Credit
Debts
How
to Deal with credit debts or priority
debts.
Credit Debts - What Are They?
These
include lots of different types of debts where the creditor
hasn’t got extra powers (for example, they cannot take
your home).This means they do not have to be treated as a
priority. The most common credit debts include: credit-card
debts; personal loans with finance companies; bank and building
society loans, overdrafts and credit cards; charge cards;
catalogues; personal debts to friends and family; doorstep-collected
loans; credit sale agreements; and trading cheques or vouchers.
We
have included sections on common credit debts where there
are particular things you should look out for.
Warning
- Other credit debts
There are also other credit debts that are not so straightforward
to deal with. You should contact us for advice if you have
debts for: rent, phone, gas and electricity from a previous
property or supplier; hire-purchase or conditional-sale agreements
where the goods have gone back to the company; debts with
cheque-cashing services; gambling and spread betting debts;
business debts; or professional fees (solicitors’, vets’
bills and so on).
Dealing With Credit Debts - The Options?
There
are different options for dealing with your credit debts depending
on your circumstances. We have outlined some of the main options
below. You need to be very careful when you decide what the
best option is for you. This will depend on lots of factors
such as your income, level of debts, assets and whether you
own your home. Your credit rating will normally be affected
whatever option you decide to take.
What Do I Do If I Have Money Left to Pay Creditors
Offers
Of Payment - Pro-Rata
You
can work out offers of payment based on a ‘pro-rata
distribution’ of your available income. This means you
offer all your creditors a fair share of what you can afford
to pay. You also need to ask that any interest and charges
are frozen. We show you how to work out a pro-rata offer on
page 28 of the pack. You can then write to your creditors
using the sample letter on page 30 and ask them to accept
your offer and freeze the interest. You may be able to do
this through a free debt-management plan. See below.
Individual
Voluntary Arrangements (IVA)
There
is an alternative to bankruptcy called an individual voluntary
arrangement (IVA).This is a formal arrangement through the
county court to pay an agreed amount off your debts over a
shorter period, such as five years. The rest are written off.
The IVA will be set up by an insolvency practitioner whose
fees can be very high. Creditors can stop the IVA going ahead
by voting against it. It is usually only worth looking at
if you have a lot of money available every month to pay your
creditors or you have a lump sum or assets that you can include.
You need to be careful if you own your own home as you may
risk losing it. The rules on IVA's may be changing to make
it simpler and more straightforward to apply.
Free Debt-Management Plan (DMP)
Could
you pay using a free DMP? This means you make one payment
every month to cover all your credit debts.This will be divided
up and sent to your creditors for you. You will not have to
negotiate direct with your creditors to accept your offers
and freeze the interest. Contact National Debtline for advice.
They may be able to help you set up a free DMP if: you have
at least three credit debts; your money for credit debts is
£100 a month or more; and you owe at least £5,000.
For a fact sheet on Debt-management plans, call National Debtline
on 0808 808 4000 or visit the The
National Debtline website for advice.
Offering a Lump Sum To Clear Your Debts
If
you have a lump sum that is less than the full balance you
owe on your debts, you can ask your creditors to accept a
lump-sum payment and write off the rest of the debts. You
may be able to do this because you have come into some money
or have some savings you can use. Creditors do not have to
accept an offer in ‘full and final settlement’
but if your circumstances are unlikely to improve, they may
agree to your offer.
Administration Orders
When
you have been taken to the county court, you might be able
to apply for an administration order. This is a way of putting
all your debts together and making one monthly payment into
the court. The court then shares it among your creditors.
For some types of debt, you can only include arrears.The total
of the debts must be no more than £5000. Your creditors
then can’t take any further action against you if you
have an administration order. You can get the application
form (form N92) from your local county-court office. You may
need help in filling in the application form as local courts
deal with administration orders differently.
Obtaining a New Loan and Consolidating Your Debts
You
need to think very carefully before deciding to add all your
debts together and pay them off with a new loan. This may
not be the best option for you, especially if your lender
wants to secure the loan on your home. This means you could
have your home repossessed if you do not keep up with the
payments. Before agreeing to a consolidation loan visit The
National Debtline website.
I
Don't Have Money Left to Pay Creditors
No Token Payments
or Payments
After
paying your outgoings and making arrangements to pay your
priority debts, there may be nothing left to pay other creditors.
