What Will Lenders Do If I Can't Repay My Debts on Time?
Introduction
There was a time when debt of any kind had a huge social stigma attached to it, but that is no longer the case. Debt and the management of debt, is part of everyday life for many people – the average British adult is indebted to the tune of £30,000, including mortgage borrowing – and as Britain enters recession for the first time since the early Nineties, the prospect of reduced income or unemployment in the coming months looms large. Problems with repaying debt are only likely to increase, therefore, it is important that anyone already experiencing debt problems or likely to experience problems in the future has an understanding of how lenders or creditors will behave in such circumstances, and seeks expert advice without delay. Debt Repayment Considerations If you fall into arrears with credit agreement, such as a credit card or personal loan, the first thing that will probably happen is that the lender will contact you – by telephone, in writing, or both – to discuss your situation.
If you are open and honest with a lender from the outset it may be possible to negotiate a lower repayment for a limited period. Many lenders are sympathetic to this kind of approach – it is, after all, in their best interest that you repay your debt in full – but the process may be drawn out, particularly if your proposed monthly repayment is low. A lender may hand your account over to its own, or a third party, debt collection agency while negotiations are ongoing and you may receive further threatening letters as a result; these are usually of the standard computer-generated variety, and as such should not be a major cause for concern. A lender can obviously, accept or reject your offer of payment, but cannot harass you into repaying more each month than you can reasonably afford. If your offer is rejected, a lender can take a County Court action against you to recover the debt. Again, this in itself is nothing to worry about; there will be a straightforward private court hearing – which you need not attend unless you wish otherwise – at the end of which a court order, known as a "County Court Judgement" (CCJ), may be issued. A CCJ describes the amount that you will repay to the lender each month – agreed between you and the lender, or set by the court itself – and provided you keep up the repayments until the debt is discharged, that is effectively the end of the matter. You should be aware however, that a CCJ is entered in the Register of Judgments, Orders and Fines, where it can be accessed by credit reference agencies – such as Experian, Equifax and Callcredit – for six years from the date of the judgement; this may mean of course, that your ability to obtain credit in the future is impaired.
If a lender holds a CCJ against you and you fail to keep up repayments, the lender may resort to the use of bailiffs to confiscate your property and sell it at auction to raise funds to pay your debt. The law governing the use of bailiffs and what they can and cannot do is complicated. Normally however, you are under no obligation to allow bailiffs into your home, neither can they force there way in and there are restrictions on the type of property that they can seize, depending on the exact nature of your debt. In any case, this situation is likely to be wholly unsatisfactory – the low resale value of second-hand goods may mean that you still owe money, even after your property has been seized – so if you receive notice of a visit by bailiffs, seek expert legal advice immediately. If you have unsecured debts in excess of £15,000, it may be possible to enter into what is known as an IVA, or "Individual Voluntary Agreement" with your creditors. This is an alternative to bankruptcy and essentially an agreement – drawn up under the supervision of a Licensed Insolvency Practitioner – between you and your creditor(s), whereby you agree to make regular monthly repayments (usually for a period of 5 years), in return for which you receive no further contact from your creditor(s), interest and other charges on your debt are frozen and a proportion of your debt may be "written off". In the worst case scenario, any creditor or creditors to whom you owe at least £750 can petition for your bankruptcy.
You should be aware that a bankruptcy order can be granted whether or not you acknowledge proceedings. Although bankruptcy is very much a last resort, it does at least allow a through examination of your finances to be conducted, and most first-time bankrupts are discharged after on year.