month that me and my partner go half’s each on, can you offer any advise as I’m really at a lost end now debt is just taking over my life I know it’s all
My own fault but I just don’t know how to move forward anymore and put it right
Thanks in advance.
Dave says
Hi, i read early that the OR does not check credit reports and they rely on what information you provide although there seems to be different information on here! I cant see anything online that confirms either way, im slightly concerned as i have 2 accounts and one i used mostly for gambling, also paid off a couple of loans in my parents name that was taken out for me so id rather them not see this as it could cause me massive problems and i dont know what to do, i feel really worried so does anyone know what process they fellow for checking accounts?
Sara (Debt Camel) says
I have replied to your questions on the other page.
As I said, it is a criminal offence to deliberately try to conceal a bank account from the official receiver. It is very unlikely to work and a very very stupid thing to try.
I suggest you talk to National Debtline on 0808 808 4000 about your full situation and see what they say about going bankrupt because of this account. And whether you have any other better alternatives.