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9 debt myths busted
Earlier this year we started busting debt myths in a monster myth-busting blogpost.
We’ve picked the nine most-repeated myths about debt to help you.
Myth: Creditors are able to send bailiffs to collect debts
Fact: Only the courts have the authority to instruct bailiffs to visit you to collect consumer credit debts.
If someone comes to your door calling themselves a bailiff, as long as you haven’t defaulted on a CCJ, it’s likely that they’re a debt collector instead.
These people don’t have any powers at all.
Read our advice on how to deal with court bailiffs and what to do if creditors are sending debt collectors to your home.
Myth: Bailiffs can force entry into your property and take any item they want
Fact: Bailiffs have to follow strict processes, even when they’ve been instructed to collect the debt by the court. Debt collectors who haven’t been instructed by the court cannot enter your home by force.
Court-appointed bailiffs cannot break into the property unless you have already allowed them in on a previous visit, or they entered through an unlocked door or window. This is called ‘walking possession’. Once the bailiff has ‘walking possession’ they can use force to enter again in the future.
The bailiff is there to recover the money owed, whether this is by a payment arrangement or by taking goods from the property and selling them at auction.
The exception is if the bailiff is collecting unpaid magistrates fines, HMRC or business related debts.
If a bailiff comes to collect a debt, it’s best to negotiate an arrangement outside of the property and seek debt help immediately.
Myth: You can go to prison for not paying a debt
Fact: It isn’t a criminal offence if you can’t afford your debt repayments.
You can only go to prison for refusing to pay council tax, licences or magistrates fines – and then as a last resort. There are many other enforcement methods that will be employed before imprisonment, such as attachment of earnings, which is when money is taken directly from your wages.
Myth: If I go bankrupt I won’t have to pay anything
Fact: Bankruptcy costs a lot. After the initial fee to petition for your bankruptcy is taken, the official receiver will look at your income and expenditure. they will decide if you need to pay into an Income Payment Order or Arrangement (IPA or IPO).
This usually happens if you have more than £50 surplus income. Bankrupts are normally expected to pay any surplus income into the order/arrangement for three years depending on their circumstances.
Myth: Your debts are written off if you haven’t made a payment in six years.
Fact: Some debts can’t be enforced after six years, but they’re not written off.
- the debtor (or anyone jointly named on the debt) hasn’t made a payment or admitted the debt
- and if the creditor has not secured a County Court judgment (CCJ) against the debtor.
The Act isn’t there to encourage debt avoidance or non-payment, it’s there to protect people from being forced to pay debts that have ‘timed out’ through no fault of their own.
The money owed itself is not written off; it’s still a debt and in reality it still exists. But with the Act in force the creditor can no longer enforce the debt through the courts.
The creditor can continue to chase the debt if they wish.
Myth: If you go bankrupt your name will appear in the local newspaper
Fact: It’s very rare for local papers to publish news about bankruptcy.
There used to be a section in the local newspaper for bankruptcy, to inform creditors. These days insolvencies are rarely advertised in the local paper, unless it’s in the public interest and/or the official receiver believes that other creditors may want to claim. This is sometimes the case with self-employed local business bankruptcies.
Your bankruptcy, along with other types of insolvencies, will be mentioned in the London Gazette (a trade paper for creditors) and will be listed on the Government’s Insolvency Service website, searchable by name.
Myth: If you go bankrupt you will definitely lose your house
Fact: This is a risk and you need to consider this before going ahead with bankruptcy. However, it’s not a certainty.
This is a complicated area and completely depends on your situation (which is why it’s important that you seek free and independent debt advice). If you have significant equity in your home, the official receiver or trustee may have to sell it to help pay the bankruptcy debts. There are exceptions to this and your insolvency practitioner will discuss these with you.
However, if there is little or no equity in your home, you may be able to stay there if the mortgage is affordable, comparable to local rental costs and appropriate to your needs.
The official receiver or trustee still has 2 years and 3 months from the time of your bankruptcy to realise the asset if the value of the property increases.
Myth: If you miss payments on your credit debt you will be blacklisted
Fact: There is no such thing as a ‘blacklist’ – experts call it an “urban legend”.
If you default on your payments this will be recorded on your credit file (PDF) which lenders use to judge how financially reliable you are.