If you have nothing left, say so. Show your creditors by sending
them your personal budget and a letter to back this up. Ask
your creditors to hold action until your circumstances improve.This
is called asking for a ‘moratorium’. Or offer
a token payment of £1 a month to each creditor instead.
Can My Creditors Write Off All My Debts?
If
you have no money for creditors and no assets, creditors may
agree to write off your debts. Creditors only rarely agree
to do this but it may be an option if your circumstances are
extremely difficult or distressing due to illness, age or
a death in the family.
Bankruptcy
Bankruptcy
is really a last resort and most creditors are unlikely to
make you bankrupt. You must owe £750 or more to that
creditor before they can make you bankrupt. It costs them
money in court fees and they are unlikely to get the debt
paid back to them unless you have assets that can be sold
to pay your debts. The aim of bankruptcy is to claim assets
that can go towards paying off your creditors. Once you are
bankrupt, your creditors can usually take no further action
against you. You can make yourself bankrupt but the fees are
high. Going bankrupt can have important consequences, particularly
if you own your home and it is worth more than your mortgage.
Your home could be sold as an asset. Bankruptcy can be a solution
if you owe a lot of money, have no assets, and can see no
way of ever paying the debts off. There are new bankruptcy
rules (from April 2004) under the Enterprise Act. You are
made bankrupt normally for up to one year. Usually debts that
have not been paid are then written off and you are ‘discharged’
from the bankruptcy. You may still have to make monthly payments
for a total of three years under the terms of your bankruptcy
order. If a creditor has threatened to make you bankrupt or
you think it may be an option for you to consider.
Working Out Offers of Payment
Minimal Offers
Don’t
worry if your offers look very small. Your creditors would
rather you pay a small amount regularly than make promises
you can’t keep to.
What happens If One of My Creditors Had Already Taken
Me To Court?
You
should include this debt with your credit debts and work out
the offer of payment in the same way. If this is less than
the amount the court has ordered you to pay, you may need
to apply to the court to reduce the amount. This will mean
you are treating all your creditors fairly and you are not
paying one creditor more than you can afford.
What
Is The Name on the Agreement - Check It
Only
the person who signs an agreement is responsible for the debt.
A husband and wife are not responsible for each other’s
debts unless they both sign the agreement. If you take out
an agreement jointly with another person, you are each responsible
for the whole debt and not just part of it. Make sure the
creditor knows that someone else is responsible. Check your
credit agreement carefully. If you don’t understand
the terms or want to check that the agreement is in the correct
format and that you are legally responsible for the debt,
go to your local trading standards department or contact us
for advice.
Guarantors
Creditors
may ask for a guarantor before agreeing to lend money.This
means that if the person who has borrowed the money does not
pay it back, the guarantor will be asked to pay. If you have
a guarantor for one of your credit debts, or are a guarantor
for someone else, contact us for advice.
If
You Are Under 18
People
under 18 can only be made to pay for ‘essential goods
and services’ bought on credit such as fuel supplies.
If you are under 18 and have an agreement for non-essential
goods or services, you cannot be taken to court if you owe
money for them. However, it is not always clear which things
are ‘essential’. The court can decide this for
each case. Generally parents are not responsible for their
children’s debts unless they have signed a guarantee.
Debt Interest
Debts
have two parts – the money borrowed and the interest.
Interest is the charge for lending you the money. Debts have
interest added in different ways. Fixed term loans. Interest
is worked out at the beginning of your loan and included in
your monthly payments. Sometimes extra interest called ‘default
interest’ is charged if you miss a payment. Ask the
creditor to freeze any default interest they are adding. Revolving
credit agreements. These cover credit cards, bank overdrafts
and some loan agreements. Interest in some cases is worked
out on a daily basis, and in others on the amount you still
owe each month, and charged regularly to your account. This
means your debt grows every month, unless the payments you
make are higher than the interest being added. Also the company
may change the interest rates and add extra charges. Ask the
creditor to freeze all the interest and charges. To find out
if interest is still being added to any of your debts, check
your agreement for details.
Are You Still Paying Interest?
Your
debt will continue to grow if your new monthly offer of payment
to the creditor is less than the interest being added. Ask
the creditor to stop charging you any more interest. The creditor
may agree to this for a limited period then start charging
interest again. Ask for regular statements and check them.
