Money Wellness
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Debt collection: what is the process for debt recovery?

The way debts are collected varies from lender to lender. What happens and when depends on who you’re dealing with. This guide gives a general overview of what to expect from a lender if you fall behind with your payments.

What is debt collection?

Debt collection refers to the way lenders go about recovering unpaid debts. The approach to debt collection varies between lenders. There may be differences in:

  • the speed with which they act
  • how sympathetic they are to your situation
  • the action they might take if you’re unable to get back on track with your payments

How serious is falling behind with debt repayments?

This depends on how quickly you’re able to catch up with your payments. Missed payments will usually be recorded on your credit report. This will make it harder for you to borrow in the future. But if you manage to catch up with your payments quite quickly, you may be able to keep paying off your debts as normal without facing any other action.

If you’re unable to catch up with the missed payments or come to arrangement for paying them off, the consequences may start to get more serious. In this situation, the sooner you get debt advice, the better.

What are the stages in the debt collection process?

1: If you’ve missed one or two payments

At this stage, you’ll get letters and calls from your lender, asking you to catch up with your payments. Lenders have a responsibility to help customers in financial difficulty. This means they may well ask you about your situation and suggest ways they might be able to help.

2: If you've missed three or four payments

By the time you’ve missed three or four payments, your lender may well start suggesting that you get debt advice. We can help with this.

If your debt falls under the Consumer Credit Act, you’re likely to receive a default notice in the near future.

Debts covered by the Consumer Credit Act include:

  • credit cards
  • personal loans
  • store cards
  • store finance
  • hire purchase
  • payday loans
  • catalogues

Debts that aren’t covered by the Consumer Credit Act include:

  • household bills e.g. council tax, water, gas and electricity
  • benefit overpayments
  • unpaid taxes
  • some credit union loans
  • mortgages

A default notice will seriously affect your credit rating. You’ll probably find it a lot harder to borrow in the future.

By this point, lenders may also be starting to consider closing your account and taking further action. They may pass your debt to a collection agency.

3: If you’ve missed five or six payments

By this stage of the debt collection process, you’ll have had a lot of contact from your lender. You’ll probably have received a default notice if your debt is covered by the Consumer Credit Act e.g. credit cards and personal loans. These lenders may also have taken further action, such as passing your debt to a collection agency.

By this point, lenders may be considering applying for a county court judgment against you. Your credit rating will have been seriously affected.

But don’t despair! There is help available. If you haven’t already done so, it’s extremely important that you get debt advice. We offer advice over the phone and 24/7 online. It’s never too late to get help.

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