Repaying credit agreements on time can improve your credit rating. However, debt can become a problem if you cannot afford to pay what you owe or doing so causes severe financial hardship.
Always check whether Payment Protection Insurance (PPI) is included in the credit agreement. If yes, your client should CLAIM this and then the policy should meet the debt payments.
One of the first tasks for a money adviser is to establish which debts have the most serious consequences legally for non payment– these are called priority debts. Debts with less serious consequences fall into the non priority category.
Priority Debts Definition
A debt is a Priority Debt where the creditor’s sanctions could cause the loss of four key protections:
- the clients liberty
- the clients home
- the clients essential services such as fuel supply
- the clients essential goods
The essential goods category may vary from person to person. For example, a mobile phone could be considered a priority if an individual had no other form of telephone contact and had health difficulties. However, if there was also a landline and no health difficulties then this could be treated as a non priority debt. It depends on the circ*mstances of the client.
Emergencies
If enforcement action is imminent or a client is about to lose their home, refer your client for debt advice immediately. More information and advice about dealing with urgent debts can be found on the Citizens Advice Bureau website.
Non Priority Debts
Non Priority creditors have no special powers or sanctions that can directly lead to imprisonment, eviction, repossession or disconnection. To recover their debts from defaulting customers, the ultimate action for non priority creditors is to use the county court claim process. They may use debt collection agents to try and collect debts, which includes letters, solicitors letters, home visits and telephone calls. They may charge additional interest and charges once an account is in arrears.
If a creditor decides to take county court action against a client, they will issue a claim against the client in a County Court. This will result in a County Court Judgment (CCJ).
If the creditor has already obtained a court judgment which is defaulted, the creditor may be able to take enforcement action or make the debtor bankrupt, which could have more serious consequences. For example, if the client is a home owner, s/he may risk losing her/his home. Enforcement action includes:
If a claim has been issued or your client requires advice about any stage of enforcement, your client should be referred for debt advice.
For further information about identifying whether a debt is a priority or a non priority debt please visit the Advice Guide wesbite and National Debtline website.
FAQs
You may not see much effect until you're at least 30 days late and reported as delinquent. Letting your account move from delinquency into default (usually 90 to 120 days) can lead to collection calls, the potential for lawsuits, a lien on your home, or garnishment of your wages.
What happens to debt if you don't pay it? ›
If you don't pay the amount due on your debt for several months your creditor will likely write your debt off as a loss, your credit score may take a hit, and you still will owe the debt. In fact, the creditor could sell your debt to a debt collector who can try to get you to pay.
What are the consequences of non-payment? ›
If the creditor has already obtained a court judgment which is defaulted, the creditor may be able to take enforcement action or make the debtor bankrupt, which could have more serious consequences. For example, if the client is a home owner, s/he may risk losing her/his home.
What is non payment of debt in terms of consequences? ›
If you keep missing payments, then you may have your interest rate increased depending on the loan and the contract, you may be reported to the credit bureaus, hurting your credit profile, and then eventually your account may go to collection agencies.
What are the consequences of failing to pay debts? ›
Many creditors will charge late fees if you miss a payment, and these fees can add up quickly. Additionally, if you default on your debt, you may be subject to additional fees and penalties, including collection calls and legal action.
What happens if debt is never paid? ›
If you fall behind on secured debts, you can lose those assets, like your house or car. If you fall behind on unsecured debts, such as student loans and medical bills, it's arguably far less of a serious situation. Your debt will go to a collection agency. Debt collectors will contact you.
What happens if I never pay collections? ›
If you don't pay, the collection agency can sue you to try to collect the debt. If successful, the court may grant them the authority to garnish your wages or bank account or place a lien on your property. You can defend yourself in a debt collection lawsuit or file bankruptcy to stop collection actions.
What will happen if the debtor cannot pay? ›
Legal Action: Creditors might take legal action to recover the amount owed. This could result in a civil case for collection of sum of money. Foreclosure or Seizure: If the debt is secured, such as in a mortgage or car loan, the creditor might initiate foreclosure or repossession procedures.
What happens if someone refuses payment? ›
Take Legal Action
The simplest and fastest form of legal action you can take is to file a claim in small claims court. Your case should be straightforward: You'll claim that the other side breached your written agreement by not paying you, and you want the judge to award judgment to you for the entire amount owed.
What is a direct consequence of not repaying your debt? ›
Initially, you may be hit with late fees and an increase in your loan's interest rate. If nonpayment continues, the lender might send your account to a collections agency, further damaging your credit score. Legal action may result, potentially leading to wage garnishment or asset seizure depending on the type of debt.
For instance, a recent report by ProPublica notes that one company is much more likely to file lawsuits against borrowers: Capital One. According to the report, which can be read in full here, Capital One has filed far more lawsuits against borrowers than any other credit card company, and for much smaller debts.
What happens if you ignore debt? ›
Not responding to a properly served lawsuit – even if you're unsure whether you owe the debt – can result in the court issuing a judgment against you, which could limit your ability to dispute the debt, even if it's already been paid or you don't owe it.
What to do if I can't pay my debt? ›
Here are some debt-relief options to consider.
- Create a Budget. ...
- Do Nothing and Get Debt Relief That Way. ...
- Negotiate With Your Creditors to Get Debt Relief. ...
- Seek Debt-Relief Assistance From a Consumer Credit Counseling Agency. ...
- File for Bankruptcy to Get Debt Relief. ...
- Get Help With Your Federal Student Loans.
Priority debts mean you could lose your home, have your energy supply cut off, lose essential goods or go to prison if you don't pay. They include things like: rent and mortgage. gas and electricity.
What happens if you are in debt and can't pay? ›
Banks may use their right of set-off to collect overdue payments on credit cards, loans, overdrafts or lines of credit. A bank may withdraw money that you have on deposit in any of its branches and apply it to your debt. The bank does not have to leave any money in your account.
What happens to people who Cannot pay their debts? ›
Bankruptcy is a legal process through which individuals who cannot repay debts to creditors may seek relief from some or all of their debts.
Does unpaid debt ever go away? ›
Although the unpaid debt will go on your credit report and have a negative impact on your score, the good news is that it won't last forever. After seven years, unpaid credit card debt falls off your credit report. The debt doesn't vanish completely, but it'll no longer impact your credit score.
What happens if you ignore a debt collection agency? ›
If you get a summons notifying you that a debt collector is suing you, don't ignore it. If you do, the collector may be able to get a default judgment against you (that is, the court enters judgment in the collector's favor because you didn't respond to defend yourself) and garnish your wages and bank account.
How many years can you go without paying debt? ›
The “Statute of Limitations” for credit card debt is a law limiting the amount of time lenders and collection agencies have to sue consumers for nonpayment. That time frame is set by each state and varies from just three years (in 13 states) to 10 years (two states) with the other 25 states somewhere in between.
Will my debt go away if I ignore it? ›
When it comes to debt collection calls, it is never clever to ignore them. In fact, it may make things a lot worse for you. The debt collector may file a collections lawsuit in court, which could lead to the garnishing of wages, seizure of personal property, or money taken from your bank accounts.
