Debt Collection
How are debts collected?
Each lender will have their own ways and methods of collecting debt due to them, and how interest, charges and penalties will apply. Some will literally hound you, day and night; some will just keep charging you for defaults and then get really aggressive when the debts have doubled in value; some will instruct debt collection agents to act on their behalf; and others will just notify credit reference agencies of the default, which will ruin your credit score well into the future.
Most lenders will initially be considerate, and you need to remember that there are responsibilities that they, the lender, has to you. Lenders are required to comply with strict legal obligations imposed on them from time you apply for a loan, to the time when you may default, but unless you know your rights they can, and will, step outside of what they should be doing - you need to be prepared to tackle them head on by taking advice from experts such as Debtfix, or any one of the national budgeting centres that are there to help you. Lenders should not be making your life unbearable, and you do have rights, even when you are in debt.
What is a creditor entitled to do?
Chase the debt
They can write to you or telephone you, to explain the situation in an attempt to arrange a suitable outcome for you both.
Increase your interest and charges
You can be penalised for failing to meet the existing terms by incurring charges, penalties and higher rates of interest.
Default the agreement
Register your default with a credit reference agency, which may stay on your credit report for six years.
Pass the debt to a collection agency
A debt collection agency may well be much more intrusive and persistent in collecting payments, to sometimes visiting your home and workplace.
Apply for a Judgment
The lender can apply to court for a judgment in respect of the debt, which will require you to either instruct solicitors to act on your behalf to defend the debt, appear in person at court or just accept judgment as inevitable. The Court may then make whatever order it thinks is appropriate in the circumstances, including making an order for attachment of earnings, so that some of your earnings are paid directly to the lender.
Apply for your bankruptcy
A creditor can apply to Court to have you made bankrupt for defaulting on your loan or advance, in which case the Official Assignee would then be appointed to deal with your assets, creditors and assess what income, if any, you should remit on a regular basis to help repay all of your debts.
Who can benefit from an informal agreement with creditors?
There are no rules about who is, or is not eligible. It is best used for people that just need a short period of time to get their finances back under control.
This might be the right debt solution for you if:
you’re struggling to keep up with the cost of your current repayments, but have a steady and relatively stable income;
you can afford to make lower contributions over a long period of time, after paying your priority debts; or
you only need to do this for a short period of time to avoid long term increases in interest and charges.