The aim of this series of articles is to help you avoid court proceedings relating to debt. But what happens if negotiation fails and your creditors resort to legal action? It is not a crime just to owe money and with certain exceptions you can’t go to prison if you are unable to pay. Your case will normally be heard in the county court which is not a criminal court. The court is not there to punish you but to ensure fairness between the borrower and lender. So don’t be afraid of court action – it can often help solve your problem because you do have some legal rights.
Always complete and return court documents within the specified time so that the court is aware of your problems and overall financial situation and will be able to take these into consideration when making an order.
Always attend court hearings to ensure that your case is properly represented. The case will normally be heard in a private room with officials who are used to dealing with these matters – they are not there to serve the interests of the creditor alone.
It is helpful to be represented in court, but don’t worry if you cannot afford a solicitor, just contact your local Citizens Advice Bureau who may be able to arrange assistance or refer you to alternative agencies who can assist with court representation. Alternatively, contact the Credit Action Helpline mentioned in the Introduction.
If court action is taken against you:
- You will receive a claim form stating what your creditor claims from you.
- If you do owe the money, return the form of reply attached to the claim form to the creditor saying how much you can pay. Complete the financial statement on the back of the claim form and make sure you explain your circumstances fully.
- If you dispute some or all the debt say why on
the form provided.
- If the creditor accepts your offer they will tell the court and you will then get an order (a judgment – CCJ) from the court telling you to pay at the rate you offered.
- If the creditor refuses your offer the court decides how much you pay from the information you have provided. If they tell you to pay more than you have offered you can ask for a hearing to explain your situation in more detail. You have fourteen days to ask for the hearing from the date of decision.
- If necessary seek advice in dealing with court documents but don’t ignore them otherwise a decision will be made without the court being aware of your actual circumstances and financial situation.
- Special considerations apply if the court hearing is for re-possession of or eviction from your home – seek immediate help as there are still things you can do at this stage.
Other aspects of debt recovery procedures which you may become involved with are:
Debt collection agencies
Rather than accept your offer of repayment the creditor may refer your account to a debt collector. Do not be pressured, bullied or threatened by them into paying more than you can afford. Stand firm on your offer and refer to the financial statement sent to the creditor. Collectors have no legal right of entry to your home and cannot remove goods. Undue harassment is illegal and should be reported to your local Trading Standards Department. www.tradingstandards.gov.uk
If you fail to make payments under a CCJ (England
& Wales) or a Decree (Scotland) the court will grant Warrant of Possession Order or Summary Warrant respectively. Bailiffs or Sheriff Officers may be directed by the court to implement the order by removing goods to the value of the debt and costs, dependant upon the administrative actions conducted by the creditor via the court. You do not have to let a bailiff into your home and they cannot break in (unless they have entered previously for that debt). They can legally enter through a door or window that you have left open. Only bailiffs recovering debts owed to the State (e.g. Income Tax and VAT) can force entry to your home. Even at this late stage it may be possible to negotiate satisfactory terms for payment with the bailiff. As an alternative the court can grant an attachment of earnings order to deduct money directly from your wages.
Further information on dealing with debt collection agencies and bailiffs can be found in the Money, Tax and Benefits section of the Directgov website at www.direct.gov.uk
Credit reference agencies
They keep records of some unpaid debts and a register of all county court judgments. Most companies will check with an agency before giving credit. You can obtain a copy of your record from the Agency and if it is wrong it can be corrected and when you pay off a CCJ you can have your record marked accordingly. Please refer to the credit reference agencies listed in the Helpful Organisations section at the end of this series of articles if you need to find out your credit record.
Certain types of debt can be recovered through
the Magistrates Court (e.g. council tax arrears and unpaid fines). The procedure will vary but once again you must respond to all court documents and immediately seek professional advice. The magistrates have the ultimate sanction of imprisonment for some debts, although this is only used as a last resort.
If you have a number of small debts (maximum £5,000 in total) you can apply to the court for an Administration Order. This means that you pay the court one regular amount and they distribute it to the creditors on your behalf, although a small charge is made. A court judgment has to be entered against you before you can apply.
Bankruptcy is a way of dealing with debts, enabling you eventually to make a fresh start and, at the same time, making sure your assets are shared out fairly amongst your creditors. A number of assets are automatically protected under Bankruptcy/Sequestration with the Official Receiver having discretion over others. However, you will probably lose some of your assets, there will be cost involved in the process and there are costs and restrictions on your future activities so the situation needs very careful consideration and you should seek professional advice before making a decision. Your creditors can also petition for a Bankruptcy Order and, if this is the case you need to seek help immediately.
An Individual Voluntary Arrangement (IVA) is another way of resolving a debt problem. The equivalent in Scottish Law is a Trust Deed. Certain criteria must be met and you must also have some means of making an offer to creditors. You can apply to court for an IVA, where you formally agree to pay part, or all, of your debts over a period of time. You’ll need an insolvency practitioner to set up the agreement
and bear in mind that IVAs take several months to organise and you may have to pay a large administration fee.
Debt Relief Order (DRO)
A DRO is a new way of dealing with your debts. A DRO may be able to help you if you do not own your home, have few assets and little available income to pay your creditors. It is a cheaper option than bankruptcy. If your DRO application is successful, then none of your creditors can take action to recover your debts for 12 months. The debts are then writen off after 12 months are up. There are strict rules that you have to meet to qualify for a DRO and only certain debts can be included.
To find out more contact the organisations below. The Consumer Credit Councelling Service (CCCS) offers free and indipendent debt advice: 0800 138 1111 (freephone) Monday to Friday 8am to 8pm.
The National Debtline provide free, confidential and independent advice on how to deal with debt problems. They can be contacted on (freephone) 0808 808 4000 Monday to Friday 9am to 9pm and Saturday 9:30 am to 1pm.
Unlicensed lenders and loan sharks
A ‘loan shark’ is anyone who is lending money without having a licence to do so from the Office of Fair Trading (OFT). Loan sharks typically charge extremely high rates of interest and also add other ‘charges’ to loans whenever they want to and they may often resort to violence to ensure people meet repayments. If you have borrowed money from a loan shark you are under no legal obligation to repay the debt.
The Directgov website has an informative and helpful section on dealing with loan sharks and what to do if you have borrowed money from a loan shark. There is also a contact hotline available for reporting loan sharks to the government’s illegal money lending teams – 0300 555 2222 or you can visit the Directgov website www.direct.gov.uk for further information.