Notice of defaults: everything you need to know
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When you have problem debts and your lender decides to take legal action, what can they actually do?
If you’ve got problem debts, that’s debts you struggle to pay every month, you will be receiving letters, phone calls and, sometimes even doorstep visits (although this is increasingly rare) from your lenders. If you do nothing, your lender may decide to take legal action. If you receive a letter telling you that legal action is about to begin, read part one of our two-part blog on what can you do about it.
Just to clarify, this blog is about unsecured debts, such as your credit cards and personal loans. If you’ve missed rent or mortgage payments, you have debts to HMRC or you’ve missed council tax payments, these are classed as priority debtsand need to be sorted out as soon as possible. We’d advise that you speak to them as soon as possible to explain your situation.
The other thing we need to say is that this advice is for people in England and Wales only. If you live in Scotland, take a look at our Scottish solutions.
Okay, now that’s out of the way, let’s move on to the main part of this blog – what legal action can your lenders take?
The recovery process
When you’ve missed several payments, or you’re struggling to keep up with your regular payments, your account may be passed to your lenders’ recovery teams. Sometimes these are internal (i.e. they are the lender’s own staff) and sometimes they are external debt collection agencies (DCAs).
They’ll start off with letters asking you to contact them as soon as possible to make arrangements to pay the missing instalments. They are not trying to harass you – what they really want is for you to communicate with them. This is so that they know why you’ve not paid, then they’ll try to come to an arrangement with you about how you can move forward. In fact, the Financial Conduct Authority’s (that the financial regulator) rules specifically state that they are not able to harass you. They must make every effort to ensure you have the help you need to come to a suitable arrangement with them, one which is sustainable for you and gives you a chance to pay off what you owe.
If you don’t respond to your lenders’ efforts to get in touch, they’ll send you more letters, maybe call you and possibly even email or text you too, advising you that if you don’t contact them to make an arrangement to pay, you will risk a default on your credit history, which can make any future lending difficult or expensive.
If you still don’t contact the lender then it may decide to take the next step, which is to take you to court to ask for a County Court Judgement (CCJ) against you.
Again, this is highly unlikely to happen if you’ve stayed in touch with your lenders and you’ve made an offer to pay or you’re making regular payments, even if they are small regular payments. Usually this option is only used when it’s clear that a person is trying to avoid paying, even when they can.
What does the lender have to do to take you to court?
We do want to make it clear before we go any further that just missing one or two payments will not result in you being taken to court. If this happens, speak to your lender and explain the situation. As long as you make up the amount you’ve missed, you should suffer no real problems from missing just one, or even two, payments. And it certainly shouldn’t result in you getting a default notice or being told that court action is about to start.
So, in practice, it will take at least 3-6 months for it to get to the stage of defaults being put on to your account and notices to advise of court action being made. However, if it does get to this point, you will need to address the situation pretty quickly if you want to prevent a CCJ. If you don’t feel able to do this yourself, you can call us and one of our trained advisors can talk through your problems and offer advice and support.
If your lender decides they want to take you to court to get a CCJ against you, there’s a process they have to go through. The first step in the process is to issue you with a formal Default Notice. This usually advises that you have 14 days to bring your account up-to-date, if you don’t do that within the time frame, a default will be placed on your file.
What can I do once a default notice has been issued?
Even if you get to the point of being issued with a default notice, you can still resolve the situation. You can still make an offer to pay – based on what you can afford- that could be accepted, which would put a stop to the court action. If they don’t agree to your proposal, or you can’t afford to pay anything towards your debts, your lender will continue on with the process of taking you to court.
It’s worth bearing in mind though that the Ministry of Justice has reviewed when lenders can take customers to court, stating that they should “try to engage with the debtor and negotiate a settlement (including through the offer of repayment plans) before considering issuing a claim in the courts” and that they should check each customer before it gets to the court stage to ensure that claims are “only issued where there was a high probability that the debtor could repay the debt (and the court costs incurred)”.
In other words – your lender is not likely to take you to take you to court if you can clearly show that you are offering to pay as much as you are able. So, when you put your offer of payment forward, make sure you include a budget that clearly shows your incomings and outgoings.
What should you do if you get a letter advising you that you are being taken to court?
If a letter advising you that you are about to be taken to court lands on your doormat, do not ignore it. It is not too late to contact your lenders yourself, or ask a debt advisor to do that for you.
If you decide to speak to your lenders yourself prepare a budget showing what you’ve got coming in and going out each month and how much you can realistically afford to repay. If you’re not sure how to do this, here’s some help from the free and impartial Money Advice Service. Make sure it’s a figure you feel you can sustain as, if your lender agrees, then you fail to keep to your agreement, the failure will probably result in court action.
If you don’t feel comfortable speaking to and negotiating with your lenders in this way, maybe it’s time to have a chat with a trained debt advisor. In fact, it may well be a good time to start thinking about a debt solution, like a debt management plan for example, if you have debts that have reached the stage of court action. You can get free advice on how to deal with your debts from the Money Advice Serviceor contact Debt Advisory Centre using one of the ‘contact us’ options on the left of the page to get started. We can deal with your lenders for you, negotiating on your behalf and dealing with all communication from them.
That’ll do for today – there’s a lot to take in. Tomorrow we’ll look at what you can do if you end up in court.
by Shelley BowersBack to blog home