Creditors are entitled to pursue the debt through the courts once payments have been defaulted on. This article explains how to deal with debt and ensures you understand the debt collection process. We also suggest you read our article on who is liable for your debt.
How does the debt collection process work?
Creditors will need to go to court to chase debts. The likely court action will be for them to apply for a County Court Judgment (CCJ) which will either request full repayment immediately or will outline monthly instalment amounts. You will be sent paperwork from the court before a CCJ is granted and will be able to specify the amount you can afford in monthly instalments on the form prior to the CCJ being granted.
What are my options for dealing with debt?
There are many solutions available when it comes to dealing with unmanageable debts. Some solutions are informal, some are legally binding, all have at least one thing in common; they start with a financial statement. Looking at income, expenditure, debts, assets, positives and consequences is the method used to identify the options that are possible. If you live in England, Wales or N.Ireland your options could include;
- Monthly Repayments
- An IVA (Individual Voluntary Arrangement)
- Debt Management Plans (DMPs)
- Assisted Self Help with Token payments (see below)
- Trust Deed
You can find more information on our debt solutions page.
If you are in the position to do so you should consider renting out a furnished room in your property through the ‘Rent a Room Scheme’. This would increase your income and would allow you to make a contribution towards your debts. An increase in income may also make other options available to you such as an ‘Individual Voluntary Arrangement’ (IVA). In an IVA your property is protected from your creditors taking any further action against it. If you are unable to increase your income bankruptcy may be an option for you however this could have implications on your property. You may also find that you could be entitled to benefits such as ‘Housing Benefit’ or ‘Council Tax Benefit’. You can contact the Citizens Advice Bureau and request a full benefits check based on your current circumstances.
A useful resource for you is this comparison of an IVA vs a DMP.
What is a token payment plan?
A token payment plan (TPP) allows you to pay £1 a month to each of your creditors. This is normally for a temporary amount of time only, until your financial situation improves. In most cases, a TPP will only be offered to you if your situation is likely to improve in the next 12 months.
Any creditor that agrees to this plan, should provide you with this information in writing if you request it. If creditors are being unreasonable, you could write a letter of complaint. You may be able to get assistance from a free debt advisor with communicating with your creditors.
What happens if I don’t pay my debts?
We would not advise you to evade your debts. Creditors will pursue at the last known address for a person who owes them money. If that person moves then the creditor will continue to chase for the debt, they may just need to spend money locating the person first (which can result in additional charges, which will be added to the debt).
If you are remaining in the property then you will at some point need to identify to someone that it is your place of residence. This could be when you find work, become eligible for benefits or when you are required to list on the electoral register. If you are unable to pay your debts you may be able to pursue an insolvency measure.
Can creditors refuse payment?
Creditors are fully within their rights to accept or reject an offer. However, it is useful to send a creditor a copy of your Financial Statement with any offers to inform them of your situation. A creditor is more willing to accept a low offer if they see this is all you can afford. By making an offer you are at least showing the creditor a willingness to address the issue and this can be beneficial for creating a good working relationship with the creditor.
A Financial Statement is a breakdown of income and expenditure and money owed. If you need help with drawing up a financial statement please do seek help from a money adviser who can also approach the creditors on your behalf. A money adviser will also explain all the options available to you for dealing with your debts.
How do I stop creditors from charging interest on a debt?
Creditors are under no legal obligation to freeze or reduce the interest they charge and can continue to charge interest as per the contract that you signed.
However quite often when people are in a managed plan there is a reason why a particular creditor is not freezing the interest. Perhaps they feel they should be getting more each month from your available creditor contribution or maybe they are not happy with your expenditure details and feel you could make further cuts in order to pay them more, if the loan was used to purchase a vehicle and you still have the vehicle then this may be another reason why they have not agreed to freeze interest.
It would be worth asking the creditor why they have not frozen the interest and if there is anything you could do that would get them to do so. And ask them to reconsider in light of the fact that all other creditors have agreed to freeze charges.
How to find out all my debts?
Assuming you are no longer receiving any letters or telephone calls from your creditors. You also may not find this debt information in your credit report. Not all creditors provide credit reference agencies with updates on debts owed, so credit reports never show everything you could owe anyway.
