You’re in debt but what can your creditors actually do?

posted by in Living with debt

Last updated: 5th September 2016

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There can be lots of misconceptions about what creditors (your lenders) can and cannot do. We hear from clients that are scared stiff of bailiffs (enforcement agents) or being sent to prison when they’ve only missed one or two payments or just received a default notice or a CCJ (County Court Judgment) through the post.

A lot of action by creditors will be tactics to encourage you to make extra payments, so it’s useful to know what your rights are to help to put your mind at ease.

Knowing what creditors can and cannot do and understanding the debt collection process can help to remove a lot of worry and uncertainty around debts.

Please note: the advice below talks about what creditors can do with unsecured debts. There’s more on our website about priority debts and arrears.

What can creditors do?

  1. They can chase you for the debt by phone or letters; see our article about what to do if creditors keep phoning you.
  2. They can send doorstep collectors; it’s really important to realise that these are not bailiffs and have no more power than someone ringing you.It’s unusual for a high street lender to use doorstep collectors as it’s cheaper and more effective for them to call you.
  3. They can continue to add interest and charges to your account in line with the original agreement.
  4. They can take money from connected accounts. For example if you have a credit card and a current account with the same bank they can dip into the current account and take what’s owed on the credit card. They don’t need permission from you, but they do need to warn you in advance. This is called the bank’s right of offset.
  5. They can issue a default notice. These are usually sent after 3-6 missed payments, and serve as a warning that your account is about to default. The default is usually granted if you don’t bring it up to date within two weeks. It’ll appear on your credit file for six years and will make it harder to get credit for that time.
  6. They can pass the debt on to a debt collection agency. These don’t have any more legal powers than the creditor, but they may be more persistent in contacting you.
  7. They can apply for a County Court judgment(CCJ). If you receive any court forms you must fill them in and make an offer of repayment. The court will set a repayment and it’s important that you stick to this, or the creditor can take further action
  8. They could issue a statutory demand. This is the first step they can take towards applying to make you bankrupt. This is only possible with debts over £5,000 and fortunately isn’t very common.

What can’t creditors do?

  1. They cannot harass you; you have a duty to keep your creditors informed of your situation but that doesn’t mean they can ring you every hour, day after day. If you want, you can request that they only contact you in writing, but make sure you open your mail if you do this. You can read more about debt collection guidelines on the Financial Conduct Authority website (although this information is a bit dry). We also have more about your rights when dealing with creditors on our website.
  2. They cannot break data protection laws, so they cannot speak to your family, friends, neighbours or an employer without your permission.
  3. They cannot pretend to possess legal powers they don’t have, for example by making their letters look like court documents or claiming they can send bailiffs to your property without a court order.
  4. They cannot add excessive amounts of interest or charges. They can’t increase the rate of interest because you’ve missed payments. And they can’t add collection charges which are more than the costs to them, so for example a creditor couldn’t add £100 for sending a letter to you which will have cost them much less than this.
  5. They cannot stalk you on social media – see our blogpost 10 ways to stop debt collectors finding you on social media.
  6. Sometimes creditors may not be nice to speak to, but they can’t be threatening or abusive to you, and they can’t lie to you.

In practice, you’ll find many creditors are more reasonable than you might expect, especially if you explain your situation and let them know you’re getting help to try and sort it out.Save

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Pavan Gata-Aura is a qualified debt advisor with 6 years of experience. She enjoys spending time with her two children, fundraising for charities, has spent time volunteering in Africa and takes part in organised races.

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Tags Living with debt
  • Kieran Garden

    Hi there, I’ve got an overdraft with TSB of £3000 and I feel like I’m getting no where because of the interest, I phoned them an asked the interest to be frozen for a period of time till I clear it, but they just threatened to close the account an hand it over to collections that’s the only way they could freeze interest rate, do you think this is a bad idea?

    • moneyaware

      Hi Kieran,

      My experience of giving advice to people with overdraft debts is that it’s easier to pay off an overdraft when you bank with a different bank. This creates a separation between your debt and your day-to-day banking. It also takes away the possibility of having your overdraft unexpectedly removed and meaning you can’t pay bills.

      It’s usually pretty straightforward to get a no-frills “basic bank account” even if your credit history has a few negatives listed on it. There’s more information here: https://www.stepchange.org/debt-info/basic-bank-account.aspx.

      It’s hard to say if it’s better for you to let your bank pass your account to collections or not. It’s likely that’ll your credit file will be affected, often banks will default your account before passing it to their collections department, which is recording on your credit file for six years.

      Whether it’s worth doing that to get a payment arrangement set up and to stop interest and charges will depend on how important your credit rating is to you and whether you’ll be able to deal with the debt once it’s with their collections teams.

      I’d suggest getting in touch with us for debt advice before making a decision. We can help you work out a realistic income and expenditure budget and give you advice about how to deal with this debt and any others you may have.

      Here’s more about how we can help: https://www.stepchange.org/Howwecanhelpyou/Debtadvice.aspx.