When a creditor accepts your offer, if they do not say they
have frozen the interest, you should check this with them
again. The creditor may also try to add administration and
late-payment charges. Ask them not to charge these (‘waive’
them).
What
Happens if my Creditor Refuses to Freeze any Interest?
Write
to them again. If any of your other creditors have agreed
to freeze the interest, point this out. We can advise you
on how to approach your creditors.
Obtaining
Copies of Account Statements and any Credit Agreements
You
always have the right for a copy of any agreements or statement
of accounts. If you have lost your original and need to check
certain terms. Write to your credit company and ask for a
copy of the
agreement quoting the Consumer Credit Act 1974, sections seventy
seven to seventy eight. You must pay for this and send £1
with your letter. If your credit company doesn't send you
a copy of your any agreement within twelve working days, they
are not allowed to take any more action against you until
they send you the agreement. If they take you to court, you
can say that they haven't given you a copy. You have the right
to ask for a statement of your account at the same time that
you apply for a copy of your agreement. If you have a credit
agreement that you have taken out over the internet,
these sort of rules may not apply to you.
Protection of Your Personal Data
Write
to your creditors and ask them to send you information they
hold on their computers to do with your account. You can make
this request under the Data Protection Acts 1984 and 1998
and if you do refer to the ‘right of subject access’
under these particular acts. You have to List all your addresses
for the past 6 years. Your creditor then has forty days to
do this and they can charge you a fee of up to £10 for
supplying this information. If they do not keep to this you
should complain to the Information Commissioner.
Bank Debts
People
use their current account to have their wages paid into and
to also pay any household bills which can be a problem if
you have a few debts, and you become overdrawn. If you have
an overdraft you will pay charges on the total amount you
owe. The full monthly installment will normally be taken from
your account too. This could mean that you do not have enough
money to pay your priority debts. Your overdraft or loan is
like any other credit debt so you should make an offer of
payment that you can afford, keep the account running but
try to reduce the overdraft over time. Contact them and explain
your circumstances. You have to be careful thou because some
building societies or banks will suddenly take all the money
in your account to clear any overdraft or loan. Consider opening
another account somewhere else to have your wages paid into
before talking with the bank just in case this happens. You
should do this immediately if they do not agree to any offer.
Voluntary Charges
If
you have a big overdraft on a current account or a business
loan or personal loan you could be asked to agree a voluntary
legal charge in return for reduced payments. This means that
the debt would be secured on your house and if you don't keep
up the payments you could lose your home. Banks will often
ask for an agreement of legal charge which means any future
borrowing or overdraft you have with the bank is also secured
on your home. Before you agree to a voluntary charge on your
home, you should get legal advice first. Banks have a complaints
procedure under the Banking Code. If you complain you should
follow the procedure outlined by your building society or
bank. If they have not dealt with your complaint sufficiently
you could complain further to The Financial Ombudsman Service.
Charge Cards
If
you have a debt on a charge card like an American Express
card, where you have agreed to pay the full balance off each
month rather than in installments as with a credit card. This
can be more difficult to negotiate reduced offers of payment
on these type of cards as they are not credit agreements.
You would include them with your other credit debts. If the
they take further action, this should be in the county court,
as long as you owe under fifteen thousand pounds. If you owe
more than this the creditor can sue you in the High Court.
This procedure is the same but extra interest can be added
on to judgments in the High Court.
Debts Owed to Family and Friends
If
you owe money to friends and family, you should usually treat
these debts the same as ordinary credit debts and make any
offers of payment in the same way. You could agree to make
no payments until your circumstances get better. You may want
to make larger payments on a personal debt because lending
you the money has caused hardship to someone you know or your
relationship or friendship may suffer if you don’t.
This can be very difficult because other creditors would be
unhappy if you are paying more on a personal debt than is
strictly ‘fair’. You need to explain your reasons
to your other creditors and point out that if you pay off
the personal debt quickly, you will be able to pay more to
everyone else.
Debts on Catalogues
If
you have a debt with a catalogue you should treat this as
a credit debt too. Any goods ordered from a catalogue belong
to you and can't be taken back if you don't pay.
Have
you signed a credit agreement?
