Myth: Creditors are able to send bailiffs to collect debts
Only the courts have the authority to instruct bailiffs to visit you to collect consumer credit debts. If someone comes to your door calling themselves a bailiff, as long as you haven’t defaulted on a CCJ it’s likely that they’re a debt collector working for a creditor instead. These people don’t have any powers at all.
Myth: Bailiffs can force entry into your property and take any item they want
Bailiffs can only be instructed by the courts. The bailiff is there to recover the money owed, whether this is by a payment arrangement or by taking goods from the property and selling them at auction.
Bailiffs cannot break into the property unless you have already allowed them in on a previous visit, or they entered through an unlocked door or window. This is called ‘walking possession’. Once the bailiff has ‘walking possession’ they can use force to enter again in the future. The exception is if the bailiff is collecting unpaid magistrates fines, HMRC or business related debts.
If a bailiff comes to collect a debt, it’s best to negotiate an arrangement outside of the property and seek debt help immediately.
Myth: Creditors and debt collectors can call you at any time
We often hear about creditors and debt collectors phoning late at night or early in the morning but, as the Office of Fair Trading (OFT) lays out in itsdebt collection guidelines (PDF), calling at unreasonable times or repeatedly is classed as harassment. This can include parts of the day if you work night shifts.
The OFT also warn debt collectors not to contact those in debt via social networking sites (read our 10 ways to stop debt collectors finding you on social media).
Myth: If I go bankrupt I won’t have to pay anything
Bankruptcy costs a lot. After the initial fee to petition for your bankruptcy is taken, the Official Receiver will look at your income and expenditure and decide if you need to pay into an Income Payment Order or Arrangement (IPA or IPO).
This usually happens if you have more than £50 surplus income. Bankrupts are normally expected to pay any surplus income into the order/arrangement for three years depending on their circumstances.
Myth: Your debts are written off if you haven’t made a payment in six years.
This refers to the Limitations Act; a debt can become statute barred after six years if the debtor (or anyone jointly named on the debt) hasn’t made a payment or admitted the debt and the creditor has not secured a county court judgment (CCJ) against the debtor.
Section 2.14 of The Office of Fair Trading Collection Guidance also states that it is unfair to pursue such claims where the creditor has made no contact during the relevant limitation period.
The Act isn’t there to encourage debt avoidance or non-payment, it’s there to protect people from being forced to pay debts that have ‘timed out’ through no fault of their own. The money owed itself is not written off; it’s still a debt and in reality it still exists, but with the Act in force the creditor can no longer enforce the debt through the courts. The creditor can continue to chase the debt if they wish.
Myth: If you go bankrupt your name will appear in the local newspaper
There used to be a section in the local newspaper for bankruptcy, to inform creditors. Nowadays insolvencies are rarely advertised in the local paper unless it’s in the public interest and/or the Official Receiver believes that other creditors may want to claim (this is sometimes the case with self-employed local business bankruptcies).
Your bankruptcy, along with other types of insolvencies, will be mentioned in the London Gazette (a trade paper for creditors) and will be listed on the Government’s Insolvency Service website, searchable by name.
Myth: If you go bankrupt you will definitely lose your house
This is a complicated area and completely depends on your situation (which is why it’s important that you seek free and independent debt advice). If you have significant equity in your home, and it’s the only way to release your interest in the property, the official receiver or trustee may have to sell it to help pay the bankruptcy debts. There are exceptions to this and you can read more in this leaflet.
However, if there is little or no equity in your home, you may be able to stay there if the mortgage is affordable, comparable to local rental costs and appropriate to your needs. The official receiver or trustee still has 2 years and 3 months from the time of your bankruptcy to realise the asset if the value of the property increases.
Myth: If you fall behind on debt repayments you can go to prison
It isn’t a criminal offence if you can’t afford your debt repayments. You can only go to prison for refusing to pay council tax, licences or magistrates fines. It’s usually used as a last resort and there are many other enforcement methods that will be employed before imprisonment, such asattachment of earnings.
Myth: If you miss payments on your credit debt you will be blacklisted
There is no such thing as a ‘blacklist’ – experts call it “urban legend”. If you default on your payments this will be recorded on your credit file (PDF) which lenders use to judge how financially reliable you are.