What is an Informal Arrangement?
What
is an Informal Arrangement?
An informal
arrangement is an agreement with your creditors
to repay your debt at a reduced amount. This
may be because your are experiencing financial
difficulties for various reasons. These types
of arrangement are not court ordered but are
still a form of agreement.
When is an Informal
Arrangement suitable?
Informal Arrangements
are suitable for three categories of people:
Group 1.
Those who have very little money to repay
their debts.
Group 2. Those who are experiencing
debt problems but are likely to be able to
make the normal repayments again in a few
months time.
Group 3. Those who are over-stretched
and can afford a regular amount, say £50-£100
per month, but not the full contractual amount.
Therefore
an Informal Arrangement can be used to tide
you over until your financial situation improves.
How does
it work?
The first step in an Informal
Arrangement is to work out how much you can
afford to pay your creditors each month after
you have paid for essential living costs.
An income
and expenditure form should be drawn up
to see how much money you have left at the
end of every month (i.e. your surplus income).
This should
then be offered to your creditors on a pro
rata basis. This is calculated by doing the
following:
SURPLUS INCOME divided by
TOTAL OF ALL DEBTS
multiplied by AMOUNT OWED TO INDIVIDUAL
CREDITOR
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Example:
Debt 1 £1,750
Debt 2 £2,400
Debt 3 £2,000
Total Debt £6,150
Total Surplus
£95 per month
Payment to Debt 1
95 / 6,150 x
1750 = £27.03 per month
Payment to Debt 2
95 / 6,150 x
2400 = £37.07per month
Payment to Debt 3
95 / 6150 x 2000
= £30.89 per month
That gives
you the total that should be paid to that
creditor each month.
A letter should
also be sent to each creditor explaining the
situation and asking them to accept the lower
payment until your situation improves and
you can make the full repayments. Creditors
may be more likely to accept your offer if
you include the following when you write to
them:
 A
brief explanation as to how your financial
difficulties arose.
An
indication of when your situation may improve.
A
copy of your income
and expenditure form.
A
list of your other creditors including the
payments you are offering to them. This shows
that you have spread your surplus income fairly.
Some creditors
may also agree to freeze any interest on your
account, so it is worth asking.
Advantages
of an Informal Arrangement
The
Arrangement can be drawn up by you, a Citizens
Advice Bureau or other independent advice
agency quickly and for free.
It
provides an effective solution if your problem
is short-term.
It
provides an effective solution if your debts
arose because of a significant and long-lasting
change of circumstances.
Disadvantages
of an Informal Arrangement
Your
creditors are under no obligation to accept
your offer of reduced payments.
If
they do accept, they can change their minds
at any time.
If
they accept they are likely to do so only
for a few months, unless your situation is
unlikely to change.
If you feel that an
Informal Arrangement is not right for you,
look at the other options discussed
Debt
management plans - IVAs
- Bankruptcy
For further information
on Informal Arrangements contact one of the
following:
Payplan - The Free Debt Advice Agency
Freephone 0800 917 7823
Email: help@payplan.com
Web: www.payplan.com
Citizens Advice Bureaux - www.nacab.org.uk
National Debtline - 0808 808 4000
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