Debt Relief Order clients

Transcription

1 Debt Relief Order clients Financial capability toolkit

2 This toolkit has been produced as part of Citizens Advice Financial Skills for Life. Although care has been taken to ensure the accuracy, completeness and reliability of the information provided, Citizens Advice assumes no responsibility. The user of the information agrees that the information is subject to change without notice. To the extent permitted by law, Citizens Advice excludes all liability for any claim, loss, demands or damages of any kind whatsoever (whether such claims, loss, demands or damages were foreseeable, known or otherwise) arising out of or in connection with the drafting, accuracy and/or its interpretation, including without limitation, indirect or consequential loss or damage and whether arising in tort (including negligence), contract or otherwise. Copyright 2015 Citizens Advice All rights reserved. Any reproduction of part or all of the contents in any form is prohibited except with the express written permission of Citizens Advice. Citizens Advice is an operating name of the National Association of Citizens Advice Bureaux, Charity registration number , VAT number , Company Limited by Guarantee, Registered number England. Registered office: Citizens Advice, 3 rd Floor North, 200 Aldersgate Street, London, EC1A 4HD. 2

3 Providing financial capability for Debt Relief Order clients Introduction These notes and accompanying handouts are designed to help advisers integrate financial capability into debt sessions, once a client has been identified as suitable for a Debt Relief Order (DRO) and potentially referred to a specific DRO intermediary or unit. Subject information Advisers do not need to have specialist money advice knowledge or experience but must have a basic understanding of the money advice process, priority/non priority debts and their consequences, and be able to signpost learners to sources of further advice and information. This toolkit contains all the key information for the topics covered. Any additional information that is given should be taken from an up-to-date and accurate source such as: the debt and money section of the Citizens Advice website. the Money Advice Service website. This session aims to help prevent clients from re-entering a debt cycle by learning how to harden themselves against the financial shock that led to their current debt situation. The final page also contains a tear off slip that advisers can use to refer clients to local financial capability resources, where they are available. Trainers are encouraged to feedback to the Financial Skills for Life team with any feedback about training materials or resources. If you have any comments, please contact: financial.skills@citizensadcvice.org.uk 3

4 Contents Recording financial capability for Citizens Advice advisers 5 Enhancing financial capability for all advisers 5 My DRO, my fresh start for clients 6 1. Sudden unemployment 7 2. Multiple hire purchase agreements 8 3. Council tax arrears 9 4. Payday loans and doorstep lenders Separating from a partner Changes in benefits Overpaid tax credits Keeping paperwork Life after a DRO 15 Signposts and further help 16 Evaluation Guidance 17 Appendix Petra codes 19 4

5 Citizens Advice advisers use only Recording financial capability It is critical that advisers become familiar with the E20 advice issue codes (AIC) on Petra. For many advisers, they already provide financial capability within their existing debt advice model, this needs to be identified and recorded. To keep it simple, some advisable AIC codes are on the side of the resources, however, you don t have to just use these (see appendix). Enhancing financial capability (All Users) Once it is confirmed that the client is suitable for the DRO pilot, the adviser needs to select an appropriate resource to discuss with them. If the clients gateway has identified a clear cause for their debt, then choose a suitable resource from 1-7. If an identified cause does not have a matching resource, or if there is no clear identified cause, then use either resource 8 or 9. Resources are designed to harden the client in the instance of the debt cycle reoccurring for the same reasons after the DRO period has expired. Advisers are encouraged to make certain that the clients understand that, the DRO lasts 12 months. If, after that, they end up in the same position, then they can t go for another DRO for six years. They can t do this a second time, they d have to go for bankruptcy. The adviser can then offer information on the cause of the client s debt situation, and also help the client prevent the same thing happening in future when a DRO is no longer an option. The selection of the resource, and following discussion, should be recorded on PETRA via an E20 AIC. 5

