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 enforcement agents (bailiffs) to visit you to collect consumer credit debts.

If someone comes to your door to collect a debt, as long as you haven’t defaulted on a CCJ, they don’t have any powers to enter your home or take your goods.

Enforcement agents can be instructed much more quickly for some priority debts, such as council tax or parking fines, so it’s important to ensure these are dealt with.

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: Enforcement agents 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 enforcement agents cannot break into the property unless you have already allowed them in on a previous visit, and you have signed a ‘controlled goods agreement’ with them. Once the enforcement agent has a ‘controlled goods agreement’ they can use force to enter again in the future.

The enforcement agent 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 enforcement agent is collecting unpaid magistrates fines or debts owed to HMRC – in these cases force can be used, but this power is exercised very rarely.

If an enforcement agent comes to collect a debt, it’s best not to let them into your home, and to 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 (in England) or criminal fines – and then as a last resort. There are other enforcement methods that will usually 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 can cost 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 £20 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.

This refers to the Limitation Act. A debt can become statute barred after six years if:

• 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 legally it still exists. But with the Act in force the creditor can no longer enforce the debt through the courts.

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.

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 has three years 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’ll be recorded on your credit file (PDF) which lenders use to judge how financially reliable you are.

Have you heard any strange debt myths? Let us know in the comments so we can set the record straight!

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