What is an informal repayment plan?
An informal repayment plan is an agreement between you and your creditors to repay debt (usually over an agreed period of time). Negotiating a repayment plan is most suitable for people who only have a small number of creditors. If you have more than say three (3) creditors negotiating an informal repayment plan can become more difficult to set up as different creditors may want different things.
Start with preparing a budget
Before you can starting negotiating with your creditors you need to prepare a budget so you know precisely how much money you have available to offer your creditors each week or month. Budgets are easier to prepare and manage if you match them to your payroll cycle. So if you get paid weekly then prepare your budget on a weekly basis. Start the budget by writing down your essential expenses like:
- Housing (rent/mortgage);
- Transport; and
- Utilities (like electricity, council rates, telephone, water etc).
Once you have covered your essential items you can then make a start on non-essential items like:
- Entertainment (eating out etc)
When preparing a budget for the purposes of offering your creditors a repayment plan, you should of course keep the non-essential items to a minimum.
So after deducting the expenses from your income you will hopefully have a surplus that you can use to offer your creditors.
What should I offer my creditors?
Once you have established your weekly or monthly surplus, you will have to allocate that surplus amongst your creditors (ie this surplus will become your fund to make repayments). We recommend that you share this surplus on a proportional basis so it is distributed fairly amongst your creditors. This way one creditor can’t argue that the other creditor received preferential treatment, or vice versa.
Start by offering a little less than what you have budgeted so you allow yourself a buffer for any unexpected expenses which may pop up from time to time.
When you start negotiating your repayment plan, remember to keep the following points in mind:
- Your creditors have no legal obligation to accept your offer even if they initially agree to it. They are entitled to change their mind at some later stage, particularly if you start missing or are late with the agreed payments; and
- You may not be able to get all creditors on board with your plan. Some creditors will insist that you pay them what they want as opposed to what you can afford.
What are my other options if I can’t get them all to agree?
If you can’t get all creditors to agree to your plan you have a few options:
- Pay whatever you can afford to the creditor who didn’t agree and monitor their actions very closely. If they commence debt recovery action, you may wish to consider other options like a formal arrangement with all creditors;
- Consider a formal arrangement which will bind all creditors. With a formal arrangement (either a Debt Agreement or a Personal Insolvency Agreement) it will bind all creditors if the majority of them agree to it. So if the creditor who didn’t agree to your proposal only holds a small percentage of your total debt (and the other creditors agree) the agreement will become legally binding on all creditors.
If you need help or advice with an informal arrangement or a formal arrangement with your creditors call us today on our toll free advice line 1800 676 598.