defaults

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Managing Debt

Credit Reference Files

Priority Debts

Debt Management Plans

CCJ’s

IVA’s & Bankruptcy

Written by Pete Latham

June 5, 2020

Defaults

When you take out a credit agreement, for example loans or credit cards, you will generally agree to a monthly repayment and will sign to that effect. Your agreement will most likely be signed under The Consumer Credit Act 1974 and it is this act that gives creditors certain powers to recover money owed to them. When you miss a payment, you are breaching the contract you signed and the lender can take action against you. The action a creditor may take is governed under the act, and the first formal step in this process is a Notice of Default.

It is always advisable to maintain an honest conversation with the lender as they may be able to help you. For example, if you miss a payment, they may ask you to increase the following 2 repayments in order to make up for the missed one. A single missed payment is unlikely to result in any formal action. However, numerous missed or underpayments will eventually result in a default, but not before you receive suitable notice.

The Notice of Default

You can only default on a single credit agreement once. This is because once an account is defaulted, the contract you signed is effectively cancelled. The creditor will then take further action to recover the money, and all of this will be based on powers under The Consumer Credit Act 1974.

A notice of default will generally occur if you miss 3-6 payments or you are unable to make the repayments in full for that period. When this happens, you will receive a letter in the post clearly stating Default Notice. It will say that the notice is being served under The Consumer Credit Act 1974, and it will also advise you of how much money is owed on your account. The notice will advise you that your account is about to default.

At this point, you will be requested to bring your account up-to-date and you will normally be given at least 2 weeks to do this. However, a failure to comply with this will result in your account being defaulted. It is only at this point that an entry will be made on your credit report, so if you’ve brought your account up-to-date as a result of the Default Notice, then your account will continue to operate without further issue. However, you should be aware that the missed or underpayments will still be recorded on your credit file.

A strange quirk of the Default Notice is that it will also advise you to speak to a solicitor. Don’t be alarmed by this. The Default Notices are written under, and still governed by what is now an old act of parliament. That particular wording is effectively obsolete as you can simply get free debt help from one of a number of organisations. They can help explain the process further.

defaults

The Formal Default

The actual default is a formal acknowledgement by the lender that there is no longer any hope in continuing with the original credit agreement that you signed. This will come if you have failed to bring your account up-to-date within the terms of the Default Notice. They will consider the agreement breached and will take further action against you to recover the money owed.

However, it’s important to remember at this stage that you do have options and it is not the case that you’re suddenly going to find bailiffs on your doorstep. You must realise and accept though that if you’re at the point of default, then clearly you’re struggling. Don’t panic! There are people that can help, and that help will be free. The worst thing you can do is ignore the situation as it absolutely will not get better on its own!

The Effect Of Defaults & The Credit Trap

When you default on an account, other lenders will be able to see this and you will find it considerably more difficult to obtain further credit. The default will also significantly decrease your credit score which will be a good indication as to how prospective lenders will see you in terms of risk. A default will remain on your credit reference file for 6 years from the date your account defaulted.

I mention the effect on your credit score and ability to gain further credit so that you are aware. However, a gambling addict will often have multiple credit cards and loans. It is therefore reasonable to assume that if you have reached the point of default with one account, then others may be in a similar state. It’s at this point where you really must consider whether even attempting to gain further credit is a good idea. Do not fall into the trap of borrowing your way out of debt. Instead, get free and independent advice.

If you have gambling debt, you can always get peer support from the community, and can read more about the UK’s increasing problem with gambling. You can also read more about my debt story, here.

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