You may have read about the 4 main types voluntary arrangements and decided on an approach. On this page, we first provide some tips and then explain the different types of repayment offers you can make to your creditors.
What type of arrangement you decide to propose to your creditors will depend on how much you have available to offer, if anything. When you make an offer, you must support the proposals with a Financial Statement, proof of income (like a payslip) and any other documents you think will support your case.
Decide how to approach your creditors
We recommend negotiating with priority creditors first. This is because one or all of your priority creditors may refuse your offers, leaving you with less money than you thought you had for secondary creditors. This means you will avoid having to contact secondary creditors later to renegotiate reduced offers.
Decide whether a phone call, written proposal, or a meeting would be best for you to present your proposals to priority creditors. For example, if you have electricity arrears, a phone call may be the fastest and most suitable way to communicate to avoid being disconnected and extra costs.
When you suggest to a creditor that you will repay an amount less than the required amount, they will probably want to know:
- How much you are offering and how you worked it out
- Your full financial picture – income, expenditure, other debts and any assets
- What possibilities you have, if any, for a return to full repayments
- That you are making your best effort to pay as much as you can realistically afford and can stick to
- That you are treating them fairly
- That you are being honest
Read on for guidance about how to make offers to your creditors and read our tips for contacting creditors.
Draw up a Financial Statement to present your tackling debt plan
A Financial Statement is a short version of your plan for income and expenditure. It breaks down how much you owe and plan to pay towards priority and secondary creditors. You can send your Financial Statement to:
- Collection agents
You can also use it to show a court how much you can afford to pay.
If you have no money to offer at this time because, for example, you are living on a very low income, your Financial Statement will still show:
- How much you owe to others
- What income you have to live on
This will confirm that you are unable rather than unwilling to pay your debts.
If you have a mortgage in arrears, you will need to complete the Central Bank’s Standard Financial Statement (pdf).
Read more about tackling mortgage arrears.
If you are following the MABS approach to tackling debt, we recommend presenting your offers with:
- The MABS My Financial Statement
- A letter explaining your circumstances
- Proof of your income
If you are using another approach, you can still use the MABS headings and guidance to create your own financial statement.
We explain all tackling-debt approaches in Step 4 with links to further detail as needed.
Once you have set out your repayment plan in a Financial Statement you can use this for any contact with your creditors.
Tips when asking creditors for a voluntary arrangement
Always ask for interest to be stopped or reduced
With credit cards, overdrafts, and some loans, interest is charged on the balance due each month. This means your debt grows every month that you do not meet the full repayment. If your new offer is lower than the amount due, your debt will continue to grow. This can grow at alarming rate, as interest may be added to the balance. If in the next months, you don’t meet the full payment again, the interest and the balance can grow and grow.
With sample letter A, you can ask for interest and other charges to be stopped. When you are making offers with sample letter B or sample letter C, you can ask again if it has not been stopped yet or ask for continued suspension if it has.
The creditor may transfer your account to their recovery section before interest can be stopped. Some people worry about this, but you can confirm with your creditor that they will not take further action if you have reached an affordable arrangement that you can keep.
Ask for penalty charges to be stopped
Penalties are an extra charge if your account is in arrears. If you are being charged penalties, make sure they are allowed under the terms of your agreement and challenge them if not. Use sample letter B or sample letter C to ask for them to be stopped. You want all the payments you make to go towards reducing your debt rather than pay penalties.
Your creditor may say they cannot reduce or suspend charges. You will need to find out the reasons why. It may be that your account will have to pass to the creditor’s debt recovery section before charges can be stopped. You may not want the creditor to pass the account on, but think about how much your debt could increase if you have to pay these charges.
Types of repayment offers
What you can offer your creditor will depend on your situation.
Full payment plus something off arrears
If affordable, an ideal solution is to pay the payment agreed in the contract with a little extra to pay off the arrears until the account is back on track or cleared.
MABS approach: reduced pro-rata payments
If you have money to offer, the MABS approach to sharing available money with secondary creditors is called pro-rata distribution or fair share. This means that the money you have available is shared equally. The largest debt receives the largest portion of the payment, and likewise, the smallest receives the least amount. This way all debts are cleared at the same time.
You can use our My Financial Statement tool to calculate pro-rata offers and produce a financial statement to print out and send to your creditors. Or you can use the My Financial Statement tool and do your own calculations.
A lump-sum settlement means paying one final payment for an amount less than the full amount due. Depending on your circumstances and the offer, the creditor may agree to write off the remaining balance. You may be able to make an offer of a lump sum settlement if you are due some money but are not likely to have money to offer for an ongoing repayment plan.
For example, you may be due money from:
- A previous employer
- A compensation claim
- An inheritance or a gift from a family member
The creditor may prefer this option to costly and time-consuming collection and legal action that may not get the debt paid.
Important note: Always get a written acceptance of this arrangement from your creditor before you pay the lump sum. After the agreed amount has been paid, ask the creditor for confirmation that the account has been settled and that your credit reference record has been updated.
It may be that you can’t afford anything more than a token payment as a gesture of goodwill. If you have many debts, or you need to pay in another currency, you may be able to negotiate to pay every 3 months to reduce transaction charges or currency conversion fees. You can also use the pro-rata system explained above in the MABS Approach for token payment arrangements.
Payment break (nil offers or moratorium)
After paying your outgoings and making arrangements to pay your priority debts, there may be nothing left to pay other creditors. Or you may not be in a position to make any payment at all if for example, you are living below reasonable living expenses or minimum income standards.
If this is likely to be for a short time, you can consider asking creditors for what is called a payment break or “moratorium”. This is when your creditors agree to take a break from collecting payments or from taking action. This payment break can last for a period of time such as 3 or 6 months and can then be reviewed. When you make this proposal, you can ask your creditor to stop charging interest to prevent the debt from growing.
You have to provide a Financial Statement and proof of income to support your proposal. You also need to provide information on any change in circumstances you have had and hopes to repay.
If you believe there is unlikely to be any hope of improvement, you may want to consider requesting a write-off, or a formal insolvency option.
If your circumstances are extremely difficult, you may request a write–off or reduction of your debt. This may be the best option when all of the below apply:
- You have a very low income.
- You have no assets to sell.
- It is unlikely your circumstances will improve to allow you to repay the debt within a reasonable time such as 3-5 years.
Often there are other personal circumstances such as illness when this option is requested.
To request this option, you need to contact your creditor and:
- Provide a financial statement and proof of income
- Explain your situation
- Ask for a write–off of the debt
Some creditors will consider this option if token payments are made for an agreed time first.
Note on joint debts: If there is another person who owes the debt jointly with you, or you have a guarantor, the creditor is likely to pursue them for payment. Check again whether an insolvency option might suit you better.
Next steps if you want to self-help
If want to tackle your debts yourself by using voluntary arrangements and following the MABS approach, we suggest you:
- Read more about putting your plan into action in our 5 step plan.
- Use the MABS My Financial Statement to analyse your situation.
- Present your offer to your creditors using our sample letters.
Need some advice and support?
To enable us to offer you advice, before you have a consultation with one of our advisers, we suggest you:
- Make a list of all your questions.
- Have your most recent letters, emails or court documents from your creditors to hand.
- Have copies of any credit agreements (contracts) to hand.
- Email one of our advisers your My Full Financial Picture or My Financial Statement.
But even if you don’t have this information, you can still make the call and MABS will help!