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Personal Finance

Managing and paying off debt during Covid-19 crisis

debt
Due to a meltdown in the global and national economy, a lot of businesses have performed poorly. FILE PHOTO | NMG 

Covid-19 is an unforeseen event that has had negative impact on businesses and individuals, especially financially.

Due to a meltdown in the global and national economy, a lot of businesses have performed poorly. There is increased debt risk during this time.

Some individuals are not able to service their obligations such as rent and other utilities. The impact is even worse for persons and businesses who had taken out credit or borrowed money. Many have been unable to service their debt obligations and have fallen into default.

Despite the external situation, it is important to come up with solutions. The first is to engage in dialogue. Even if there has been no default on your part, any potential default ought to be communicated well in advance. This will enable you maintain honour and keep your good reputation.

This is not the time to play hide and seek games with your landlord or other creditors. Communicating potential default in advance will give room for negotiations.

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This is the time to mediate and engage in negotiations with a view to reaching a win-win solution with your creditor. In more complex arrangements such as credit facilities, it is important to put in place proper documentation to capture the new terms.

It would be good to honour your new obligations so as to maintain business relationships. The challenges arising from this pandemic are not a good reason to break off business relationships. Maintenance of adequate communication and honouring your promises or obligations will win you a, lot of respect from stakeholders. Respect and integrity are key to your business.

At times the risk of debt or the incurred debt may be overwhelming because such debt is owed to several persons. For example an individual may fall behind rent payments and still have mortgage facilities to service and so on. In other words, this individual has a lot of outstanding debt. What then is the way out of such a situation?

I advise such an individual to seek the court's protective remedy by filing for voluntary arrangements under the Insolvency Act 2015. This arrangement is different from a bankruptcy filing as it is a temporary reprieve an affected individual can get from the court. It enables a person restructure their debts for a temporary period such as during this pandemic.

It begins when the individual proposes a person known as a supervisor to manage their affairs. The supervisor must be a registered insolvency practitioner and his role shall be to manage the person's affairs in the interim. One of the benefits of a voluntary arrangement is that it gives one some sort of protection in tenancies. The landlord may require court approval before he can take some remedial measures. The court can further protect the individual from lawsuits by creditors and also from bankruptcy proceedings. One would need court approval before they can take any action against you.

One can also call for a creditors meetings where the supervisor can give repayment proposals to the creditors. As a debtor an instalment order is available to you. This is where the court allows you to repay your debts in instalments for a maximum of three years. A no asset procedure is taken by one who has no assets.

They are temporary protective remedies to enable one restructure their finances and bounce back to normalcy after the turbulent period is over.

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