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Debt, collections, and court: what you need to know

Debt, collections, and court: what you need to know
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Debt collection agencies can take you to court in certain circumstances. Here’s what you need to know about debt and the law.

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Sometimes, you can’t pay back money you owe. If this happens, you might wonder what your creditors – or the people you owe money to – can do about it.

Although the law varies slightly depending on where you are in the UK, here’s an overview of debt and the law, and how to prepare if a creditor or collection agency tries to take you to court.

Collection agencies

Debt collection agencies work on behalf of creditors to collect overdue payments from consumers. They become involved if the creditor sells the debt on to the collection agency, or communications between you and the creditor break down.  

Debt collection agencies are regulated by the Financial Conduct Authority (FCA), which means there are certain things they can and can’t do when pursuing a debt. Let’s take a look at debt and the law and what rights you have.

Debt and the law

Debt collection agencies might sound intimidating, but remember they don’t have any special powers that your creditor doesn’t have.

In other words, they can:

  • send letters;
  • telephone, text, or email you; and
  • threaten you with court action.

They can’t:

  • harass you; or
  • lie and pretend they have powers that they don’t have.

If you ignore communications from a debt collection agency, that’s where you need to understand how debt and the law works.

Before they take you to court, they must issue a:

Default Notice

A Default Notice must set out what payments you’ve missed and give you at least 14 days to repay the debt. These Notices are covered by the Consumer Credit Act.

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Letter of Claim

Letters of Claim advise you that the agency plans on starting legal action against you. You have at least 30 days to reply to a Letter of Claim and either agree a repayment plan on pay the debt in full.

Claim Pack

If you haven’t reached an agreement after 30 days, the agency can begin court action. They’ll send you out a Claim Pack explaining what you owe and what to expect.

So, if a collection agency takes you to court, what happens and how do you prepare?

How to prepare

Firstly, don’t panic. Here’s what to do.

  • If you agree that you owe the debt, fill in the N9A: Admission form and make an offer to pay — even if it’s just a few pounds. When it comes to debt and the law, the aim is to encourage debtors to comply with their payment obligations. Creditors or collection agencies will typically accept even a small sum if you’re prepared to repay the debt.
  • If you don’t agree that you owe the debt, or you’re disputing the amount owed, complete the N9B: Defence form and the N9 Response Pack. This tells the court that you’re disputing the claim and need time to prepare.

If the creditor accepts your repayment offer, they can simply apply to court and ask them to confirm the judgment.

If they don’t accept your repayment offer, or you’re disputing the claim, the case goes to court. Sometimes there’s still no need for a court hearing.

Once the court makes a decision or confirms the judgment, they issue what’s known as a County Court Judgment (CCJ) in England. It’s very important you keep up repayments at this stage to avoid further enforcement action.

Although the law varies around the UK, the procedural steps around debt and the law are similar.

Debt and your credit score

Unpaid debts can affect your credit score, which is the rating that lenders use to decide whether they’ll offer you more credit. You can improve your score over time, but it’s worth emphasising that any unpaid debt or CCJs will have a short and medium-term impact on your chances of getting another loan, rental agreement, credit card, or mortgage. 

Get help with debt

It’s always best to repay your debts on time, but sometimes it’s just not possible — especially during challenging times. The good news is that when it comes to debt and the law, there are many steps you can take to avoid court action. If you’re struggling to make your repayments, contact your creditors and arrange a payment plan, or get help from Citizens Advice.

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