Most debtors facing a debt-crisis exceed 50% of the DBR

The question is… “why do some creditors, particularly banks, refuse to restructure debtor’s liabilities for this reason? Is it not obvious that any debtor with a 50% DBR does not need any assistance and can meet their EMI’s (Equated Monthly Installments)? “

Debtors are often told that this is a regulatory policy, however most banks are approving remedial action on debtor’s liabilities, whilst a few are replying with this response. Cycling credit cards has its limits, where after some time debtors cannot meet the cycle, resulting in delinquency and it continues to snowball into an uncontrollable situation having to face legal action, where this could have initially been avoided, eliminating unnecessary tasks and good energy, for those in this cycle.

Logically, anyone who is on a 50% DBR will not engage in remedial action, because they don’t need to extend their liability tenor and in most instances, pay more than their current outstanding balance.

Authentic remedial action and processes have clear objectives, which are:

1. Reviewing the debtor’s total outstanding and exposure to reduce their total EMI’s to approximately 50% DBR, if possible, if impossible, then closest to this goal;

2. Which means unless the salary bank of an employee is willing to review the total exposure and consolidate the debtor’s total outstanding with all banks, then it will not serve the debtor not to consult with a remedial company for a positive outcome, as this is their sole task for all liabilities, not just one.

3. If one bank refuses due to the reason of a high DBR, then it’s crystal clear that the debtor will not be able to continue to afford their EMI’s, resulting in inevitable legal action – Right here this could be avoided.

4. Debtor’s are quite often asked to pay a down-payment prior to restructure decision, with a promise that it will be approved on these terms, the debtor even signs a document for the same, in some instances issues a new guarantee cheque if the original has been presented and bounced, only to be informed maybe 2weeks to 1month later, that the restructure is declined.

My questions are: “How is this procedure even logical? How is it even possible to instill hope into a human being and then crush their spirit?” It seems perfectly clear to me that it really is of no consequence to the creditor, they don’t even display any inch of humane concern or empathy, where many times the response is “where is the money they spent? How did they even get into such debt?” Sincerely, when you face a debtor with these problems and you have sifted through this process so many times that you cannot even remember, then it’s obvious that these questions have no value.

Factually, the money is gone, debtors never know most of the time what they did with the funds, unless it was carefully orchestrated, and they are intentionally ‘playing’ a creditor, because the funds are invested in tangible assets, away from the knowledge of anyone. Then you certainly will not get the truth out of them, that is a known fact and why that is, nobody knows.

But, if a debtor has approached a creditor to repay their debt, then it holds some form of consideration, where we need to focus on the ‘now’ and attempt to amicably resolve the problem to eliminate any further risks for the organization, even if you recover 50% of that outstanding, it’s 50% you would have lost, given the cost against deploying external resources to recoup these funds, whether externally or internally, there is a cost attached to money.

5. In most cases remedial companies also mentor debtors during the process, so the awareness is created, of procedures to follow, how to communicate, documentation required, how to monitor their future progress and the future risks associated with new debt if ever they were afforded the opportunity. Most of the time they learn hard lessons where remedial companies allow them to learn these lessons, because it is a part of the recovery process. The one fact they remember is that they must maintain a 50% DBR to be on the safe side, so this is a crucial fact that needs to be addressed when reviewing remedial requests.

Historically debt awareness was unthinkable, unimaginable and the furthest thought from anyone’s mind when considering credit facilities, so individuals, companies and others never grasped the concept of exceeding 50% DBR, where this issue was only highlighted once they found they were facing a debt-crisis, sought help and were refused, because their DBR exceeds 50% and is therefore too high. Banks should focus on reducing their DBR, rather than penalizing them for a high DBR, because that problem can never be corrected and adjusted without the full support of all their creditors, where the outcome will always be legal action, or absconding.

So, if the problem is nipped in the bud, the entire cycle of debt-recovery will recover and correct itself as debtors start to repay their debt to reduce their DBR and complete their liability payments.

A typical example is if a debtor earns a monthly salary of AED 20,000.00 with a salary loan EMI of AED 10,000.00 and total minimum credit card EMI’s of AED 12,000.00, then the total EMI’s are AED 22,000.00, exceeding the DBR and salary. But if a remedial process can reduce the credit card EMI’s to AED 5,000, where the expectation from the salary bank was to reduce the EMI to AED 5,000.00 and they refuse, due to a ‘high DBR’, then the debtor’s total EMI’s is only reduced to AED 15,000.00 and not the projected AED 10,000.00, the latter being 50% DBR for the debtor.

Perhaps this makes more logical sense to those who don’t understand the concept, but it stands to reason it is the way forward to fully support debtors to recover from their debt-crisis.
Most times Case Studies are the most effective tool to fully comprehend the effectiveness of any process applied with good intentions, to fully support a debtor, because that is the correct process and attitude to apply when reviewing complete presented cases.

It’s not a temporary fix, but a most effective permanent one!

Note 1:  Theda Muller is a UAE-based author of two books: Embrace Financial Freedom Volume One: 10 Proven Ways To Release Debt And Emotional Fears In Today’s Economy, and Volume Two: Releasing Fear And Bouncing Back From A Debt Crisis. She is also the CEO & Co-Founder of the Remedial Company EFFRS LLC, Dubai. She also conducts webinars and workshops on debt recovery.]

[Note 2: The views expressed are the author’s own and do not reflect in any way, the views of Emirates 24|7. Readers are advised to carry out their own due diligence before taking any decision.]

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