A crisis test

Many people tend to avoid facing the reality when they have financial difficulties. This test can help us face the problem squarely by identifying the root cause and find a solution .

• Do you only make the minimum repayment on your loans every month?
• Are you unclear about all your debts?
• Are you ever slow in your repayments?
• Are your total personal savings less than a month’s salary?
• Do your total debts exceed ten times your monthly salary?
• Have you ever had to borrow from friends or relatives to meet a payment?
• Have you ever received phone calls or letters from your creditors demanding repayment?
• Are you approaching the ceiling of your credit limit?
• Do you draw cash with your credit card in order meet other payments?
• Do you forget to save every month?

Debt and bankruptcy arrangements

Liquidity is of vital importance when you are in business; insolvency can be fatal. If a company or an individual is in financial straits, are liquidation or bankruptcy the only options? What is the difference between the two? You may seem to be at the end of your tether, but there is still hope. With a clear understanding of what is involved, you can find a way out of your problems and emotional disturbance.

Four steps out

• Face yourself squarely
  This is easier said than done. To admit openly that you are deep in debt and penniless leaves you with little dignity. You must learn to forget your social standing; and you need to realise that taking a step back can open up a wider view.
• Find out how much you owe
  Straighten out records of your debts so that you can at least prove your financial standing if a creditor comes after you.
• Repayment ability
  Make an inventory of your remaining assets. Are they far short of repaying your debt? Calculate your future income and try to negotiate a monthly repayment plan with the creditor.
• Counselling service
  Seek help from a counselling organisation for appropriate reference to other services.

What is debt restructuring?

Debt restructuring is also known as DRP (Debt Relief Plan). It is a new repayment plan concluded between the creditor (usually a bank or a financial company) and the debtor. The usual arrangement is lower interest rates and a longer repayment period.

What is an individual voluntary arrangement?

This is known as IVA for short. DRP IVA is a legal service offered by many law firms. It is a new repayment plan concluded between the creditors (usually referring banks, financial companies and other creditors) and the debtor. The usual arrangement is lower interest rates and a longer repayment period. It is different from a simple DRP in that the debtor must retain professional services (usually provided by a lawyer or an accountant) to file an application with the courts and to convene the creditors to vote on a new repayment plan proposed by the debtor.

What is bankruptcy?

A bankruptcy order is issued by the High Court to an applicant who is unable to repay their debts. Once the order takes effect, the government will take over all that person’s assets and sell them for cash to be distributed to the creditors.

Information source:
Tung Wah Group of Hospitals Healthy Budgeting Family Debt Counselling Centre

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