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Equitable Distribution (pro-rata payments)
What is Equitable Distribution?
Equitable Distribution is a way of dividing up any income you have available to repay your debts among your creditors on a ‘pro rata’ basis. This means that the money is divided in a way so that each creditor receives an amount that is proportionate to the total amount you owe them (e.g. it is distributed equitably among your creditors).
Most non-priority creditors will often be prepared to accept a lower monthly payment and allow you to settle your debts over a longer space of time than originally specified, but only if the payments have been worked out using Equitable Distribution.
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| Alternatives to Equitable Distribution...
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How do I make pro rata offers to my creditors?
We strongly recommend that you seek professional advice before you start contacting your creditors with any pro rata offers of repayment. A professional debt adviser can help you to negotiate the lower payments with your creditors and can help you to draft a suitable letter. However, you may find the following information helpful:
Any money which is left over at the end of each month after you have met your essential expenses and paid your priority debts can be used to form the basis of a pro rata offer to your creditors. Completing a personal budget will help you to determine how much money you have left each month to offer to your creditors.
In order to calculate your offer of repayment, you will need to take the total amount which is available for all your non-priority debts, multiply this figure by the total amount owed to each specific creditor, and then divide this figure by the total amount you owe to all of your non-priority creditors:
Total amount for non-priority debts x amount owed to the individual creditor / total amount owed to non-priority creditors = offer of repayment
If you have been using our online budget calculator, these calculations will automatically be done for you once you have completed the details about your non-priority debts. Once you have worked out the offer of repayment you can afford for each creditor, you will need to approach your creditors with your offer.
You should approach your creditors in writing (and also request that your creditor replies in writing). This will help you to state your position clearly and concisely. It is important that you demonstrate that you are treating all your creditors fairly. You can do this by sending a copy of your financial statement to each of your creditors. Your financial statement should provide your creditors with the details of all the people who you owe money to, and the amount you are offering each creditor. This will demonstrate to your creditors that they are being treated fairly. In your letter, you should:
- Explain why you cannot afford to make the full repayments
- Provide a clear overview of your financial situation (e.g. a copy of your financial statement
- Emphasise that you are treating each creditor fairly
- Request that the interest on the debt is frozen to prevent your situation from deteriorating any further
- Ask the creditor to accept a reduced payment (this may be as little as £1.00 if that is all you can afford)
- Let the creditor know that you will contact them again in the future should your situation improve and you are able to increase your proposed offer
It is not unusual for a creditor to refuse your first offer, in the hope that more money may be forthcoming. If this is the case, stick to your guns and keep making the same offer until the creditor realises that you are making the best offer you possibly can. Once you have written to your creditors and made your offer, it is often advisable that you start to make your proposed payments immediately, even if your creditor hasn’t agreed to the lower amount.
If your offer is accepted, you should arrange with your creditor a convenient method of payment, such as a paying-in book, or setting up a direct debit or standing order. Your creditors may also request regular reviews of your circumstances to see whether your situation has improved. Providing you maintain the agreed repayments, your creditors should take no further action against you.
What are the advantages of Equitable Distibution?
The advantages of making a pro rata offer to your creditors include:
- By restructuring your payments, you will be able to bring your finances back under control with minimal damage to your credit rating
- Equitable Distribution is widely accepted by the credit industry (as they are getting their money back) and ensures that all non-priority debts are dealt with together
- It is recognised by the courts, as this is how money is distributed to creditors when an Administration Order is granted (which is often a useful argument when getting a creditor to accept your offer)
- All of your debts will be repaid within the same timescale
- By initiating negotiations with creditors yourself, you are showing them that you are committed to repaying your debts, and you will not be incurring the high fees charged by a Debt Management Company or Insolvency Practitioner
What are the disadvantages of Equitable Distribution?
The disadvantages of making a pro rata offer to your creditors include:
- Once the money has been divided among your creditors, you may be left with little financial flexibility, with only enough money to cover your essential expenditure
- By reducing the repayments, it will take you a lot longer to repay your debts in full. Many debts may take years to clear
- Some creditors may be reluctant to accept your offer
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