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