6 My DRO, my fresh start A Debt Relief Order (often called a DRO) is a way of managing debts that have become very severe. Your adviser will have found out whether you can get a DRO, and will be able to put you in touch with an expert who can do this for you. However, a DRO isn t a magic wand. You need to follow some rules to make sure the DRO is not cancelled. Your adviser can provide detailed information on these rules, but they include: You can't borrow 500 or more without telling the creditor about the DRO. You can t have savings or property over 1,000 (although one vehicle worth less than 1,000 is ignored as property). You must be honest about all your debts in the application. You must tell the official receiver of any increase in income during the 12 months of the DRO. If this leads to you having over 50 spare income a month the DRO could be cancelled. Similarly, you have to inform the official receiver if you acquire any property during the 12 month period as this could also lead to the DRO being cancelled. After the 12 months of the DRO, you will have a fresh start without any debt, however, if you find yourself in the same sort of debt problem again, then there is no way to do a second DRO until at least six years have passed. Normally, people tend to get into debt through no fault of their own. Something can drop in on them out of the blue, and cause a shock to their finances that is just impossible to recover from. Let s consider what got you into this position, and let s see if we can stop the same thing happening again in your new start after the DRO. Remember, the DRO is a one time thing. We need to work together to make sure your fresh start stays that way. Top tip Make sure you put in for any refund of miss-sold PPI or unfair bank charges before applying for your DRO: if you get a lump sum from miss-sold PPI or unfair bank charges during your DRO, it could be cancelled and you ll still have all your debts! 6

7 Sudden unemployment AIC 20 K Q N U Remember that these tips are for guidance after your 12 month DRO has finished. During your DRO you should go by you adviser s recommendations. Suddenly ending your paid employment is something that can happen to any of us. It could be due to lots of different reasons, companies can close down or lay off staff, or contracts that are zero-hours can stop offering you paid work. It s impossible to predict how and when you could find yourself without work, so the best way to make sure that losing your job suddenly doesn t send you into a debt spiral is to prepare for it, and know what to do if it happens. We ve all heard that we should have three months of savings set aside in case of something like this, but in the real world this just isn t something most of us can do. Instead, try thinking about ways that you can manage without being paid for three months, which is a bit different. Thinking about things this way can make it easier to decide what steps to take to make sure that, if you are out of work in the future, you don t develop the same debt solution. Try to save up a rainy day fund, even small amounts can add up. If you pick a type of coin, 50p s, or maybe 1 s, and make a decision not to spend them but to save them in a jar at home, you ll find that you ll build up a savings pot of a few hundred pounds in a year without even realising it. Are you entitled to a tax rebate? Check this with HMRC. Join a union, they can help you with your options when you re facing redundancy. Make sure you claim all the benefits you re entitled to straight away. Cut back on non-essentials, for example, do you really need that gym membership? Check for any insurances you may have that cover being out of work. If you have one, it could pay out and cover you. Now you have more time, there are ways you can make money around the house. Could you sell things on Gumtree or ebay? 7

8 Multiple hire purchase agreements AIC 20 B C T It can be easy to take out more types of finance than we can handle, often without even noticing. Finance can be used to buy anything, not just cars, furniture, TV s and white goods are all easy to buy on finance. The problem is that finance can be easy to misunderstand, the numbers and rates do a good job of hiding what you ll actually end up paying. There are two things to keep in mind when you are tempted by finance in the future: 1. Do you really need it? Don t skip asking yourself this, it s really important. Think about the things that you ve bought before on finance, and think about the session today. If you could go back and get them again, would you? Did you really need them? Often, once you realise how serious debt problems can be, those essential things seem a lot less essential! 2. How much does it actually cost? Let s look at the table below outlining what the numbers behind a finance agreement can actually mean. Let s say that I buy a TV on finance. It sounds like a good deal at 26 a week for the latest 55-inch curved SMART TV. In three years, it ll be paid off. But what does this mean? The TV costs APR (%) Weekly cost Total cost Up front If I put 26 aside every week instead, I would be able to buy the TV outright in half the time, and half the cost. Top tip Beware of 0% finance deals; they tend to have confusing small print and it can be easy to mess up your side of things. That means you can get hit with much more interest than even this example! 8