However, if you are not receiving any letters or telephone calls, could this be because you have moved address since you took the debt out? If it is, it may be necessary to request a credit report using all previous addresses and names you have been known by.
If this still is not working, the question has to be asked whether you have a problem? No-one is contacting you and the credit reference agencies have no record of you having any debts owed by you. Sometimes debts can be written off, where they have not been acknowledged by you or had any payments made in six years (five years in Scotland) they become what is known as statute barred. Many creditors then stop trying to recover them.
Will my debts be statute barred?
A creditor can legally chase after a debt indefinitely. If you have not acknowledged the debt (either by payment or in writing) or the creditor has not initiated court action within 6 years from the date of which the debt was taken out then the creditor can no longer chase for payment on the debt and the debt becomes ‘Statute barred’. In the case of a mortgage shortfall, this period increases to 12 years.
Please note, even if your debts were taken out some time ago, it is unlikely that your debts will be considered statute barred. Especially if you have been making payments to them.
Can a debt be transferred to a different name?
A lender does not have the ability to put your liability for debt into anyone else’s name. You could make the agreed payments yourself and then come to an arrangement with the other person to either pay back the full amount or pay you back in instalments. If you feel that the debt was incurred in fraud or on a false identity, then this information could be changed on any records, including the credit reference agencies. This will require you to bring an accusation against the other person which may cause you other, more personal issues but will mean your credit rating is no longer affected by these debts.
How do I find out if someone has debt?
Unfortunately, you cannot. Someone’s credit history is personal information and cannot be accessed or shared without the person’s permission. Even when you apply for a loan or to open a bank account, the lender or bank must get permission from you. This privacy is important, as it helps prevent identity theft and fraud.
Will my employer find out about my debts?
In most instances, your employer is unlikely to find out about debts that you owe. The main exception to this would be if one of your creditors sought to enforce the debt through an Attachment of Earnings Order, in which case a request would be sent to your employer to deduct repayments from your wage. Another case would be if your employer has a condition that credit reference agency checks will be carried out.
Can I form a limited company, if I have personal debt?
If you owe a sum of money above £750 and it is not satisfactorily resolved there is a risk that a creditor could petition for your bankruptcy and this could mean that forming a limited company is no longer an option. If you prepare a financial statement with a free debt adviser they will be able to look for ways of arranging payment of the debts whilst minimising or removing that risk.
Can creditors access my bank account?
A creditor should not be able to access your bank accounts unless the debt you owe is with that bank. If the money in the corporate account is held by a limited company then they should not be able to pursue the debt. If the money is not held by a limited company the creditor could apply to the courts to make a third party debt order which could cease your funds.
Can a third party inform my creditors of payment?
A third-party (i.e. building society) cannot inform your creditors that they have paid you a lump sum. This can only happen if the court has issued a Third Party Debt Order which instructs the third party to transfer funds directly to your creditors. However, if you are in a formal agreement with your creditors through a Debt Management Plan, IVA, IPA, Bankruptcy or similar. Then you are obliged to let them know that you have received this extra money.
Can I claim PPI if my debt has been sold?
Without having sight of the documents and notices regarding your agreements or the claim made for PPI compensation then it will be difficult to fully answer your question. It depends on whether the debt has been sold or whether the services of a Debt Collection Agency (DCA) has been retained (lenders have been known to deliberately make it difficult to tell which is the case) and what the agreement between the DCA and lender states will happen in this situation. If you feel that the bank’s right to retain any of this money is incorrect then your first course of action would be to write to them and ask them on what grounds they believe they are entitled to invoke their ‘Right To Offset’. If you are unhappy with the final decision made by the bank then you are able to escalate your complaint to the Financial Ombudsman Service.
How do I deal with debt from overseas?
If you owe money to a company in any country, they are able to make a claim in the County Court (England, Wales or Northern Ireland) or the Sheriff Court (Scotland). On the other hand, if the company wanted to recover the money from you they would have to start a new claim in the local court.
If you plan to move or travel abroad while in debt you can do so. Being in debt is not a crime and you will not be arrested if you can’t pay your debt back. We suggest you keep in contact with your creditors and you have a look at your credit reference agency file or contact the creditor to find out what is happening to your debt.
Please note, a Judgment is not transferable between the UAE and the UK.