What action can creditors take?
If you’ve fallen behind with your payments, you may be wondering what, if any, action your creditors are likely to take. This page should let you know the options available to them so you know what to expect.
They can send your debt to a debt collector
The creditor may ask another firm to collect the debt on their behalf, or they may sell your debt to another company. This may seem worrying but it’s a normal part of the arrears and collections process. Debt collection firms don’t actually have any more powers than the original creditors, and they need to be authorised by the FCA and follow their rules. They are used to dealing with people in financial difficulties and, if you contact them at the earliest possible opportunity, will more than likely come to an arrangement with you.
Debt collectors and bailiffs are not the same thing.
A bailiff may contact you or visit your home if you don’t pay a debt for something like council tax, a fine, or child maintenance, or if you didn’t pay a loan or other credit agreement where your lender has already taken you to court and obtained a CCJ which you didn’t pay.
If you have been contacted by a bailiff, you can prevent them visiting by paying them what you owe in full, or by arranging with them to pay in instalments. Bailiffs will generally be happy to accept an arrangement to pay, provided that it’s realistic, and that you can afford to pay it.
For more detail, visit our bailiffs page
Taking money from linked accounts
If you fall behind with a loan, overdraft or credit card and pay money into that same bank, e.g. into a current or savings account, the bank can sometimes take the money from your savings or current account to repay the debt. This is called the right to set-off or the right to offset.
It can cause you problems if the money in your account was due to be paid out in direct debits because you could incur bank charges if they bounce. It could cause you even more serious issues if it was due to be paid to your priority bills like your rent, mortgage, council tax or utility bills.
They will have to let you know in advance that they plan to do this so, you must contact them as soon as possible to let them know that you’re in financial difficulties and can’t afford to pay. They should look at ways to help you such as separating your overdraft from your bank account or finding a way for you to repay the debts at an affordable amount.
If they take the money and leave you unable to pay your bills, you should contact them and ask for a refund, showing evidence of your financial difficulties.
If you want to prevent your bank enacting this right, you should consider moving your current account and any savings (though if you’re in debt and struggling, you should use your savings to pay down your debts first) to a different bank with no overdraft, and that you don’t have any debts with.
County Court Judgement (CCJ)
A county court judgement is a court order which tells you to repay a debt. Creditors will usually only apply for a CCJ if they’ve not been able to reach a suitable payment arrangement with you.
Once they have the CCJ in place, you will have to make the payments that have been agreed, or you risk the creditor taking further action against you.
The amount that you’ll pay will be determined by the court, but will be based on what you can afford, so it’s important that you complete and return the court forms with evidence of your financial situation by the deadline. If you don’t, the court will decide on a suitable payment without taking your circumstances into account. They could order you to pay the whole debt in one go, so it’s important that you respond and state your case.
A CCJ will show on your credit file for 6 years and will be added to a public database called the Register of Judgments, Orders and Fines.
Deduction from income
Attachment of earnings, direct earnings attachment or earnings arrestment are ways that creditors can take money straight from your income to repay a debt.
An attachment of earnings order instructs your employer to pay money from your wages to the court, then send it on to the creditor. You’ll be notified by the court of the proceedings and you’ll need to complete and return the forms showing what you can afford to pay, along with evidence of your income. The court will decide what you have to pay, but will never let your income drop below a certain level – protected earnings income.
A direct earnings attachment is different because it usually relates to benefits overpayments, and no court order is needed. They will write to you beforehand to let you know that you’ve been overpaid, and they may let you set up a payment arrangement instead.
An earnings arrestment is a type of diligence in Scotland that orders an employer to deduct money from your wages to pay a debt. They will only apply for this if you’ve had a Charge to Pay or Charge for Payment which you were unable to pay. The amount you pay will depend on how much you earn, and there will be a minimum level of income which is protected.
If you own a property and your creditor has a CCJ registered against you, they can apply through the courts to secure the debt against your property by way of a charging order. This means that if you sell your home, the money will be paid to them out of the equity (if there is any), before anything is paid to you.
In rare cases, the creditor may also be able to apply for another order from the court to force you to sell the property to repay the debt.