Guidance
Notes >
Debt Problems: The key questions
Many questions arise when debt
problems are encountered. We note below some of the
key questions people ask. This section of the website
has been drawn from the Scottish Executive booklet "Dealing
with Debt"
Having
problems meeting your debts?
Many
people have problems meeting their debts. You should
not worry alone and you do not have to deal with the situation
on your own.
If
you are worried because you owe money and can't keep up
your payments - what should you do?
It
may be the case that you have only one or a few debts that
you have trouble repaying. Alternatively, you may owe money
to many different people or companies. Your debts might
include credit cards, catalogues, rent/mortgage arrears,
council tax arrears, bank loans, unofficial loans and utilities.
It
is important that you think about every creditor you owe
money to rather than try to deal with them individually.
If you deal with one and pay all you can, you are likely
to find another creditor starts to press for payment: hence
the advice to think about the whole position.
Reasons
for getting into debt
Debts
can occur because of an unexpected change in circumstances,
or an unplanned increase in your outgoings because of:
- illness
- onset of a disability
- unemployment
- bereavement
- a new baby in the family
- you may have borrowed too much.
It
is important to understand the reasons why you are in debt
even if the reasons are embarrassing and caused by excessive
personal expenditure. It is also important to understand
how to get help from someone who you can talk to openly.
Such person will not judge you, or criticise you, but offer
practical options for you to consider.
It
is important to take action as soon as possible
It
is always better to deal with debt problems at an early
stage. The longer you wait the worse things are likely to
become.
If
you go to an adviser for help they will review your total
debt position. The advisor will help you decide whether
you are able to make any payments to your creditors and,
if so, which creditor(s) should be paid first and why. An
advisor can help by negotiating with your creditors and
deal with emergencies such as:
- gas or electricity being disconnected
- your wages being arrested.
It
will be important to look at how your income can be maximised
and, for example, it may appropriate to apply for state
benefits:
- income support
- tax credits
- council tax or housing benefits or rebates.
A
money adviser will not make your decisions for you, but
will help you by giving advice and information, so that
you make informed choices.
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Had
a default notice from a creditor?
A
default notice is usually the first step which a creditor
takes before taking you to court. In other words, a creditor
must advise you in writing that you haven't paid your debt.
You must be given the opportunity to make payments to bring
your account up to date. Some debts are treated differently
e.g. council tax.
A
default notice may be the first formal document that you
will receive about the debt. The document will say quite
clearly that it is a default notice under the Consumer Credit
Act 1974, and that you have time to make a payment in order
to bring the account up to date. If you do so, the creditor
cannot take further action. However, if you are unable to
make the payment, further action can be taken against you.
If that is the case, it may be sensible to organise a meeting
with a money adviser as soon as possible.
If
the level of the debt, is under £25,000 you may be
able to apply to your local court for a time to pay order
to give you longer to pay your debt. A money adviser will
be able to help you make an application, and will include
your income and outgoings as part of the application which,
in turn, will enable the sheriff to make an assessment of
your ability to repay the debt.
If
you do nothing, the creditor is likely to raise a court
action against you, and, depending on the amount of your
debt, you will have to repay the debt you owe with added
interest. Also, you will probably be liable for the creditor's
expenses.
Unless
you tell your creditors that you are having difficulties,
they won't know. Whilst debt problems are a source of worry
and embarrassment for many, keeping it a secret will not
help.
Did you know?
- you will not go to prison for non-payment of debts,
such as credit cards, bank loans, and council tax. You
can only be sent to prison for non-payment in very limited
cases, e.g. if you deliberately refuse to pay money
for the support of an individual or children under a
court order, or if you have taken money by fraud.
- creditors will send you a default notice to give you
the opportunity to be aware of the debt and allow you
time to consider how to deal with the matter e.g. to
pay the debt.
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Being
taken to court?
If
you have not paid a debt, your creditor can take you to
court. This can happen if you haven't paid the whole amount
that you owe, or you haven't make the payments that are
due.
How
do I know if I am being taken to court?
You
will know that court action is being taken if you receive
a summons or an initial writ.
- if you owe £750 or less you will receive a small
claims summons.
- if you owe more than £750 and up to £1,500
you will receive a summary cause summons.
- if you owe more than £1,500 then you will receive
an initial writ.
The
summons or initial writ should tell you who is taking you
to court, how much they think you owe them and how they
have worked out the amount of the debt. It should also tell
you what court the action is being taken in and what they
want the sheriff to do.
What
can the sheriff be asked to do?
In
most cases the creditor taking you to court will ask the
sheriff to order you to pay the amount you owe. If the money
that you owe is rent or mortgage payments that you haven't
paid on time, the sheriff might be asked to order you to
leave your home. If the money that you owe is for a car
or something else that you have bought on credit or hire
purchase, they might also ask the sheriff to order you to
hand back the goods.
What
should I do if I am being taken to court?
It
is important that you seek help and advice. Contacts are
listed in section 6 below.
The
papers that you will get with the summons or initial writ
will ask you to reply to the court. There will be a date
by which you have to do that. Do not ignore this date.
