Mar 23 (edited) • ⚖️ General discussion
I can't pay a debt - what can I do?
It's a fact of life that we all incur some sort of debt, whether it's a credit card, a personal loan, a mortgage, car finance and so on. Very few people can live a life paying for everything they want with no debt - even the very wealthy use debt to finance their lifestyle (as it's not counted as "income" for tax reasons...but that's another story)
For this topic we are talking about consumer contracts (some are business contracts but we will focus on a scenario that your loan is where you are a consumer and you are in trouble for whatever reason)...
Defaulting on a loan agreement does carry serious consequences - your credit record will take a hit as the lender has an obligation to report the history to the various credit sites (in the UK this would be Experian, Equifax, Trans Union). Those defaults will remain on the record for up to 6 years in the UK.
If a lender goes to court and wins, a court order becomes a public record after a month - it goes on your credit record and all lenders can see it. By now your record will be severely damaged. Even if you pay off the court ordered sum the record is changed to "satisfied" but the mark remains there......
If you are unable to pay a debt the key is to contact your lender as soon as possible.
Most of them are amenable and willing to help - they may offer you a payment holiday or a restructure of the loan itself. Some may take an offer to settle the full balance, or they may agree to freeze interest. If it's an unsecured home then your assets are not at risk but again, if the lender goes to court and you still can't pay, they would possibly enforce that order (bankruptcy is common) and then any assets you have could be taken.
A lot of people think that if they leave a debt behind and they emigrate, it will go away.
It won't go away - the lender could try to trace you or they could obtain a court order in your absence (though after 6 years your credit record would be wiped clean). Some countries are very tough on debts - most treat them as civil matters but others take a more robust stance - for example in the UAE they treat is as fraud. Say your rent cheque bounces, the landlord could report you and the Police would stop you from leaving the country until you paid - some people are locked up though again, it's usually places like Dubai that this is an issue.....even so, it would be very unpleasant to find out there is an arrest warrant out for you over a small debt!
Some solutions if you find yourself in a sticky situation about your debt :
- contact the lender if you find yourself unable to pay - do this now, ask for their help. Many will agree though do think about this as any help may affect your credit record - a payment holiday or a loan restructure can impact your credit rating as you will have deviated from the original loan terms;
2. If you receive debt collection letters - don't panic! And don't think that it's a scam either! Many people do especially if it relates to parking charges. Debt collection companies generally write to you only. Don't argue with them - they don't hear arguments on if you owe the debt or not. Reply to them to say you agree (if you do agree that is!) and they will let you make token payments towards the debt. Keep in communication with them - as long as you do this, the situation is manageable. If you ignore debt collection letters, at some point the lender will issue a claim at court..... this should be avoided if possible though it happens a lot especially if you move house and don't tell them only for you to find a court order on your credit record further down the line....
3. If you can refinance to pay this debt off - do it! Zero percent credit cards means you can borrow with no interest and use that money to pay off a loan with interest. If you cannot access any finance, see if a friend or family member can lend you money - if this isn't an option, communication with the lender is required and you could use a debt charity to speak to them for you (e.g. Step Change in the UK). If you have anything which is worth something, consider selling it to pay the debt off - it's preferable to a situation where a lender could try to enforce a court order so difficult as it may be, do consider selling off anything of value to deal with this. You can always buy something nice again in future.....
4. Try to avoid bankruptcy if possible! This would be an option for a lender if you owe £5,000 or more. If you own anything, your assets are at risk. It has other repercussions too such as it could impact your job. If you can pay a sum to make the sum owed less than £5,000 (in the UK) then bankruptcy is not an option for them. Though they could consider other enforcement methods such as an attachment of earnings order if you are employed....
5. If you have any money saved, make the lender an offer - you may be surprised as they may accept a low offer to save the hassle of pursuing you.
6. Lenders have to treat you fairly (apart from loan sharks but it's assumed you are not involved with one of those!). This means engaging with you if you encounter any difficulties so don't hesitate to pick up the phone to them if you think you are in trouble. Some people have temporary rough patches, others it's more long term but either way the key is to speak to the lender and see what they can do for you.....
The key takeaway is, a loan issue is not the end of the World - it happens to many thousands of people, there is always a solution to a problem! So don't let it get on top of you....
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I can't pay a debt - what can I do?
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