Owe dear!

What can you do if you find yourself buried under a mountain of debt? Anat Arkin explains how to dig your way out.

The end of Alison Cowley's marriage came without warning. One day last year, her husband went to work and never returned. He left Alison (not her real name) five months pregnant and with a seven-year-old daughter to support. He also left her with a mountain of debt, including Pounds 40,000 owed to a building society that had repossessed a house the couple had bought in the early 1980s.

Repayments on that loan and other debts had been manageable with two salaries. But despite earning a reasonable amount as a head of department in a secondary school, Alison found it impossible to cope on her own. After the birth of her baby, childcare alone was costing more than Pounds 500 a month, and sometimes she barely had enough money for food.

The Child Support Agency failed to trace her husband, and with little prospect of any child maintenance from him, Alison contacted the Teachers' Benevolent Fund. "That first phone call to the TBF was difficult because I didn't know how I could ask for a hand-out when I was earning a good salary," she says. "But when you've got a backlog of debts, unless you stop and say you can't cope, you'll never get your head above water."

The TBF offered Alison a hand-out. But, more importantly, the fund helped her find a permanent solution to her financial problems by referring her to the debt-counselling service it has offered teachers and lecturers since last September.

Cherry David, the financial adviser who provides this counselling, aims to get her clients out of debt in three years, and says the more people owe, the easier they are to help. "Someone who owes Pounds 8,000 doesn't want to take drastic action," she says. "But someone who owes Pounds 108,000 is much more inclined to want to know how to get out of debt completely."

For some people, the best solution is to declare themselves bankrupt and give up most of their possessions and any interest in their home to pay off their creditors. This was not an option for Alison, who was anxious to keep the family home.

Ms David therefore advised her to go for an individual voluntary arrangement (IVA) - a compromise agreement between somebody who cannot pay all their debts and their creditors. Suitable for people with a regular income who can afford to make some repayments, it is no soft option. But it gives people in Alison's position more say over how their assets are dealt with.

The arrangement has to be set up by an insolvency practitioner, usually an accountant or solicitor, who will apply to a court for an interim order to prevent creditors taking bankruptcy proceedings while the order is in force. The insolvency practitioner then tells the court what debt repayments the individual proposes to make over a fixed period, and whether a meeting of creditors should be held.

Under the terms of the arrangement Alison reached with her creditors, she pays Pounds 200 a month. She will continue these payments for four years, and reckons that by then she will have paid about one-fifth of what she would have ended up paying had it not been for the IVA. She will then be debt-free. The TBF, which gives her Pounds 10 a week per child for clothing and other essentials, paid the insolvency practitioner's fee.

"As a threesome we are fine now," she says. "We have come through the emotional side, and to have the financial side sorted out as well means we can make a fresh start."

'A Guide to Bankruptcy' is available from Insolvency Service Publications. Tel: 01530 272515.TBF helpline: 0171 465 0498.

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