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You’re in debt but what can your creditors actually do?
UPDATE October 2017: The rules around creditors sending court forms have changed. You should now receive a ‘letter of claim’ before any court action. Read more about the new Pre-Action Protocol for Debt Claims.
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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?
- They can chase you for the debt by phone or letters; see our article about what to do if creditors keep phoning you.
- 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.
- They can continue to add interest and charges to your account in line with the original agreement.
- 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.
- 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.
- 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.
- 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
- 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?
- 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.
- They cannot break data protection laws, so they cannot speak to your family, friends, neighbours or an employer without your permission.
- 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.
- 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.
- They cannot stalk you on social media – see our blogpost 10 ways to stop debt collectors finding you on social media.
- 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.