Moving Overseas with UK Debt

In the red!

The financial strain from debts can affect your dream to start a new life Down Under, but there are some solutions to consider, writes Michael Penwill

 More and more people that move overseas are also taking their UK debts with them.

In most cases this is not a deliberate attempt to avoid paying what they owe but as a result of the economic downturn, loss of income and reduced equity in relation to property values has made this type of situation more and more commonplace.

In some cases this may only be a few hundred pounds on a credit card, but in other cases people may owe thousands of pounds in unsecured loans, credit cards and overdrafts.

In addition to unsecured debts some people may be leaving a property in the UK with a mortgage and secured loan attached. This could be a vacant property that is up for sale or it may be rented out to cover the mortgage payments. In other instances, the property may be in negative equity and due to the uncertain housing market, a person can be left paying a mortgage on an empty property that just will not sell.

Situations such as these can cause a fair amount of stress and coupled with the costs of moving overseas and setting yourself up in a new country this financial strain can affect your dream to start a new life overseas. Also, when debts are pursued, debt collection companies will target the last UK address or friends and family if they cannot locate the debtor, thus creating stress for friends and family back home.

So, what are your options? There are various debt solutions available to people but choosing the best one can be confusing, especially if you have never experienced this situation before.

The essential thing is to take specialist advice so you can explore and understand your choices. The best solution for you will depend on your individual circumstances, but here are some of the main options, with some explanation about how these may work for you.

DEBT MANAGEMENT

Debt management is an informal arrangement between you (the debtor) and the people that you owe money to (your creditors). This solution works best for smaller amounts of debt where the person owes up to a few thousand pounds.

This type of agreement is normally set up and administered by a specialist company and you make one payment per month which is then split between your individual creditors. A small amount of your payment will be deducted by the company as a fee for this service.

If, for example, you pay £100 a month this may reduce your debts by around £1,000 a year. The downside to this type of agreement is that a creditor is not forced to hold their interest and charges, and at any point, can decide not to continue accepting your payment.

Take for instance, the case of one of my clients. Mr and Mrs R moved to Australia in 2016. When they left they had no debts at all but during the settling down process used their UK credit cards for some essential expenditure. Mrs R explains:

“We live just north of Sydney and when we first arrived things were fine. However in the first year we ran short of money while my husband was looking for work and we had to fall back on using our UK credit cards to pay the occasional expense. We racked up just under £5,000 on four cards and just kept up with the minimum payments. We then fell into a worse state financially and could not make the payments on the credit cards as normal.

“We missed payments for around six months but then the credit card companies instructed debt collectors who descended on our parents back in the UK as we had used their address for UK correspondence.

“We took advice and after looking at our options we decided on setting up a debt management plan. We now make one payment every month which is split between our individual creditors. It will take a while to pay off the debt but it seems to be gradually reducing.”

FULL SETTLEMENT

In some cases you may be able to fully settle your debts for a lower amount than you owe.

This is referred to as a full and final settlement and can work well in some cases. For example, if you have unsecured debts of £10,000 there is a chance that you may be able to settle these debts for a lesser amount.

The final settlement amount would depend on many factors; however in some cases 50 per cent of the amount owed may be enough to clear the debt for good. This can be a complex process and needs to be handled by a specialist company on your behalf.

One client, Mrs G, moved to Perth in 20014 to work as a teacher. Mrs G explains:

“When I moved abroad, I owed just over £8,000 to two different credit card companies. I had incurred this debt over the last five years of living in London. It was a combination of tempting offers from credit card companies, the occasional holiday and essential but unforeseen expenditure meant I took this debt with me.

“My intention was to gradually repay this from Australia but a slightly lower wage and different living expenses meant I could happily live but did not really have enough to pay off the debts. I did not pay the credit card companies and sort of ignored the situation until suddenly I was contacted by a local debt collector who had been instructed by a UK debt recovery company.

“I do not know how they obtained my address but the shock of having this occur in Australia forced me to take action. I took advice and also spoke to my parents and confessed all.

After looking at the options available to me and talking to my parents we decided to try to settle the debts in full. My parents offered to help me financially and we instructed a company to act on our behalf. After a few months of negotiations my £8,000 of debt was settled for just under £5,000 with no affect on my credit in Australia.”

IVA PAYMENTS

An IVA (Individual Voluntary Arrangement) is a formal agreement with your creditors to pay back a certain amount of your debt over a five or six year period. Normally, the amount repaid will range from 25 per cent to 50 per cent of the original debt but the final agreement varies between arrangements. The good point about this option is that it is a legal agreement between you and your creditors.

The payments will be set at a reasonable figure and as long as you continue to make the agreed payments the creditors will leave you alone. Once you reach the end of the agreement the debt is fully settled. The agreement can have some downsides though.

If you fail (default) on these payments before the end of the agreed term you can find yourself back at square one and could still owe the full amount of debt that you started with.

Take the case of Mr and Mrs H, who moved to Sydney in 2014, leaving a house for sale in the UK. Here is their account:

“When we moved, we had a nice house in Cheshire that was up for sale. We had to move as our visas came through but we had a buyer for the property and all looked good. The problem occurred after the sale fell through and after another five months on the market we accepted a much lower amount then we had hoped for.

“We had some debts in the form of two overdrafts, some credit cards and an unsecured loan and now did not have enough from the house sale to settle these in the way that we had anticipated.

“All in all we owed just over £41,000. We took advice and after looking into the options, decided on an IVA rather than bankruptcy. I think it was a combination of not wanting to go bankrupt and also feeling that we should pay off the debts.

“We are now in a five-year IVA agreement and have one payment of £400 per month. We can manage this with our joint incomes and are happy with the decision we have made.”

BANKRUPTCY

Bankruptcy is one of the last options available to you, and something you may be keen to avoid, but in the case of Mr and Mrs B, who moved to Brisbane at the start of 2014, it proved to be the best solution.

They moved to Brisbane leaving an empty house in the UK and unsecured debts of £50,000. They had payments of over £2,000 per month back in the UK plus their new living expenses in Brisbane to pay for. Here is their account: “We left the UK for Australia due to our visas being approved, and if we didn’t leave we would have lost our chance to go.

“The problem we faced was that our jointly owned property had been up for sale for some time with no buyers showing interest. This issue was compounded by the fact that the house had dropped in value and we had a secured loan attached, in addition to the mortgage.

“If the house had held its value and been sold we would have been able to pay off all of our debts from the proceeds. We were in negative equity with no buyer and a large mortgage and loan repayment to cover. In addition to this, we both had unsecured debts of around £25,000 on credit cards and loans, debts which had accumulated over a period of many years when we were both in and out of work.

“After looking at our options we decided on bankruptcy and this was handled on our behalf by a specialist company. The property was handed back to the mortgage company and both the shortfall in value and also our unsecured debts were included in the bankruptcy. We were discharged after seven months and are now debt free, concentrating on building our new life in Brisbane.”

These solutions will have an impact on your credit rating in the UK. Your overseas credit rating is not normally affected by a UK debt solution but always take up-to-date specialist advice about your situation.

Michael Penwill

www.bankruptcyfromabroad.co.uk