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Debt is a scary word, but it’s something most of us will encounter
Student loans. Credit cards. Mortgages. It’s more than likely that you’ll incur some kind of borrowing during your life, and unless you can’t pay, it’s nothing to be frightened of.
Sometimes, though, manageable borrowing becomes problem debt. It doesn’t help that there are a number of myths around debt that make it seem even more intimidating, so let’s debunk a few of them.
MYTH: Creditors can send bailiffs to collect debts
Not true. The only people authorised to send bailiffs to your home are the courts, and although that may be after a complaint by a creditor, bailiffs typically only get involved if you’ve ignored correspondence or failed to set up an agreed payment. If the person at the door isn’t court-ordered then it’s not a bailiff but a debt collector.
If a bailiff knocks at the door, you’re under no obligation to let them into your home or take your possessions – providing you haven’t defaulted on a County Court Judgement (CCJ).
If you have outstanding debts such as council tax or a parking fine, bailiffs can be instructed much more quickly, so it’s best to deal with these debts as a priority.
If a debt collector knocks at the door, tell them to ask the creditor they’re representing to send any correspondence in writing.
MYTH: Bailiffs can force entry into your house and take anything they want
There are strict processes guiding court-appointed bailiffs (officially called ‘enforcement agents’). Debt collectors who aren’t instructed by the courts cannot force entry into your home.
Enforcement agents can’t break into your home and take your things unless you have allowed them in previously and have signed a ‘controlled goods agreement’. If they have this agreement, they can force entry in the future.
The job of a bailiff is, typically, to recover the money you owe, whether by payment agreement or taking goods from the property to sell at auction. If one comes to your door for the first time, it’s best not to let them in and to immediately seek free debt advice.
MYTH: You can go to prison for unpaid debts
It is not a criminal offence to be unable to pay your debts. The only circumstances in which you could go to prison is if you refuse to pay council tax (in England) or any criminal fines. Even then, this is a last resort – the debt is more likely to be recovered directly from your wages.
MYTH: Declaring bankruptcy means you don’t have to pay anything
Actually, bankruptcy can be very expensive.
First, there’s a fee to petition for bankruptcy. If it’s accepted, the official receiver – the person who oversees the administration of your bankruptcy – will look at your income and outgoings, then decide if you need to pay into an Income Payment Order or Arrangement (IPA or IPO).
This usually happens if you’ve got more than £20 income left over each month after your income and outgoings are totted up. If you are bankrupt, you’re normally expected to pay any extra income into the IPA/IPO for three years, depending on your circumstances.
So, while bankruptcy should write off your debts, being bankrupt doesn’t mean you have nothing to pay.
MYTH: Your debts can be written off if you don’t make a payment in six years
This myth has some basis in fact – it’s true to say that some debts can’t be enforced after six years, but that doesn’t mean they’re written off.
A piece of legislation called the Limitation Act says that a debt can become ‘statute barred’ after six years if the debtor hasn’t made a payment or “admitted the debt”, or if the creditor hasn’t secured a CCJ against the debtor.
The purpose of the act isn’t to let people get away without paying off their debt. Instead, it’s to protect people from being forced to repay debts that have ‘timed out’ through no fault of their own.
The debt still exists, it’s just that the creditor can’t enforce the collection of it through the courts.
MYTH: If you go bankrupt, you’ll lose your house
It’s a possibility that you’ll lose your home if you go bankrupt, but not an absolute certainty. Ultimately it depends on your circumstances.
If your home has a lot of equity (in other words, where the value of your property outstrips any mortgage costs against it), the bank may have to sell it to pay off the bankruptcy debts. However, if there is very little equity in your home, you may be able to stay if the mortgage is affordable.
This is a complicated area of debt, and one that you should definitely seek advice over if it is a concern.
If you’re struggling with debt, StepChange’s online advice service and debt solutions can help you take control of your money.
Get free, personalised advice. Day or night, online 24/7 at www.stepchange.org
