Your legal rights: Loan and Credit Card problems
Information for UK residents with Debt Problems resulting from difficulties keeping up with loans and Credit card payents.
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Most loans that you have which aren't on a hire-purchase agreement, and aren't secured on your home, are what are called 'regulated' credit agreements. If you have several debts, any loans are 'non-priority' debts. This is because you can make an arrangement through the courts pay the loan back at a rate you can afford. Provided you continue to pay you've agreed, and payments are on time, the creditors cannot use methods like bailiffs to get your belongings.
If you receive a 'default notice' from the creditor make sure you get expert advice, because this means that they can then take court action against you.
Time Order
If you have a regulated credit agreement and the creditor has a default notice, you can ask the court for a 'time order'. This means the court can reduce or even stop the interest that is adding up on the money you owe, and reduce the instalments you pay to a level you can afford. But you have to show the court that you have real difficulty making the original payments. You may also have to show that you would be able to pay the full instalments again at a later time.
If you get a time order, the missed payments will still be listed on your credit reference file, so you may have trouble getting credit in the future.
If you do want to apply for a time order, you must first write to the creditor explaining what you want, how much you think you can afford to pay and over what time period. If the creditor refuses your offer, you can apply to the county court for the time order, and it will decide whether what you have offered is reasonable.
Alternatively, you can simply go ahead and pay the creditor what you've offered. If it still doesn't think that what you're paying is enough, it has the option of taking you to court. You can apply for a time order at this point. The advantage of this route is that it would be the creditor, not you, who pays the court fee (currently £120).
What the creditor can do to get their money
If you don't apply for a time order (or the court won't grant you one), the creditor's main legal option to get its money is through a 'money-only' claim in the county court.
If a creditor succeeds in a 'money-only' claim, you will have a county court judgment (CCJ) registered against you. This will go on your credit file and will affect your credit rating - probably making it more difficult for you to get a loan or credit card, for example, in future. It will also increase the amount you owe, because you will have to pay the creditor's costs awarded against you. You must pay what the court orders or if you own your own home, the debt could be secured against it by means of a charging order (see 'Charging Order' for more about how this works).
But there are advantages to a CCJ, if you really can't come to an agreement with the creditor to pay back the money. In most cases it should mean that they stop adding interest to what you owe and the court will generally set out a repayment plan that you should be able to afford. As long as you keep up to the plan ordered by the court, the creditor can't use enforcement, like bailiffs, against you.
The 'money-only' claims procedure
The 'money-only' claims procedure starts when the creditor (the 'claimant') asks the court to send a 'claim form' to you (the 'defendant').
At this stage, you have two choices:
Defending the claim
You can choose to defend the claim in several situations including:
- If you have already paid the money;
- Possibly if the creditor has already agreed to allow you to make lower payments; or
- Possibly if the creditor has refused to discuss your offer of lower payments.
But don't defend a claim without getting expert advice first. If you lose your case, you may have to pay the creditor's court costs, which could mean that your debt becomes even bigger.
If you aren't going to defend the claim, you might want to ask the county court not to make you pay any court costs. This is up to the judge. He or she will decide taking into account if the creditor:
- Has behaved badly towards you, for example; or
- Hasn't followed the proper procedure in getting the money you owe.
Admitting the claim
If you admit the claim, you should come up with a payment plan, based on what you think you can realistically afford. If the creditor accepts this offer, it will be recorded by the court and you will have to stick to it. But if the creditor turns down your offer, then a court official will generally consider what you have offered and what the creditor wants, and then decide how much you should pay (though there is no hearing in court).
If you don't agree or the creditor doesn't agree with the court's payment plan, you have 14 days to ask for the decision to be 're-determined' by a district judge. If the court then decides to have a hearing, the case will be transferred to your nearest court. You and the creditor will both be able to have your say before the court decides whether to change the payment plan set out in its original judgment.
If you don't respond to a claim
If you don't respond to a claim at all, it doesn't just go away. The procedure will continue and the court will come up with a judgment which will include how much you should pay. If you don't make these payments, the creditor can legally use bailiffs or other measures to get the money you owe.
However, there are circumstances where you might not have been able to respond to the claim (for example, because it was sent to the wrong address, or you were away when it was sent). If this is so, you may be able to get the judgment 'set aside'. To do so, though, you will usually have to show that you have a good chance of defending the claim or you have another good reason for it to be set aside. If you want to get a claim set aside, you should get expert advice first.
If you can no longer afford the payments
If you can no longer afford the payment plan set out in the County Court Judgement (CCJ), you can ask the court to break it down into smaller instalments. This is called 'varying the judgement.'
When you won't have to pay
If your financial situation means that you really can't repay the debt, or you are in a genuine crisis (for example, you have a serious illness), the court may be able to suspend the judgment so that you don't have to pay for a linked period of time.
Going to court
After getting a judgment, the creditor can ask for you to be questioned in court about your circumstances, so they can find out how best to get the money you owe. In court, you can be ordered to answer questions on oath, about:
- Your income;
- What you spend money on; and
- What things you own.
If you do not go to the hearing, the court could issue a warrant for your arrest. However, the creditor may call off the hearing if you provide them with the details they want.
If you don't make the payments
If you do not pay what has been ordered in a judgment, there are several things a creditor can do:
Warrant of execution
This is when the county court involves bailiffs.
Attachment of earnings
The court can make an order to take regular payments from your wages. They will send you a form in which they will ask you to give certain details so they can take the payments. If you don't co-operate with the court in this, you could be arrested, or sent to prison for up to 14 days.
If there is an attachment of earnings, the court will set a 'protected earnings rate' (PER). This is a level below which they can't make deductions. It is based on Income Support rates, and takes account of other earnings (like your partner's wages) and things you must pay for. The court will then set a normal deduction rate (NDR), which is normally between half and two-thirds of the difference between the PER and your wages or salary.
Charging order
This is when the creditor asks the court to secure the debt to your home. If you don't make payments, the creditor could sell your home to get the money you owe. The court will not normally allow your home to be sold, though you will need expert advice if the creditor asks the court to do this.
High Court enforcement
For some types of debt (for more than £600, and debt on unregulated agreements), your creditor could use High Court Sheriffs' Officers acting as bailiffs to collect what you owe. If you cannot come to an agreement on how much you should pay, you will need to get advice on:
- Applying to court to stop bailiff action; and
- Arranging a way to pay what you can afford.
Bankruptcy Alternatives
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Bad Credit Loans
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Home Owner Loans UK
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See Also Abacus Debt Advice- Problem Debt
This material is for general information and only constitutes advice in the broadest of terms. You should not rely on this information to make any decisions. Call our advisors on 0800 043 2444 for professional advice for your own particular situation.