Catalogue companies should give you a credit agreement (Consumer
Credit Act 1974), this does not always happen. If this is
so the county court may not be able to enforce the agreement
if you started using the catalogue before 6 April 2007. After
that date you can ask the court to decide if the agreement
can be enforced or not. This may apply to you if you can’t
remember signing an agreement when you received the catalogue.
Ways to Pay
When
you have arranged to pay your creditors, you will need a convenient
way to pay. You could open a basic bank account which offers
free standing orders. Or you could ask your creditors for
a paying-in book but make sure there are no fees to pay at
the post office or bank. Some creditors actually accept payments
through their website. Also check to see if you have a Pay
Point or Payzone outlet at a shop near you and see if your
creditors are part of a scheme. If collectors call every week
at your home and you are offering a small amount see if they
can call every month instead, but make sure you budget in
order to make these payments. You could pay at a creditor’s
local office or shop. Make sure that if you send any cheques
or postal orders that you send any reference numbers, and
a covering letter. Keep records of all the payments you make
in case you need to dispute the amount paid.
Debt
Management Plan (DMP)
You could pay using a free DMP which means you make one payment
every month to cover all your credit debt payments. This can
be split up and sent to your creditors for you. Contact the
National Debtline for advice. They could help you set up a
free DMP if: you have at least three credit debts; your money
for credit debts is a hundred pounds a month or more; and
you owe at least £5,000.
Offers of Payment Review
Creditors
will sometimes write to you after you’ve made an agreement
usually after every three months to see if you can now afford
to pay more. What ever you do don’t give up if you still
can't pay the
usual installment. Write and tell them that you can't increase
the payments and enclose your personal budget sheet. The National
Debtline has a help pack for people who can afford to make
offers to their creditors and also a help pack for those who
have no available income. They include sample letters that
should help when creditors ask you to review your payments.
Offer Refusals from a Creditor
creditors
will sometimes refuse to accept your offer of payment made
on your personal budget and can ask for more than you can
afford and they can also refuse to freeze the interest. Check
that any offer given has frozen the interest. Start paying
the money you have offered anyway and write to the creditor
again and ask them to reconsider your offer. Tell them you
think that your offer is reasonable and it is all that you
can afford. If some creditors have accepted the offer of payment,
and have frozen any interest, write to the creditors who have
refused and tell them about this. If a collector calls for
your payment, you should not let get you to pay more than
the amount you have offered. Because you won't be able to
make the payments you have agreed with your other creditors
especially your priority debts. Most of these creditors are
members of an association and always have an agreed code of
practice. This code normally says creditors should be sympathetic
in cases of genuine difficulty. They may ask you to fill in
one of their own budgeting forms instead. They could also
ask for further information as proof of any income or letters
from other creditors. You could want to help with any reasonable
requests but if the creditor wants proof of all your bills,
tell them that this would not be asked for by the courts.
Never
pay more than you can afford
Offers of payment in your personal budget are fair to all
your creditors and the most you can afford. If you let one
particular creditor persuade you to pay more than is shown,
you will not have enough for your outgoings and other creditors.
Creditor Harassment
If
you don't keep up to date with your payments your creditors
are allowed to keep reminding you but they must not act against
the law. If they threaten or harass you to try and get payment,
they may be committing a criminal offence. The Office of Fair
Trading (OFT) issues Debt-Collection Guidance. It tells you
the kind of behaviour which they will treat as ‘unfair
business practices’. If an organisation breaks certain
conditions, it may call into question their fitness to hold
a consumer credit licence. Creditors should not: communicate
with you in an unclear, inaccurate or misleading manner; contact
you in a deceitful manner; put psychological pressure on you
to the point of being oppressive; use unfair methods or charge
you unfairly.
You
can’t be prosecuted in the criminal court because you
haven’t paid your debts but some creditors will probably
try to make you think that you can – that sort of behaviour
is against the law as well. It is best to keep records of
the creditor’s behaviour. Don't be pushed into making
payments that you just can't afford. Creditors should not
threaten to tell your neighbour or employer. If you have any
questions about whether a particular creditor is acting legally,
ask trading standards. Phone numbers and addresses are in
the local phone directory, under the name of your particular
local council.
