If you fall behind with your payments, you will receive a letter warning you that your account will default unless you are able to catch up within 14 days. This applies to all agreements regulated by the Consumer Credit Act 1974, for example personal loans, credit and store cards and hire purchase agreements.
You will usually receive a default notice after missing your contractual payments (or not paying the agreed amount) for three to six months. If you are not able to clear the arrears within those 14 days your account will fall into default.
Breaking the terms of the agreement
Once you have broken the terms of the credit agreement and your creditor makes the decision that you are unlikely to catch up, your account will default. For debts regulated by the Consumer Credit Act however you must receive a default notice warning first.
The Default Notice
When your account is in default
Credit reference files and your rating
Token payments and DMP's
If you have been struggling with your debts and have set up a repayment plan with your creditors, for example a debt management plan or a token payment plan, you will be paying less than your contractual payments. Therefore inevitably your account is likely to default, even if your creditors are happily accepting your nominal payments. You just need to continue with your plan as normal.
If your creditor passes your defaulted account on to a collection agency and you are in a debt management plan, let your provider know. If not you should contact them and explain you have set up reduced payments that you are paying to the creditor, you may need to send a copy of your budget to the collection agency, but they should agree to continue with the reduced payments.
If you are struggling with your debts you should seek advice from a debt specialist to receive free and independent advice. A trained adviser can help you with your budget and discuss all the available options and solutions with you.