What happens when you can't meet your financial commitments?
By Martin McAllister
Mortgages, loans and credit card debt have brought UK consumer debt to over £1 trillion. Yet each day, more and more people are finding themselves in financial difficulty which they cannot get out of - and this ever-worsening situation has led to a sharp rise in personal insolvencies, IVAs and bankruptcies.
Despite soaring profits, many banks and financial institutions are now discovering that they might not recoup the money that they have loaned to consumers. In efforts to meet their financial outgoings, many people are turning to secured loans in order to consolidate their debts into smaller monthly payments. However, these new loans are often paid over long periods of time, usually running into several years. If you find yourself in a situation where you're struggling to make ends meet, it's a wise idea to seek financial advice. There are many companies which can advise you on the best way to manage your debts, or you could consult your local Citizens Advice Bureau for help.
If you fall behind with your payments, your lender will usually try to contact you either by phone or letter in order to discuss your situation. It's a wise idea to keep your lender informed of any changes in your financial circumstances, as lenders will often be more flexible if you fall on hard times. Burying your head in the sand often only makes matters worse in the long run, and avoiding paying what you owe can have severe consequences such as ever-increasing arrears or even bankruptcy.
If a lender cannot come to an agreement with you regarding repaying outstanding debts, they will often pass your debt over to a debt collection agency - this will remove the debt from their accounts receivable records. When this happens, the transaction is marked on your credit file and your account is placed in "default". In some cases, debt purchasing companies, such as Capquest Debt Recovery will buy the debt from the original lender - often for a discounted price - and pursue you for the full balance of the debt.
Since not all customer debts will be collected, businesses typically record an allowance for bad debts which is subtracted from total accounts receivable. When accounts receivable are not paid, some companies turn them over to third party collection agencies who will attempt to recover the debt via negotiating payment plans, settlement offers or in some cases, legal action. Having a default on your credit file can make any future applications for credit more difficult, and multiple defaults or a County Court Judgement (CCJ) will make applying for credit impossible. A defaulted account shows on your credit file for a period of 6 years, whether the account is subsequently settled or not, while a CCJ will remain for 6 years also, unless it is paid within a month of issue.
Should you ever find yourself in a situation where you're struggling financially, seek advice on how best to handle the circumstances before they escalate out of control. Burying your head in the sand will only make matters worse.
About the Author
There are many debt purchasing companies, such as Capquest Debt Recovery will buy outstanding debt from the original lender - often for a discounted price - and pursue the debtor for the full balance of the debt.
Martin McAllister is an online freelance journalist. He lives in Scotland.
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