You
should discuss payments with the collection agency in the
same way as your other creditors. Collection agencies may
try to charge you extra fees for collecting any debts from
you. Make sure if the agreement you signed with the creditor
allows this to happen. If you feel that the fees are making
it harder for you to pay, you may be able to complain to the
Financial Ombudsman Service.
Complaining About a Credit Agreement
Currently
there are new rights to complain to the Financial Ombudsman
Service about how your creditor has dealt with your account.
You will have to follow the creditors correct complaints procedure
first and you can only complain about events that happen from
April 2007 onwards. From this date you may also be able to
ask the county court to look at your agreement and decide
if there is an ‘unfair relationship’ between you
and your creditor. This could lead to the court changing the
terms of the agreement and possibly reducing the balance or
ordering the lender to pay any loan payments back to you.
What Will Happen if my Creditors Take Further Action
Lots
of people are frightened of courts particularly when they
feel guilty because they owe money but the county court does
not judge anyone as guilty or innocent, they are there to
settle disputes about money owed, and how is the best way
to repay it. The court is there to serve the interests of
both you and your creditors. If court action has been taken,
you will not usually have to go to a court hearing. Most of
this is done through the post. You will usually receive a
claim form from the court. The claim form includes details
of the debt, known as the ‘particulars of claim’.
If at this point you don’t agree with the amount owed
then fill in the ‘defence form’. In this particular
case send the form back to the court.
If
You Agree That You Owe the Debt
With the claim form there will be a reply form for you to
make an offer of repayment and this is called the ‘admission
form’. There are instructions included on how to fill
in this form. It looks a bit like a personal budget sheet
and actually asks for the same sort of information on income
and essential outgoings.
Making
an Offer of Payment
The claim form has a section where you can fill in the payments
you make on your priority debts and you also have to include
any other court judgments you have, and to list all of your
credit debts. It is very important to make your creditors
an offer on the form in the ‘offer box’. If you
don't fill this in the court will decide you have not made
an offer and might tell you to pay the whole amount at once
or order you to pay what the creditor asks for. Finish filling
in the form and send it back to the creditor (the claimant)
not the court. The address will usually be in the ‘address
for service’ box. There is a time limit of sixteen days
from the date on the postmark to send back the form. If you
do not send it back the court can order you to pay the whole
debt in one big lump sum.
If
they accept your offer you will receive an order from the
court to pay your offer in monthly installments. You should
at this point send your payments to your creditor, not the
court. You must keep any record of what you have paid and
when. If they don't accept your offer, the court will decide
what you should pay every month. If you owe under fifty thousand
pounds the court staff will decide without a hearing. If you
owe over this amount the district judge decides. If you cannot
pay what the court has decided you should contribute, you
can ask them to look at your offer again. This is generally
known as a ‘re-determination’. There is usually
no fee for doing this. You must complete this within fourteen
days of getting the order. The case should then be transferred
to your local county court for a hearing. This re-determination
will be done by the district judge and if the order was made
by the court staff, the district judge can then decide to
have a hearing or make a decision by looking at the papers.
You can ask for a hearing when you write to the court to ask
them to look at your case again. If the judge made the first
order without a hearing, the re-determination of your offer
must be at a hearing. If there is a hearing, the case will
be automatically transferred to your local county court. The
court will give you a hearing date and you must go to the
hearing,
which should be in the district judge’s rooms. Don't
forget to take a copy of your personal budget with you.
Payments
on Court Orders Reduced
Monthly payments can be reduced if your circumstances change
or if you can’t afford them anymore. You can apply for
a reduction using form N245, which you can get from the local
county-court office. There is normally a fee to pay with your
application. If your creditors have already taken you to court,
you can apply to the court for a reduced payment based on
your pro-rata offers, using form N245.
Getting
Your Payments Reduced
If a district judge made the first order on how much you pay
at a hearing, you cannot apply for a re-determination but
must apply for the monthly payment to be reduced or ‘varied’.
What
are the Advantages to Going to Court?
Courts will stop interest being charged on most ordinary credit
agreements so that this means that the amount you owe cannot
increase any more. If you owe over five thousand pounds on
a personal debt or for supplies for your business, your creditor
could still be able to charge interest. Some creditors could
tell you they can charge interest on a debt before and after
judgment. There are new rules about when interest can be charged
and what notices your creditor must provide.
Usually
the court let's you pay a monthly amount which you can afford.