9 Council tax arrears AIC 20 D Q S Council tax debts can build up slowly over time, and by the time people come to see us, it s normally become quite a serious situation. Getting on top of any missed payments straightaway can seem complicated, but actually there are a few things you can do to handle problems you may have with your council tax payments early on: Make sure you have any deductions or council tax support that you are entitled to, for example, living alone gives you 25% off straightaway. Council tax bills are sent out in April. You can make 10 monthly payments over the year, or sometimes 12 payments, some councils even let you pay weekly or fortnightly, and there can sometimes even be a reduction if you can pay it all in one lump sum. You have to start paying within 28 days of the bill s date, if you are late on this three times, you can lose the right to pay in instalments. In fact, you can lose the right to pay by instalments after one missed payment if you do not clear the arrears on receipt of a reminder notice. The council may even issue a magistrates court summons. If the summons fails to produce full payment, including the council s court costs, they can get a liability order, which could lead to action by bailiffs and further costs. If you still find you have problems keeping up with payments, contact your local Citizens Advice. The best time to do this is before any court summons is issued, because this can add further charges. Top tip If you miss one council tax payment, but make the payment when you receive the reminder notice, and then miss a second council tax payment, this means you re now getting close to losing your option to pay in instalments. That will only make things more difficult, so we recommend you seek professional advice from your local Citizens Advice as soon as you can. 9

10 Payday loans and doorstep lenders AIC 20 A C T Payday and doorstep lenders charge high rates of interest if you don't pay back the loan on time. If you've got this kind of loan and you're struggling to pay it back: Don't be tempted to borrow more, these lenders aren't allowed to pressure you to take out another loan or to 'roll over' your existing one more than twice. Stop the payment, your bank or card provider should stop it if you ask in time. Contact the lender, offer to pay a regular amount you can afford. There are other ways to borrow that aren t as risky: Ask for a pay advance. Sometimes even Jobcentre Plus can offer you an advance on your benefits, which can be deducted from future benefits later. Get an authorised overdraft, the key is not to exceed the limit as this will then mean you ll be in a very expensive unauthorised overdraft. Borrowing from a credit union is a great idea as long as you already have an account and meet their criteria. Borrow from friends and family, but be careful with this as money can put a strain on things. Make sure that you talk openly about how you plan to repay the loan, and put things in writing. Using a credit card might be expensive, but it can be far cheaper than a payday loans. As long as you keep making the minimum payments, then the interest is normally not too high. Remember that this is a short-term fix only though, the credit card will need to be paid off. Local welfare assistance schemes could help you with food, furniture, or pre-payment vouchers. Don t be afraid to ask! 10

11 Separating from a partner AIC 20 B T U Separation from a partner can be a very upsetting experience, no matter when or how it happens. At a time like this, it can be difficult to stop and take stock of your financial situation, however, it is crucial to do it, or else it can lead to a debt spiral. Follow our checklist of steps to take to ensure that you don t fall into the same debt situation in the future, take each step one at a time and don t rush. Get to grips with your budget again. You would have got used to budgeting jointly, and it s easy to forget how deeply that affected everything in your life. Sit down with a pen and paper, and plan out a budget for yourself as soon as you feel up to it. Weigh up what is going in, and what s going out. Remember, there are great Budget Planning tools on the Citizens Advice website. Start cutting costs. With two incomes, it is easier to relax about the things you spend money on. Now with only one income it s time to review things like your energy bills, transport costs, broadband deals, and even where you shop for food. Getting through the first few months is a key indication of how your new financial situation is. If things seem to balance smoothly, great! However, if you see debts starting to rise again, you might need to think about bigger changes, remember, a DRO is no longer an option for six years! Maybe it s time to move, this could mean renting somewhere more affordable, or even selling your house and down-sizing. You might need to increase your income, this could mean working more hours, getting a second job, or renting a spare room. It s always a good idea to de-clutter, as selling unwanted items regularly can help boost your income. 11

12 Changes in benefits AIC 20 D Q T U Benefits have already changed a great deal, but there is much more still to come. These future benefit changes could lead to even more pressures on budgets and it s very important to stay ahead of them. Failing to do this could lead to another serious debt solution, remember that a DRO is a one time thing. Let s look at some simple tips that could help soften the pressures that come with changes in benefits: Housing Benefit Act quickly, contact your landlord or housing association if you have any concerns about paying rent. This is especially important as soon as you fall into arrears, there are often options available for payment plans or top up schemes. Council tax reduction You may have to pay an increasing proportion of this as benefits continue to change. Make sure you have qualified for any discounts that apply as well as council tax support, and contact the council to discuss an easier payment plan (such as twelve payments in the year instead of ten). You may also be able to apply for council tax reductions on the ground of hardship, but this is up to the council. Benefit sanctions If you have been sanctioned you can always appeal this. This may take some time though and you shouldn t just cross your fingers and wait for the result of your appeal. Instead, apply for hardship payments from the Job Centre. It s worth finding your local welfare scheme too, for food bank vouchers and other help. Top tip Even if you re appealing a sanction, or getting hardship payments, don t get relaxed about things. Make sure you are still budgeting well, and not wasting money anywhere, as the rainy day money you can save will always be useful! 12

