The actions listed below are for unsecured debts, where the debtor is an individual. The information does not pertain to priority debts and arrears, nor debts where the debtor is a company, an organization or similar.
Examples of actions that can be legally taken by a creditor in an effort to recover debt
Interest and charges
In the United Kingdom, creditors are allowed to add interest and charges to your account, following the rules stipulated by your debt agreement. They are not allowed to add excessive amounts of interest or charges, e.g. by increasing the interest rate just because you missed payments. If collection charges are added to your debt, they may not exceed the creditor’s collection costs. This is to prevent creditor’s from doing this such as charging £500 for each remainder they send out.
Bank’s right of offset
A creditor can take money from one or more connected accounts without your permission. The creditor must warn you in advance, but does not need your permission. This means that if you have credit card debt in Bank XYZ, Bank XYZ can decide to dip into your savings account in Bank XYZ to recover their debts. This is call the bank’s right of offset.
Creditors are allowed to send you letters and call you to encourage you to repay your debt. They are also allowed to send doorstep collectors without first obtaining a court order. It is important to know that ordinary doorstep collectors are not bailiffs and they do not have the legal rights of bailiffs (enforcement agents). Nowadays, it is unusual for high street creditors to utilize doorstep collectors since it is an expensive way of trying to recover debt.
The creditor cannot sell the debt to a debt collection agency before you have been sent a default notice and been given at least two weeks time to catch up with missed payments. (See below.)
Default and default notice
If your debt is regulated by the Consumer Credit Act, the creditor must send you a default notice to warn you about an imminent default. This is to give you a chance to settle the situation with the creditor and avoid the default.
Please note that a default notice must give you at least two weeks to catch up with missed payments.
In the United Kingdom, creditors will typically send out a default notice if you have failed to adhere to the repayment schedule for 3 to 6 months.
Examples of debt types regulated by the Consumer Credit Act are consumer credit card debt, consumer store card debt, consumer payday loans and consumer personal loans.
A default has several consequences
The default is marked on your credit file and the mark will stay there for 6 years. The default can have a serious negative impact on your credit rating.
After the default, the creditor can sell the debt to a debt collection agency. Debt collection agencies do not have any special legal powers that go beyond the rights of the original creditor, but they tend to be more persistent in hounding the debtor. Since they are companies specializing in debt collection, they typically have more resources devoted to debt collection than your average high street creditor.
After the default, the creditor can apply for County Court Judgement (CCJ). If you receive any court forms, you are obligated to fill them in. The court will set a repayment schedule. If you do not adhere to this repayment schedule, the creditor can take further action.
If the debt exceeds £5,000 the creditor can issue a statutory demand. This is the first step towards forcing your into bankruptcy. Please note that the creditor doesn’t have to go through County Court first to issue a statutory demand.
Even though the creditor is allowed to call you, write to you and send you doorstep collectors, the creditor is not allowed to harass you. You can find out more about this at the Financial Conduct Authority website.
In certain circumstances, you can request that the creditor only contact you in writing – provided that you fulfil certain obligations, e.g. actually opening and reading your mail.
Creditors do not have any special authority to break data protection laws.
Creditors are not allowed to communicate with your family, neighbours, employer or friendsregarding your debt without your consent.
Some creditors – especially credit collection agencies – will try to exude more legal power than what they actually have, e.g. by making their letters look like court documents or by claiming that they are authorized to send bailiffs (enforcement agents) to your home without a court order. It is not legal for creditors to claim to possess legal powers that they don’t have, but many of them have become rather skilled when it comes to operating in the grey area where they actually don’t overtly lie about their powers. This is why it is important for you to learn about your rights and obligations and about the creditor’s rights and obligations.