Life after debt

Notice of defaults: everything you need to know

Posted 07 January 2020

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Getting letters from your creditors can be one of the most stressful and confusing aspects of being in problem debt. And some letters - like a notice of default - can have serious implications.

So how do you know which is which? And what should you do about them? Don’t panic. In today’s blog we’re going to explain what a notice of default means, how to spot one, and what to do if you receive one. Read on for everything you need to know.

letters in a letterbox

What is a notice of default?

A default occurs when you break the agreement that you made with your lender, because you’ve missed a certain number of payments.

A notice of default doesn’t mean the lender has already defaulted your account. It’s usually sent when you haven’t managed to make your agreed payments in full, for three to six months. The notice is a warning from the lender that they will default your account if you don’t take action. Once the lender has issued a default against you it can then start legal action against you to recover what you owe.

For certain regulated consumer credit debts - like loans and credit cards - the lender has to follow particular guidance in writing to you. The law requires these lenders to send you a notice of default before they default your account. Other lenders and creditors don’t have to send you this notice, but they may do anyway.

The difference between a notice of default and a different kind of letter from my creditors?

Near the top of a notice of default you will see 'Important - you should read this carefully'. 'served under section 87(1) of the Consumer Credit Act 1974'.

notice of default letter

You should also be able to see a date by which the creditor wants you to catch up with the payments you’ve missed. This should be at least two weeks in the future. If you’re able to make these payments, your account will continue as before. If not, your account will default.

At the same time as the notice of default, you should receive a Financial Conduct Authority (FCA) factsheet, advising you to get help with your debts.

Check out our previous blogpost for more about how to recognise a notice of default.

Will a notice of default have an impact on my credit history?

Once a default has been applied to an account, it will stay on your credit report for six years, whether or not you catch up with payments, or even pay off the entire debt, in the meantime. However, the notice of default itself will have no impact on your credit score if you’re able to catch up with your payments before the default is applied.

What should I do if I get one?

A notice of default is a warning sign that your debts may be getting out of control. That means you should get expert debt advice now, before your creditors take any further action. Our advisors at Debt Advisory Centre help people struggling with debts on a daily basis and they can advise you on suitable ways to get your finances back under control.

There are fees for some debt solutions, but the initial expert advice we give is always free of charge. Click here to find out more about the debt solutions available.

There’s also free and impartial debt advice available from various debt charities and the Money Advice Service.

Even if you’ve received a notice of default, or letters about missed payments, there is always a way out of problem debt. Make sure you get the advice you need so you can stop the problem getting any worse.

by Christine Walsh

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To find out more about managing your money and getting free debt advice, visit Money Advice Service, an independent service set up to help people manage their money.