13 Overpaid tax credits AIC 20 D Q S Tax Credits can seem complicated, but there are a few simple rules to keep in mind that will, hopefully, make it much less likely that you ll be overpaid tax credits in the future. Tax credits are worked out on a yearly basis, in line with the tax year (April to April). Your tax credit award is initially based on your income from the previous tax year. At the end of the next year, once all the information about your income and circumstances is available, HMRC will compare your actual tax credit entitlement with what they have paid you. If they think that they have paid you more than you are entitled to, this is an overpayment that they will expect you to pay back. Reasons why you may have been overpaid include: You delayed telling them about a change in circumstances HMRC delayed recording a change in circumstances Your income for this year is over 5,000 more than it was in the previous year. Overpayments that occur because you separated from your partner or started living with a new partner If you have been overpaid because you separated from your partner or started living with a new partner and reported this change late, your overpayment may be reduced (HMRC may only charge you for half of the overpayment) or even written off. This is because, in most cases, HMRC will work out what you would have been paid if you had reported the change on time and will offset the overpayment against this amount. However, it still needs you to report it. Top tip The key is to always keep HMRC updated about your income, living arrangements, etc. Always keep a record of times you called, who you spoke to and what was said; this can be really helpful in case of an appeal. 13

14 Keeping paperwork AIC 20 D We all find it difficult to manage debts sometimes. Bills and s that come through can seem overwhelming, and it can be tempting not to open letters for a little while. Sometimes, even opening them doesn t help as they just add to a growing pile of things to deal with. However, opening post and knowing your situation can be the most important, and simplest, way of keeping on top of your debt situation. For most of our clients, had they come in to see us sooner or even just had a fuller picture of their debts, they could have been saved the stress of being in serious financial difficulties. It s always easier said than done, but here are some tips to stick to. If you can keep to this, then your fresh start is much more likely to stay that way. Throw out junk mail and circulars first. Make a rule to open your letter the day it arrives, even if that just means opening the envelope and laying it out on the kitchen table. Set aside some time once a week, Sunday afternoons are great for this, to go through the mail and see what it actually is. Sort your bills into piles, for priorities and non-priorities. You should be getting less bills during your 12 month DRO, so you should start building up the good habits now when it s easier. Keep a file for your bills, you can pick up a cheap ringbinder and a hole punch from a charity shop, or even a big envelope will do. File them in groups, council tax together, gas together, water together, and put them in date order. Use this file to help you budget. If you still need help, you can now see a debt adviser with everything clear and organised so they can assist you quickly. 14

15 Life after a DRO AIC 20 A B C After your 12 month DRO period finally comes to an end, you re ready to get back to normal. Or are you? After a DRO your debts included in the DRO are written off (apart from any debts that were incurred through fraud, that is, because you acted dishonestly). Any interest or charges that have been added since the date of the DRO are also written off. This means that even if you haven t paid them back, then they are now wiped out by the lenders and you no longer owe them anything. But, you now have a record of a DRO on your credit rating that will last for six years. This could make it difficult for you to get a credit card or loan, or even a mortgage. With many landlords running credit checks on possible tenants, it could be hard to even rent somewhere to live. How to fix your credit rating There are credit-builder credit cards that you can use. Try searching online for them by typing in Credit Builder Credit Cards. You can also register on the electoral roll, meaning you will be counted on to vote. This really helps your credit rating. But is credit the way to go? If you re here today because of credit card bills or loans that you couldn t afford, then maybe you can take the chance of your new start to really look at your spending habits. Try a search online for the Money Saving Expert Demotivator. This is a great way to show you where you might be wasting money on things without realising it. Top tip There are lots of places online where you can find help with your budget. These can be places to get money-off vouchers or find out about special offers. 15

