Debt

Advice

The Worshipful Company of Security Professionals

Most of us owe money to people or organisations - bills are a fact of life. Occasionally we find ourselves swamped and even when we have tried to increase income or make money go further there is still not enough to make ends meet.

Don’t ignore the problem: it won’t go away and the longer you leave it the worse it will become. If you are behind with payments to a creditor they have the legal power to try to recover there money. What they can do depends on the type of debt. In the worst case you may lose your home or even go to prison.

Making a start

Here is some basic advice about debt and simple guidelines for dealing with debt problems.

Collect together all the information about your money affairs. You need to know exactly what is happening.
List your income - everything coming in each week i.e. wages, all benefits, maintenance, contributions from anyone living in your house.
List all your expenditure - be honest and realistic.
Your resulting budget will show if you have any money left to pay your creditors.
List your creditors and how much you owe to them. Check the amount – do you agree?
If you have only a small amount of money left it is important that you pay this to your ‘priority creditors’.

Priority Creditors

Some debts are more important than others because of the serious risk of losing your house, possessions, fuel supply or, in extreme cases, the risk of imprisonment. It is not the size of the debt that makes it a priority but what the creditors can do to recover their money.

Priority debts are:

mortgage
rent
second mortgage / secured loan
council tax
fuel (gas/electricity)
income tax and national insurance contributions
maintenance
magistrate court fines
hire purchase for essential goods i.e. if you need your car to get to work

Non-priority debts

credit cards and store cards
bank loans and overdrafts
benefit overpayments
hire purchase for non-essentials goods i.e. a TV
money borrowed from friends and family

Negotiation with creditors

Negotiating with creditors can be difficult. You need to be very clear what you want them to agree to. Do not agree to a repayment plan unless you are sure you can meet the payment. You must be realistic – it is better to come to an agreement to pay small amounts than over realistic repayments which you will not be able to keep up.

How much to offer

When you are working out what to offer try to divide the money you have available according to the size of the debt. The larger the debt, the larger the offer of repayment should be. If you do not have enough money left over make only a token offer to non-priority creditors.

Making an offer

Explain why you are offering to repay in this way:

how much you are offering them
the exact details of your financial circumstances
whether you have both priority and non-priority debts. Explain that you are firstly going to re-pay the priority debts, and say how much you are offering to repay to each priority creditors.
ask your creditors to freeze interest, but you must understand that they are not obliged to do so.

Summary of negotiation procedure

Prepare a letter to send to your creditors.
Prepare a financial statement to show your income and outgoings.
Prepare offers of payment if you have any money left.
Send all of these to each of your creditors
Keep A Copy Of Everything You Send!!

Creditor’s response

Some creditors may not accept your first offer. They may say they need more information, or they may ask for a larger payment.

Do not be put off - write again. You may have to provide proof of your income such as wage slips and benefit details, proof of your expenditure, include copies of utility bills, details of your mortgage or rent payments.

It is important that you start paying the amount you offered originally. If a collector asks for payment at the door do not offer more than you did in writing.

Harassment

If your creditor is using a debt agency to collect money, there is Office of Fair Trading guidance that must be followed. If you do not pay, your creditors can occasionally remind you, but they must not act illegally i.e. they must not telephone you late at night, or continually at work or contact your employer.

If you feel you are being harassed contact your local Trading Standards Department.

Increasing your income

There are many people who are not claiming all the money they are entitled to. Check to see if you are entitled to anything extra.

Check that your tax code is correct. If you are entitled to extra tax allowance it can be back dated for six years or at most to when you qualified.

There are a range of benefits you may be entitled to. These will depend on your circumstances. They could include - Child Tax Credit, Working Tax Credit, Housing Benefit, and Council Tax Benefit. You should seek further advice if you think you may be entitled to any of these.

If you have grown up children living with you, make sure they are paying enough to cover their living expenses including any housing benefit you may lose because they are living with you.

Are you getting Maintenance / Child Support from a former partner?

Check to see if your mortgage, loans and credit cards are covered by insurance if you are sick or unemployed.

What if my creditors take court action?

Many people are frightened of going to Court but often the Court is there to help you. Even if Court action is taken against you, the need to appear in Court is rare, as most Court work is done through post. Also the judge is not there to pass judgement but to negotiate between you and your creditors to come to some arrangement to pay your debt to an amount you can afford.

If your creditor decides to take you to court the first thing you will receive is a Court Claim Form for a County Court Judgement. Usually you are only concerned with the part that says ‘admission’. You fill in this part if you owe the money claimed. This simply asks what money you have coming in and what you are spending on essentials.

It is important to reply to the Claim as soon as possible – you have 14 days from the date of service (this is two days after posting) to return the form.

If you do not owe the money or disagree with how much they say you owe, seek further advice i.e. from a Citizens Advice Bureau. You also need to complete details about your other debts and any other County Court Judgements you may have.

Fill in the form, make your offer of payment – what you can afford to pay each month – not what you think the creditor wants you to pay and send it back to the claimant or their legal representative. If you do not reply the court will set a figure or ask you to repay the debt in full immediately.

If the creditor accepts the offer you will receive an order from the Court to pay each month. If you make payments as ordered nothing else will happen. If you do not, further action can be taken.

If the creditor does not agree with your offer they must let the Court decide what it to happen.

Reducing payments on Court Orders

If you have already been ordered to pay a certain amount but your circumstances change and you can no longer make payments, you can apply to the Court to reduce payments (form N245 from your local County Court).

You will have to pay a fee to do this unless you are on Income Support or claim on special hardship grounds.

Advantages of being taken to Court

Interest will stop being added to the debt on most credit arrangements.
The Court will let you pay an amount you can afford.
Your actual attendance is not always necessary.
The Court offers you some protection from your creditors as long as you keep to the Court Order.
You may be able to take out an Administration Order (see below).

Disadvantages of being taken to Court

Court costs will be added to the debt.
Your ‘blacklist’ details are passed to credit reference agencies.
If you do not pay the amount ordered the creditor will take further action against you

Administration Order

This is an Order made in the County Court, which puts all your debts together. Your total debt must not exceed £5,000.

You make one payment each month to the Court. The Court will take 10% of any payments you make as court fees.

To apply you must have one or more County Court or High Court Judgements against you.

Your creditors can take no further action against you once the Administration Order has been granted.

To apply you need form N92 from a County Court.

Bailiffs

If you do not obey a Court Order, the creditors can issue a ‘warrant of execution’. This allows County Court Bailiffs to remove goods from your home to pay your debt.

You should fill in N245 Court form and return to the Court to ask to suspend the warrant and make an offer you can repay.

Bankruptcy

Bankruptcy is a serious step and you should seek advice before taking this action.

Will I be able to get credit again?

When you apply for a loan or to buy goods on credit, most companies will consult their records. These contain Bankruptcy Orders, County Court Judgements and details about the way you have handled your account. They will also contact a credit reference agency for information. Details are held for 6 years.

You can ask for the information held from the credit reference agency, there is a small fee for this. If you feel the information is wrong, you can ask for the details to be corrected.

Obtain the name of the agency from the creditor that has refused you a loan. You have the right to be given the name and address of the agency that has been consulted.