Normally,
you will be able to do one of three things:
- you can defend the claim if you don't agree that the
money is due to the creditor taking you to court. This
may be because you don't owe them anything, or because
you think they have made a mistake in working out the
amount that you owe. If you do this there will be a
hearing to allow the sheriff to find out more about
the claim. If there is a hearing you or a solicitor
will have to appear in court. If you do not qualify
for legal aid, court representation will cost you money.
- you can admit the claim if you agree the debt due
to the creditor. If you admit the claim the sheriff
is likely to grant an order requiring you to pay the
whole amount which is owed, usually with interest, or
to give back something which you have bought on credit
or hire purchase, or leave your home. The order will
require you to pay the creditor's expenses.
- you can admit the claim but ask for time to pay. You
should get a form with the summons or initial writ that
you must complete if you want time to pay. You must
say how much you are able to pay and whether you want
to make payments weekly, fortnightly, monthly or some
other way. The creditor can choose to accept or reject
your offer. If it is accepted, the sheriff will order
you to make the payments you have offered. If it is
rejected there will be a hearing and you can attend
this to explain to the sheriff why you need time to
pay. Again you will usually have to pay interest and
the creditor's expenses. It is up to you to find out
from the court if your offer has been accepted or rejected.
Did
you know?
- you can't be taken to court unless a summons or an
initial writ has been sent to you in the post or delivered
to you personally.
- an action for payment of money is not a criminal charge
and doesn't give you a criminal record unless it relates
to non-payment of fines imposed by a court.
- if you want to defend the claim you don't need to
have a solicitor and you can appear at the court hearing
yourself.
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Local
government debts e.g. council tax and water charges
Council
tax is a tax collected by local authorities to enable them
to provide services for the community. Charges for water
and sewerage are also collected by local authorities in
a similar way.
Remember,
if you fall into arrears for a previous year's council tax,
and water rates, you will have to pay back arrears as well
as the new year's council tax.
You
will have been sent an annual bill explaining what you are
due to pay the council. Some councils have schemes that
enable you to make your payments by installments, by direct
debit, or by making payments at a paypoint terminal. If
you do not make the payments on time the council will write
to you and give you the opportunity to bring overdue payments
up to date.
If
you miss a payment you will be sent a notice, giving you
seven days to bring the account up to date. If you don't
pay on time you lose any right to pay by installments, and
the whole sum becomes due. You will be given a further seven
days to make the full payment. If it isn't paid, the council
can apply to the sheriff for a summary warrant and this
includes a surcharge of 10% on top of the amount of the
arrears. You are not entitled to ask the sheriff to grant
you time to pay your debt.
If
you are in debt to your local council they may pass the
collection of your debt to a recovery agent, or a sheriff
officer, depending upon whether a summary warrant has been
granted.
A
summary warrant is different from a warrant granted after
a normal debt action and allows the council to enforce the
debt. The granting of a summary warrant is a serious matter.
The council can collect their debt through a wage arrestment,
bank arrestment or sale of your goods. Unlike other forms
of debt collection from creditors you cannot apply to the
court for time to pay your debt.
However,
you can try to negotiate a settlement with the council or
an agent acting on their behalf. If the council has been
granted a summary warrant for your debt you should take
immediate action by:
- making
an arrangement with the council for payment, or
- contacting a money adviser for advice.
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What
might happen to you if you don't pay your debts?
If
you can't pay your debts your creditor can take you to court
to try and recover the money that you owe them. What they
can do will depend on how much money you owe, what kind
of debt it is and your own personal circumstances.
Remember
that you can get help and advice if action is taken against
you by a creditor. Some advice agencies can help represent
you in court and you should check to see if your local advice
centre offers this service.
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Wage
arrestment or bank account arrestment
Earnings arrestment
If
you are working, the money you owe can be taken from your
wage or your salary by an earnings arrestment but before
this can happen your creditor will have taken you to court
and been awarded a court decree.
In
most cases you will have been sent a charge for payment.
This is a warning that unless you pay what you owe within
14 days they are going to take further action to recover
the debt. After 14 days a creditor can instigate an earnings
arrestment. If the earnings arrestment proceeds, your employer
may charge you a small amount for dealing with the earnings
arrestment.
How
does an earnings arrestment work?
Your
creditor will send the earnings arrestment to your employer.
Your employer must make deductions from your wage or salary.
You cannot ask or expect your employer not to do so. The
deductions are made every pay day in the same way that tax
is taken off your wage or salary. Your employer sends the
money to the creditor who served the earnings arrestment.
Do
I get a copy of the earnings arrestment?
Usually
you will get a copy of the earnings arrestment. If not,
your employer can provide a copy.
How
much money can be taken out of my wage or salary?
There
is a limit on how much money can be taken from your wage
or salary. That limit depends on how much you earn and whether
you are paid weekly, monthly or in some other way. The limit
is fixed by law and your employer should have a note of
how much may be deducted. Click
here for tables showing the maximum that can be deducted
from your earnings
Bank
account arrestment
If
you have money in a bank, building society account or with
a credit union, the money you owe can be taken from your
bank, building society or credit union account.