16 Where next? Encourage the client to continue to access financial capability material throughout their DRO period. This can be via: Advisers are asked to recommend, if possible, any local financial capability or digital inclusion initiatives in the local area. If advisers wish to give any feedback on these resources and materials, please contact If you d like to learn a bit more about tips and tricks to manage your money and remember that you only have a twelve-month window to do this! Then you might find the following sessions interesting. They re offered at no cost, and are all nearby. 16

17 Evaluation Guidance Areas that underpin client financial capability These are the Citizens Advice Financial Capability Areas that were carefully researched and developed by The Impact Team at Citizens Advice to help local offices measure client financial capability robustly and consistently across services. They were developed in line with the MAS UK Financial Capability Strategy Adult Outcomes Framework. Sample questions and scales can be found overleaf. An Impact Tool is available in Petra for recording responses and progress. Keeping track of money Keep track of money going out, money coming in and calculate what's left over. Check my current balance and keep my papers in order. Having enough money to live Have enough money to cover the basics I need to live like food, housing and electricity. Looking for the best deals Look at different options and buying the best deal for things like food, clothes, large items or services like phone, electricity or insurance. Get different opinions on what I am buying, like from reviews and comparison websites. Controlled spending Spend or save only what I can afford after covering the basics I need to live, like food, housing and electricity. Planning ahead with money Know when my bills and payments are due and keep on top of priority bills, like for electricity, loans and council tax. Put some money aside for big or unexpected costs. Staying informed about money services Read the main information about money services I get like banking, benefits and loans. Stay on top of changes to these or get help when I don t understand. Mindset Confidence about taking action on my money matters. Copyright 2015 Citizens Advice All rights reserved. Any reproduction of part or all of the contents in any form is prohibited except with the express written permission of Citizens Advice. Please note these areas, questions and scales are owned by Citizens Advice and subject to copyright restrictions so reproduction must include the relevant copyright statement above and no changes to its wording, response categories or layout must be made. For further information please contact Satdeep Grewal on satdeep.grewal@citizensadvice.org.uk or

18 Sample questions and scales for measuring client financial capability These questions can be used to ascertain how good someone s financial capability is and so, what their level of need is. They also allow you to track progress by being used to follow-up with how someone is getting on after you have helped them. Score 1 to 3 Score 4 Score 5 to 7 Low financial capability Average financial capability Advanced financial capability High need Medium need Low need Keeping track of money Calculate money going out, money coming in and what's left over. Check my current balance and keep my papers in order. Rate your knowledge about the above How often do you do the above? No No to some Some Some to Good knowledge knowledge knowledge good knowledge knowledge Good to Excellent Don t know excellent knowledge knowledge Never Never to Sometimes Sometimes Often Often to Very often Don t know sometimes to often very often Staying informed about money services Read the main information about money services I get like banking, benefits and loans. Stay on top of changes to these or get help when I don t understand. Rate your knowledge about the above: How often do you do the above? No No to some Some Some to Good knowledge knowledge knowledge good knowledge knowledge Good to Excellent Don t know excellent knowledge knowledge Never Never to Sometimes Sometimes Often Often to Very often Don t know sometimes to often very often Mindset How much confidence do you have about taking action on your money matters? No No to some Some Some to good Good Good to high High Don t know confidence confidence confidence confidence confidence confidence confidence Copyright 2015 Citizens Advice All rights reserved. Any reproduction of part or all of the contents in any form is prohibited except with the express written permission of Citizens Advice. Please note these areas, questions and scales are owned by Citizens Advice and subject to copyright restrictions so reproduction must include the relevant copyright statement above and no changes to its wording, response categories or layout must be made. For further information please contact Satdeep Grewal on satdeep.grewal@citizensadvice.org.uk or

19 Citizens Advice advisers use only Appendix Petra codes Current Petra codes look like this, and it s here that you need to log any financial capability that you do. Here is the first stage of advice issue codes (AIC) on Petra Here is the second stage of codes. Note that code 20 is the critical one that we must use to record financial capability Within code 20 are the following AIC codes. Please use as many as you feel reflect the advice given to the client. 19