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Pros & Cons of Informal Agreements
Advantages:
• Fair and transparent method of distributing payments widely understood by creditors.
• You can ask if you can reduce your payments if your situation gets worse or you face unexpected essential expenditure.
• You do not need an advice agency to negotiate these payments for you. You can either do this entirely yourself or ask for assistance in drawing up your own personal budget sheet and make offers to your creditors based on this.
• Creditors may be prepared to write off the balance of what you owe after a period of time if you have shown that you have made every effort to pay them back as much as you can and have maintained regular payments to them.
Disadvantages:
• Creditors may refuse to agree what you propose (but it is always worthwhile asking them to reconsider) although they cannot refuse any payments which you make to them.
• Creditors may refuse to freeze interest or charges (again it is worthwhile asking them to reconsider).
• So, if you can only afford small payments, they may not be enough even to cover interest or charges, and your debts will increase.
• Creditors may refuse unless your proposals are made through an advice agency which will have independently reviewed your circumstances. You can complain to the Office of Fair Trading if this happens.
• There is no debt forgiveness, so you remain liable for the full amount of your debts, although you may be able to persuade your creditors to agree to write off part, or even all of your debt depending upon your circumstances.
• Creditors could still take action against you, for example by obtaining a court judgment and then an order which creates a charge on your home, unless they have specifically agreed not to do so in return for the payments made under the informal arrangement.
• You are responsible for administering all the payments yourself and keeping creditors informed of your circumstances.