If you fall behind with payments on your credit cards and loan agreements, you will quickly receive reminders to pay or a request that you make contact with the lender. If these are ignored the phone calls will start soon after.

Our clients tell us that these calls can be very distressing with frequent aggressive calls in a day. Eventually, if the arrears are not cleared the matter will be referred to a debt collector who will increase the rate of calls and may even imply that you will receive a doorstop visit, even though these are quite rare. On occasion we have known clients to be called at their place of work but this is a practice that is generally disapproved of by the debt collection industry.

The whole system is intended to intimidate you and force you to communicate with your lender. Of course, if you have only one lender it may well be possible to explain your financial position and agree temporary reduced payments but if you are in arrears with several lenders it becomes more complicated because they will all be competing to get a higher payment from you.

If these calls fail to clear the arrears then creditors have a number of legal options which they can take. All of these options first require the lender to obtain a County Court Judgment “CCJ” against you which normally takes about 3 weeks. Once the CCJ has been obtained against you the lender will register the details with the credit reference agencies and these details will stay on your credit file for 6 years. A CCJ on your credit file may often make it impossible to obtain further borrowing from mainstream lenders even if the debt is repaid.

Having obtained the CCJ the lender then has a choice of other legal options which it can take against you, as follows:

bankruptcy

It is actually very rare for a lender to commence bankruptcy proceedings because it is an expensive procedure and lenders take the view that they normally recover far less from the bankruptcy procedure. If you owe tax or VAT to HMRC they are more likely to use the bankruptcy procedure than any other creditor, particularly if the debt is substantial

attachment of earnings

Following a CCJ a lender can apply to the Court to have a monthly deduction made from your earnings. You will be required to declare to the Court what your earnings and outgoings are and may have to attend Court if you disagree with the monthly amount that the lender is seeking to obtain.

bailiffs

Court bailiffs have the power to seize your personal property up to the level of the debt and their costs, which can be substantial. Bailiffs are often used by local authorities to recover unpaid council tax but are less frequently used by high street lenders.

charging orders

If you are a property owner this is a relatively common procedure that lenders will use, particularly for larger debts. If a charging order is taken out against your property in theory it can allow the lender to apply for the sale of the property and be repaid from the sale proceeds.

In practice, this doesn't happen very often but because of the threat of it you will almost certainly have to agree a monthly repayment with the lender and keep to it. If you want to sell a property on which there is a charging order you will need the consent of the lender before the sale can take place and unless the lender will be repaid in full from the sale proceeds they may well not give consent. For homeowners with little or no equity, a charging order may prevent you from moving house.

If creditors agree to an IVA then all of these legal procedures are stopped in their tracks. It is important to note, however, that if a creditor obtains a charging order against your property an IVA cannot reverse this but it can stop a charging order being obtained in the first place.

“Free and impartial money advice is provided by the Money Advice Service”

Johnson Geddes is a member firm of and regulated by the Insolvency Practitioners Association

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