 |
|
1) Learning Objective:
- To enable pupils to .
- Learners will be able to identify options open to people having trouble re-paying a debt and identify the strengths and weaknesses of each option
2) Instructions
Class discussion –Options available to someone who cannot repay their debts
- Ask the class, what options are open to a person who cannot repay their debts?
- Borrowing more money from another source (Debt consolidation),
- Asking the lender to reduce payments (Debt management plan)
- Entering a legal payment reduction agreement (IVA)
- Writing off all your debts through the court (Bankruptcy)
Independent research activity – Strengths and weaknesses of different debt solutions
- Divide the class into 4 groups.
- Assign each group one of the following:
- Debt Consolidation
- Debt Management Plan
- Individual Voluntary Arrangements
- Bankruptcy
Send them to the library to use the internet to research the strength and weaknesses of their assigned option
Group consolidation - Strengths and weaknesses of different debt solutions
- Each group presents their findings to the class
- Teacher writes findings up on board in table as below:
| |
Strengths |
Weaknesses |
| Debt Consolidation |
|
|
| Debt Management Plan |
|
|
| Individual Voluntary Arrangements |
|
|
| Bankruptcy |
|
|
- Teacher can contribute and correct erroneous research using this table:
ewd
| IVA |
Bankruptcy |
| Advantages |
Disadvantages |
Advantages |
Disadvantages |
þ You can pay back as much as you can, while still having enough to live on.
þ Your creditors will write off debt which cannot be reasonably repaid, up to 75%. þ All further interest and charges are frozen.
þ Student Loan Company debts can be included and thus partly written off.
þ You retain control of your house (but may have to release available equity). þ Your reasonable assets will not be put at risk.
þ You would not be subject to any employment restrictions, unless stated in your contract of employment.
þ The process is totally private and discreet. |
ý You may be locked into a payment plan for up to 5 years. ý Homeowners have to release available equity from the property.
ý If you fail to make your IVA contributions without a good reason, or your IVA application is rejected, you could be made bankrupt.
ý While in an IVA, you cannot take significant unsecured credit.
ý Your credit rating is affected for 6 years, meaning any mortgage you take during this time would incur higher interest rates and may require a larger deposit than is usually required |
þ All of your debts will be taken away from you.
þ After 12 months you will be ‘discharged’ from bankruptcy, and the bankruptcy restrictions will be lifted. Any money outstanding will be written off, except for non-dischargeable debts.
þ Even though your house and car may be at risk, your reasonable household goods (fridge, sofa, washing machine) are safe (unless they are exceptionally valuable).
þ Your payment plan to the court usually lasts for a maximum of 3 years – that’s two years less than an IVA. |
ý You will usually lose control of your house.
ý Any asset worth above £1500 this may be lost (excluding reasonable household items / items reasonably required for your business).
ý Your name will be published both in your local newspaper and the London Gazette.
ý You will have to pay any extra money that you have to the court for 3 years.
ý Your credit rating will be significantly damaged.
ý Your bankruptcy will remain on your credit file for 6 years.
ý Debts to the Student Loans Company cannot be included.
ý You will not be able to hold certain jobs e.g. Police. |
| Debt Management Plan |
Debt Consolidation |
| Advantages |
Disadvantages |
Advantages |
Disadvantages |
þ Reducing your monthly payments may enable you to avoid ‘robbing Peter to pay Paul’.
þ Helps you put a stop to your borrowing.
þ Coming to a temporary arrangement with creditors is generally looked upon more favourably than missing payments. |
ý Your credit rating will remain damaged until all your debts have been repaid
ý Default notices may still be issued.
ý Interest is unlikely to be frozen by all creditors, so you may end up paying back much more money over a far longer period. ý Even if interest is frozen on some debts, reduced monthly payments will mean a greatly extended payback period so it will take you longer to get debt-free.
ý There is no peace of mind.
ý Any agreement you reach is not legally binding, so the creditors are at liberty to change their minds at any time, change their interest charges, or demand that you resume full payments to them. |
þ You will be usually be given lower monthly payments than before.
þ It can help make affordable living possible and enable you to avoid ‘robbing Peter to pay Paul’. þ One single monthly payment can make your finances easier to manage. |
ý Interest and Payment Protection plans are often unreasonably expensive.
ý If your new monthly payment is still beyond your budget, or if you leave some debts out of the consolidation arrangement, you may soon find more unsecured debts appearing. |
Group Activity – Analysing case studies
- Divide the class into 4 groups
- Each class gets a case study and has to discuss which of the four debt solutions might be best for that particular case study.
- Note: there is no ‘right’ answer as the students only have brief case study details but the recommended option is indicated for each case.