      Kind regards

      James

  • Bryan Matthews

    I have protected trust deed going I sent off overpayment to my trust deed where they have put in with my debts D W P I have now been taken to court for Sep to recover monies due is this right thought once in trust deed they could not go to court

    • moneyaware

      Hi Bryan,

      Creditors for debts included within a trust deed can’t take you to court for those debts. I wonder if the court action relates to a debt that isn’t included in your trust deed?

      Either way, I’d recommend you get in touch with the company that’s administrating your trust deed and asking them for advice.

      Kind regards

      James

  • Anna

    Is it possible to have DRO and then move to another country? I’m unemployed since January, I have depression and I need to go back to my parents who are out of UK. Thank you very much.

    • moneyaware

      Hi Anna, thanks for commenting.

      As far as we’re aware, there doesn’t seem to be a travel restriction while your DRO is active. However, the Insolvency Service may be able to give you a bit more guidance on where you stand with this.

      You can find more information on the restrictions you need to bear in mind while on a DRO on our website: https://www.stepchange.org/debt-info/what-happens-on-a-debt-relief-order.aspx

      Kind regards

      Rachel

  • LeopoldoGaltieri

    If I own items that will just take me over the £1000 worth of assets threshold, say by about £400, can I sell these items for as much as I can, and then use the money I raise to pay something off my debts? And once these items have been sold, and I am only left with under £1000 worth of assets will I be able to apply for a Debt relief order?

    • moneyaware

      Hi Leopoldo,

      Thanks for getting in touch.

      It is possible to sell items so the value of your assets falls under the £1,000 limit for DROs. However, it’s very important to do it the right way. This means making sure you don’t sell things for less than they’re worth and also distributing money between your creditors fairly.

      It can affect a DRO application if the Insolvency Service think you’ve disposed of assets “under value” or given “preferential treatment” to creditors by paying some disproportionately more than others.

      I’d strongly recommend you get in touch with us for debt advice. We can help you see if a DRO is your best option and give advice about alternatives. If a DRO is the right option we’ll give you guidance on how to deal with your assets so you don’t accidentally cause problems with your application.

      We’re an approved intermediary for DROs, so we can help you prepare your application to the Insolvency Service.

      Kind regards

      James

  • LeopoldoGaltieri

    Hi, what do they mean when they say that you cannot sell your assets for less than their worth? For example I bought a second hand guitar for £195 from a guitar shop, now if I sell this on EBAY and get £170 I will then have to pay EBAY, and PAYPAL fees which would be £25.33 which would mean I would recieve about £145 which is £55 less than what I paid for it.
    I would also like to know how to calculate my assets in a manner that would be exceptable for a DRO. Would I use my original purchase price, and then work out how much I would recieve if I sold the items on EBAY?

    • moneyaware

      Hello Leopoldo,

      Thanks for getting back to us.

      As my colleague mentioned on our last reply – we’d strongly recommend you get in touch with us for debt advice to make sure that a DRO is the right solution for your individual circumstances.

      We can help you see if a DRO is your best option and give advice about alternatives. If a DRO is the right option we’ll give you detailed guidance on how to deal with your assets so you don’t accidentally cause problems with your application.

      You can call us on 0800 138 1111 and start a debt advice session or if you’d prefer to get online debt advice, you can use our debt remedy tool – which will go through your income and debts and then recommend a debt solution for you:

      https://www.stepchange.org/Debtremedy.aspx

      Thank you
      Becca

  • stephanie riley

    Hi there,
    I have my current water agency chasing me for an outstanding bill from 9 months ago in September (we have since paid the April bill and went to close the account in may as we were all moving out) and they have now said we never paid in September.
    I just find it weird they never chased us or gave any warning until we went to close the account.
    We paid the bill on an overseas account which has now closed and the bank want to charge us £50 for the old statements
    Will they keep chasing us and where do we stand in terms of old statements and having to prove we paid it? I don’t want to spend £50 out of pocket when we paid it, also don’t want to pay this supposed £204 old bill…
    thanks

    • moneyaware

      Hello Stephanie

      Thanks for your comment. You can read more about water arrears here and find out how water companies deal with them here:
      https://www.stepchange.org/debt-info/water-arrears.aspx

      Your water is a priority bill because of the action your creditor can take if you have arrears so we would always advise that you try and settle any dispute.

      If you miss a payment to your water company, they’ll take the following steps:

      You’ll be sent a reminder notice, notifying you about your arrears

      If you ignore the reminder a final notice will be sent, usually giving you seven days to pay

      You may also receive a telephone call to ask for payment;

      If all other means of contacting you fail, your debt will be passed to a debt collection agency.

      The next stage may be a County Court judgment (CCJ) where you’ll be given the chance to make an offer based on what you can afford.
      Receiving a CCJ can, however, affect your credit rating, so it’s worth bearing in mind if you’re hoping to get a mortgage or apply for any form of credit.

      If you’re struggling to pay your priority bills it may be worth considering getting some debt advice from us to see if you may need a debt solution, you can start this online: https://www.stepchange.org/Debtremedy.aspx

      I hope that this helps,

      Thanks
      Becca