How
does a bank arrestment work?
Your
creditor sends the arrestment to your bank, building society
or credit union. When the arrestment is served, the money,
which you have in your account, is frozen and you cannot
withdraw that money or use it to make other payments such
as standing order or direct debit payments. All the money
in your account is frozen, even if that is more than the
total amount which you owe.
When
is the money taken out of my account?
Your
creditor doesn't get the money that has been frozen right
away until they go to court and request authority to make
your bank, building society or credit union release the
money. The court will order your bank, building society
or credit union to pay the amount that you owe. The court
may also order you to pay the costs of the court action.
If
you want to avoid paying the costs of this court action
you can give written permission to your bank, building society
or credit union to release the amount that you owe.
Did
you know?
- a money adviser can help to explain how wages and
bank arrestments work can help to make sure that only
the amount which should be deducted is taken by your
creditor.
Child
support
If
you do not pay child support payments which you have been
ordered by a court to pay or which the child support agency
has asked you to pay, deductions can be made from your wage
or salary to meet these payments.
Did
you know?
- A creditor can use more than one method to try to get
their money back.
- Your employer can charge you a fee of 50p every time
a deduction has to be made under an earnings arrestment.
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Rent
and mortgage arrears
If
you have fallen behind with your rent or mortgage payments
or repayments of any loan secured on your home, you should
take action as soon as possible.
Falling
behind with these payments can lead to repossession of your
home or eviction by your landlord.
The
action that you take if you have fallen behind will depend
on a number of factors including whether you have a mortgage
or pay rent and what type of mortgage or lease you have.
It will also depend on whether you have other debts that
you need to repay.
There
are laws protecting homeowners and tenants who fall behind
with mortgage and rent payments. You should get expert advice
if you think action is being taken against you to repossess
your home or evict you.
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Attachment
order
If
your creditor has not been able to get back the money you
owe them, then they may be able to 'attach' your property
i.e. tangible assets such as a car, antique or jewellery.
These attached assets can be sold to pay your debt. Generally,
an attachment order will not apply to your home.
What
is attachment?
Attachment
firrst became available on 1 January 2003. Attachment can
be used to try and obtain payment from you by attaching
articles of value owned by you but held outside the living
area of your home,
When
can attachment be used to recover money you owe?
Before
your creditor can proceed with attachment he will have taken
you to court in order to establish that you are liable to
pay the debt. The creditor will, in most cases, serve you
with a charge for payment that tells you that unless you
pay what you owe within 14 days they are going to take action
to recover the debt. Your creditor will also send you a
copy of the booklet "Dealing with Debt".
If
you have not paid in 14 days, a sheriff officer can enter
any premises, other than your home, where your goods are
kept in order to value them. The sheriff officer must send
a report of the valuation to the court. Thereafter, your
creditor may arrange for your goods to be auctioned to help
repay your debt.
There
are detailed rules about the kinds of goods that can be
attached, when attachments can be carried out and how to
stop goods being auctioned after they have been attached.
Your money advisor will be able to provide advice specific
to your circumstances.
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Exceptional
attachment order
An
Exceptional Attachment Order "EAO" is a court order that
allows the attachment of goods inside the home. The sheriff
will only grant an EAO if satisfied that the creditor has
taken all reasonable steps to consider other options for
recovering the debt.
When
can an EAO be used?
Before
this can happen the person who you owe money to will have
taken you to court. You will be served with a charge for
payment in most cases. After you receive the charge, and
unless you pay what you owe within 14 days, your creditor
can take action to recover the money that you owe.
After
14 days they can then apply to court for an EAO and have
to:
- prove to the sheriff that they tried to come to an agreement
with you about how you can pay your debt.
- show that they have a court decree or its equivalent
that already proves the amount you owe them.
How
does an EAO work?
If
the sheriff grants an EAO, your creditor can make arrangements
to auction items of your property to help pay off your debt.
A sheriff officer will come to your home to value and immediately
remove the items which are to be auctioned.
What
can be taken from your home?
An
EAO only affects non-essential household goods. By law,
many items cannot be removed from your home under an EAO.
These include items like bedding, chairs, sofas, tables,
laundry and kitchen equipment, telephone, televisions, computers
and radios. A
full list can be seen here.
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Where
can I go for help?
Help
is available.
•
first, don't panic.
•
you can get in touch with one of the many free money advice
services. You can telephone an advice agency for an appointment,
call the National Debtline or Consumer Credit Counseling
Service to speak to a trained money adviser. A money advisor
will talk you through your problems and work with you
to try to improve your situation. Money Advice Scotland
can put you in touch with a local agency and you can also
get details of your local Citizens Advice Bureau through
Citizens Advice Scotland. Click
here for a list of Citizen Advice Bureau offices
•
you can also consult a licensed insolvency practitioner
such as Meston Reid & Co (01224.62555) or e-mail insolvency@mestonreid.com.
You may be charged a fee, although the first consultation
is always free.
•
most importantly, don't ignore the situation. It is likely
to get worse not better.
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