Credit Debt Collection
The 4 Credit Debt Collection phases
When you fall behind with consumer credit debt, there are regulatory processes and guidelines that your creditors have to follow, including:
- the Consumer Credit 1974 prepare information sheets on arrears and defaults
- the Consumer Credit Act 1974 default notice
- the Financial Conduct Authority guidance and regulations
- the Standards of Lending Practice code
You are likely to receive these information sheets when you are pursued for non-payment that you cannot correct immediately:
- Arrears information sheet
- Default information sheet
- (If applicable) High-cost short-term loans information sheet
There are usually 4 phases of consumer credit debt collection outlined below.
Phase 1 - Reminders (First 3 months)
Once you've missed a couple of minimum payments, you'll receive reminders by email, text, letter, phone asking you to make a payment immediately. Further reminders will usually include a larger minimum payment. Your debt will start to increase with added interest & default charges.
You may find that your credit is restricted or even suspended until you clear the arrears. Some lenders may even cancel your overdraft facility.
You may feel distressed by this but remember, creditors don't understand why you're not paying, they're just trying to find out why & encourage you to keep up to date. It's typical for people at this stage to juggle other lines of credit to meet late payments & to offer unrealistic promises. The best action is always to seek free debt advice, we also recommend you be up-front with creditors that you're in trouble, tell them you're going to get independent help.
Phase 2 - Statutory Default Notice (Between 3 - 6 months*)
You'll receive this legal notice after you've missed between 3 to 6 payments, your creditor has to issue the default notice under the Consumer Credit Act 1974 regulation. The notice looks pretty intimidating to most people but it is a formality & you still have the option of getting help. You'll have 14 days to pay the outstanding arrears. If you can't pay them, your creditor will register the default on your credit file & can take further enforcement action for the whole amount of the debt. A statutory default is registered on your credit file for 6 years so getting further credit will be difficult. In practice, your creditor will usually not take steps to legally enforce the debt but will go to the next phase of collections.
The default notice will include the following:
- 'Important you should read this carefully'
- 'Default notice served under section 87(1) Consumer Credit Act 1974'
- The arrears to be paid up to date
- The deadline to make this payment – you must get at least 14 days to do this
An information sheet from the Financial Conduct Authority will be enclosed with the default notice recommending you get free debt help.
Phase 3 - Collections (Between 6 - 12 months*)
After default has been registered, it's usual for your debt to either pass to a collections team within the same creditor organisation or be transferred or sold to a collections agency. They'll want to understand your situation & arrange a repayment proposal, you'll be asked to complete an income & expenditure form. At this stage, the collections team may be prepared to freeze interest & charges and you'll usually get time to pay what you can afford. You may benefit from additional concessions & forbearance if you have any mental health issues that affect your ability to repay. Please visit our MALG Debt & Mental Health Evidence page.
Phase 4 - Enforcement (Between 9 to 18 months*)
If you have ignored your debt problems, you could face a number of legal enforcement options to recover your debt, such as:
1. County Court Judgment (CCJ)
2. Attachment of Earnings Order
3. Charging Order on property
4. Bankruptcy for debts 5k & above
5. Third party order (can seize savings)
6. Possibly seizing certain goods if you default a judgment
You need urgent debt advice if you're entering this phase. Even if these things are happening to you now or have already happened, there are still debt solutions that can help you manage these situations.
*Timescales quoted are estimates in practice and can vary depending on your circumstances & the creditor. They must not be relied upon as part of a debt strategy.