But they can only do this if you explain your income, outgoings
and other debts on the reply form to the county-court claim.
Usually you won’t have to go to the court for a hearing
as most of this is done through the post.
Disadvantages
Court costs are usually added on to your debt but creditors
cannot add on what they want. Costs will be added on a sliding
scale depending on the amount of money you owe. Details of
judgments are recorded on the register of judgments, orders
and fines and passed to credit reference agencies. This will
probably make it difficult for you to get any credit in the
future. If you pay your county-court judgment within one month,
you can ask to have the entry removed from the register. If
you don't pay the amount which the court orders, the creditor
could take further action against you. So it is best to make
sure you pay your monthly payments regularly or apply for
them to be reduced.
Your
Belongings
If you act quickly, it is rare for county-court bailiffs to
actually take people’s belongings away. Basic household
goods cannot be taken. County-court bailiffs have no right
to break in, unless you have let them in at another time.
Use the N245 form, to suspend the warrant immediately.
The
Creditor Can Take Further Action
Not paying the monthly amount the court orders means that
the creditor can ask the court to take further action.
Charging Orders
If
the court makes you to pay your judgment in one lump sum or
if you fall behind on the monthly amount ordered, the creditor
can ask for a legal charge on your home. This means that the
debt is secured on your home like a mortgage and may put your
house at risk. There must be a court case before a charging
order is made. It is up to the court to decide and there are
many arguments you can use against a charging order. It is
becoming more common for creditors to apply for a charging
order.
Attachment of Earnings
The
court can actually order your employer to make deductions
from your wages to clear a debt. The court uses a set formula
but this order can be suspended if it might affect your employment
and you can make the payments yourself.
Rights
If you have to go to a court hearing, your name will not appear
in the local paper, so don’t worry about publicity.
The county court is not a criminal court and is not there
to hurt anyone. The court staff and the district judge who
decide these cases are used to dealing with people who do
not have a solicitor. If you get a letter or form from the
court you do not understand, take it to them and ask for an
explanation. You have rights the same as your creditors do.
Obtaining
Credit Again
Contrary
to belief, there is no credit blacklist but if you do not
pay your debts, you could find it difficult to get credit
in the future. When you apply for credit, companies consult
a credit reference agency. They keep all records of county-court
and High-Court judgments, IVA's, bankruptcy orders and details
about credit accounts. This particular information is kept
on file for up to six years. It will show if you are behind
with your payments.
If you are currently in arrears or have a county-court judgment
against you, you may well be refused credit. Credit records
will also show when you have paid your debts. But they should
only keep information on you and anyone you have a ‘financial
connection’ with at the same address. Financial connections
are created if you make an application for credit in joint
names or open a joint bank account. Other people’s credit
details usually don't affect your credit rating. You can usually
file a notice of ‘disassociation’ with the credit
reference agency to tell them a financial connection has ended.
If you are constantly refused credit, you have a right to
ask if the loan company has used a credit reference agency.
They must by law give you the agency’s name and address.
They should give you very good reasons why they turned you
down for credit. This includes telling you if they have used
a credit-scoring system.
For
help in finding out what information a particular agency holds
about you, write to them and enclose a postal order or cheque
for two pounds. Agencies should send the information within
seven days. If the information is wrong, you have a right
to change it. If the finance information is correct, the agency
does not have to remove it even if you ask them to. If it
is an old paid debt you can ask them to mark the file as ‘satisfied’
to show this is so.
Companies
that Specialise in Credit Repair
Some companies offer to clear your credit record if you pay
them a fee. Be very careful with these companies, many promise
to remove judgments when they cannot legally be removed. Before
sending any money to a credit-repair company, contact your
local trading standards department.
Trouble Opening Another Bank Account
Sometimes
you can have difficulty opening a bank account if you have
certain debts showing up on your credit file. Some institutions
have basic bank accounts and these allow you to have your
wages or benefits paid in and take cash out. Some accounts
let you have standing orders and direct debits. You are not
normally given a cheque book, cheque guarantee card or an
overdraft. If you need this type of account, you should shop
around. The post office offers basic bank account to its customers
the facility for paying in and withdrawing cash at a post
office counter. If you don’t want a basic bank account,
you can ask for a post office ‘card account’.
Your benefits can be paid into this account and you can make
withdrawals at a post office counter near you.
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