Group 1 – Marion and David
4. Group is presented with the following story:
“Marion and David were both working in full time jobs. They saw credit facilities as useful ways of getting goods up front, and they never had any problems managing repayments. In addition, they were making mortgage payments. But they never ran into any difficulties meeting these.
Their financial difficulties began when they had their first child. Marion began her maternity leave only 2 weeks before her child was born. However, it was a complicated birth and Marion ended up spending several weeks recovering in hospital. Her income fell to statutory maternity pay. This meant that the monthly household income was reduced by £600. In addition, David had to take time off work to look after her and the baby in hospital.
For the next 18 months, Marion and David tried to juggle their debts by taking consolidation loans. However, every month they were forced to 'rob Peter to pay Paul' and soon their monthly repayments increased to more than £900 – way more than they could ever possibly afford.
Which debt solution do you think is best for them?”
5. Note: Based on this limited information, an IVA is the most appropriate option.
Group 2 – Mr Percival
6. Group is presented with the following story:
“Mr Percival was born in South Africa, but immigrated to the UK when he married a British citizen. While he and his wife were getting themselves up and running, Mr Percival found himself turning to credit cards to pay his way. They rented a property in London, and both found jobs without difficulty. Initially Mr Percival found his credit card repayments manageable, and this situation continued for a couple of years.
In 2005 Mr Percival was made redundant. He was unemployed for several months, and during this time his credit card bills crept up and up. Eventually he found a new job in a catering company, but this involved taking a significant pay cut but he was able to balance this with overtime and weekend work. In mid-2006, he took a consolidation loan but not long afterwards, Mr Percival’s overtime dried up without warning. Eventually he was forced to take a second job as a waiter in a local restaurant but by this time his debts had grown so large that the minimum repayments outweighed his income.
Adding up his budget, Mr Percival was not confident that Mr Percival would be able to comfortably afford the regular repayments, even if they were reduced.
Which debt solution do you think is best for him?”
Group 3 – The Woman with ZZZ Problem
10. Group is presented with the following story:
“Pauline Hutchings began her professional career working for a large Horticultural Centre in East Anglia. Over ten years, her salary climbed from £10000 per year to £18000. However, after ten years she wanted to make the move from being an employee to being self-employed.
She decided to use her professional horticultural experience and start up a landscape gardening business. Since she knew the market already, she was confident that the business would be successful; however, she didn’t have any capital to buy a van and gardening equipment. She decided to use credit cards to fund these purchases, and because of her clean credit rating was able to immediately receive cards with hefty limits.
It took Pauline three months before she began to break even, and in that time she turned to a third credit card for her living expenses. This left her with a total debt of £13000, spread across three cards. Her average earnings were too low and she soon found herself 'robbing Peter to pay Paul' in order to meet her monthly repayments. In this way she ran up a further £2000, bringing her total debt to £15000 with monthly bills of £450.
Which debt solution do you think is best for her?
11. Note: Based on this limited information, Debt Consolidation is the most appropriate option.
Group discussion – comparing findings
12. Representative from each group explains why they chose that particular solution for their case study
13. Invite input from the other groups
3) Resources
- Brochures and leaflets from banks, loan companies, building societies etc.
- Copies of Case Studies
- Whiteboard
- Pen
- Flipchart paper and pens
4) Key Vocabulary
- Debt consolidation
- Debt management
- IVA
- Bankruptcy
- Creditor equity
- Assets
- Credit rating
- Chargeable and non-dischargeable debts
- Interest and Payment protection plans
5) Cross Curricular links
Key Skills ICT Level 1
- find, enter, explore and develop relevant information
- present information, including text, images and numbers, using appropriate layouts and save information.
Key Skills ICT Level 2
- make selections based on judgments of relevance and quality
- enter and bring together information using formats that help development
- develop the presentation so it is accurate, clear and presented consistently
- take account of the views of others to guide refinements.
Key Skills ICT Level 3
- plan an activity and obtain information from a relevant source
-
- use this information to carry out multi-stage calculations
- interpret the results of your calculations, present your findings and justify your methods.
Key Skills AON Level 1
- interpret information from two sources
- carry out and check calculations
- interpret the results of your calculations and present your findings.
Key Skills AON Level 2
- interpret information from two sources
- use your information to carry out calculations
- interpret the results of your calculations and present your findings.
Key Skills AON Level 3
- plan an activity and obtain information from a relevant source
- use this information to carry out multi-stage calculations
- interpret the results of your calculations, present your findings and justify your methods.
Key Skills Communications Level 1
- take part in a discussion
- read and obtain information from at least one document
- write two types of document.
Key Skills Communications Level 2
- take part in a group discussion
- read and summarise at least two documents
- give a short talk
- write two types of document, each giving different information.
Key Skills Communications Level 3
- take part in a group discussion
- make a formal presentation
- read and synthesise information from at least two extended documents
- write two types of document giving different information about complex
|
|
|
