If you can no longer afford to repay your debts, you can expect your creditors to take legal action against you to recover what you owe. This article from debt advice firm, Bankruptcy Clinic, gives an overview of some of the actions that creditors might take, depending on the circumstances involved.
County Court Judgement (CCJ)
If you owe money to unsecured creditors such as credit card companies and loan providers, they may try to obtain a court order against you, called a County Court Judgement or CCJ, to make you pay the money back.
Your creditor should always send you a warning letter in advance, stating that they’re planning to take court action. At this point, it’s always best to try and reach a repayment agreement so you can avoid going to court. If this isn’t possible, you’ll be sent a claim form and response pack when court action is underway.
This gives you the chance to put your side of the story to the court, so they can take the information provided by both you and your creditor into account when making the CCJ. You’ll have the opportunity to say whether or not you agree with the debt amount set out in the claim form, and to make a repayment offer if appropriate.
It’s never a good idea to ignore a claim form. If this happens, the court will make a CCJ based on the creditor’s information alone, so you won’t have the chance to have your say. And if you don’t make payments in line with any court order that’s made, your creditor will probably take further enforcement action against you.
Sometimes a creditor will arrange for a bailiff to visit your home to try and recover the money you owe. If your creditor is planning to send a bailiff to your home, you should always receive an enforcement notice warning you of their visit.
Bailiffs are used to collect specific types of debts, including personal and business tax arrears; unpaid CCJs and other court judgements, fines and orders; child support and maintenance payments; and business rent payments. They’re entitled to enter your home and remove any items that can be sold to help repay your debts.
A bailiff might be a court official or work for a private firm. They have considerable legal powers and must have authorisation from the court to visit your property. In most cases, your creditors will already have tried other ways to get you to pay up before sending the bailiffs in.
Third party debt order
If your creditor thinks you can afford to pay your debts and are refusing to do so, they can apply for a third party debt order to take the money from your bank account. Or, if you’re expecting a windfall such as an inheritance, they can apply to take the money directly from that instead.
Third party debt orders are normally used to deal with unsecured debts and hire purchase agreements. The creditor will first need to obtain details of your financial circumstances by applying for an order to obtain information. You must attend court to provide full and accurate details of your finances under oath.
If the creditor decides to proceed, they’ll first ask for an interim order that will freeze your bank account. A final hearing will take place at least 28 days later – so you could be left without access to funds to pay for essential living expenses in the meantime. However, you can apply for a hardship payment order to tide you over. You can also present reasons as to why the interim order shouldn’t be made final.
Other types of court order
Two other types of court order that might be pursued if a CCJ has failed are:
- Attachment of earnings. Your creditor will apply to the court for permission to deduct payments from your wages or salary. This is normally used for unsecured debts and tax arrears. The court will work out a minimum amount of income that you need each month to live on, but you can appeal against this decision if you think the amount isn’t enough.
- Charging orders. Your creditor can apply for the amount of your debt to be charged against the value of any property you own. An order for sale can then be made to recover the debt. Creditors are automatically entitled to apply for a charging order if a CCJ has been made against you – even if you’re up to date with your payments.
Forcing your bankruptcy
If you owe £750 or more to your creditors, they can try and force you into becoming bankrupt so they can recover the money you owe. They’re more likely to do this if they believe you own property or other valuable assets that could be sold to repay your debts.
A creditor must show that they’ve tried other ways of recovering the money you owe before trying to make you bankrupt. This might be sending you a statutory demand about your debts, or using one of the methods of enforcement action outlined above after a CCJ has failed to recover the money.
Once this has been proven, the creditor will usually start by sending you a legal notice giving you 21 days to clear your debts or negotiate a repayment offer. If this doesn’t happen, your creditor will present a bankruptcy petition to the court.
You can try to oppose this, but it’s very important that you attend the bankruptcy hearing in person, ideally with legal representation. The judge will either dismiss the petition, suspend proceedings to gather more evidence or give you more time to pay up, or make a Bankruptcy Order.
If a Bankruptcy Order is made, the Official Receiver will take control of your estate. Your property and assets might be sold, you may have to make regular payments to your creditors for up to three years, and you’ll have other restrictions placed on you, too.
However, in most cases, your Bankruptcy Order will be discharged after just 12 months. The remainder of the debts listed within it will be written off and you’ll have the chance to start again.
Creditor action pending?
If your creditors are threatening any type of legal action, don’t ignore it. By taking immediate steps to start managing your debts, you may be able to avoid court action. Even if this isn’t possible, you’ll be in a stronger position if you can show the court that you’ve taken professional debt advice and are willing to reach an agreement with your creditors.
And if bankruptcy turns out to be your best option, it’s always preferable to start the process yourself than have your hand forced by creditors.
Bankruptcy Clinic are here to help
Our friendly, qualified advisers will help you find the right way of dealing with your debts, whether that’s declaring bankruptcy or an alternative debt solution.
It doesn’t matter how much you owe or who to – we can help. Contact us today on 0808 168 7389, or 01625 462 770 from a mobile, or complete our online form with your details.