What Is A Default Notice?

So, what is a default notice? A default notice is a formal letter from a company or creditor to who you owe money, informing you that you are in arrears and you must make a payment of ‘x’ amount by a certain date to prevent a default on your credit file.

So, for instance, if you have a credit card and you have not made any payments within the past three months, the credit card company may send you a default notice, requesting you to pay three months worth of payments within 14 days.

This gives you an opportunity to rectify the situation so that it does not end up showing as a defaulted account on your credit report, as this could impact your credit history for six years. If you pay within 14 days, the default will not be registered, and so your credit file won’t be impacted.

Default notices are commonly sent out for missed payments on:

• Hire purchase agreements
• Loans
• Mobile phone contracts
• Credit card payments
• Arrears associated with your bank account

If you do not pay the funds owed within the 14-day period, then the default will be added to your credit file.

The letter will explain everything such as the number of missing payments, how you can make the payment, and what you need to do to prevent any further action from being taken and the default being placed on your credit file.

If you receive a default notice, then it is important that you don’t ignore it. It’s usually the first step taken by a creditor, which means that if you deal with it at this stage then the creditor will take further action.

If you ignore your default notice then you will get a default on your credit file and it can stay there for six years. Considering credit history is taken into account for mortgages, loans, and financial products today, this can be quite a hindrance.

If you are not able to pay the arrears on the notice, the worst thing you can do is bury your head in the sand and hope it will go away. Instead, call our friendly team for independent advice to help you protect your credit score on 0800 464 7235.

What Does It Mean If You Get A Default On Your Credit File?

Receiving a default notice is worrying, but it is not the end of the world. Failing to act on the notice is when problems arise, as this will result in a default on your credit report.

If you don’t deal with the notice then a default will be registered on your credit file for six years and could stop you from being able to get credit for other things.

For example, a default on your credit report can affect your chances of getting a mortgage for your house or even help with buying something much smaller.

It’s important not to ignore a default notice and to act on it within the 14-day window stated in the letter. If you don’t then your credit agreement will be cancelled, and the default will be placed on your credit file.

As well as this, the creditor has the ability to demand you pay the entire amount or they can begin court proceedings against you.

It might be that your creditor will sell your debt and pass your details onto a debt collection agency which will mean you then owe them instead and will likely receive a lot of phone calls and letters until the debt is repaid.

A default could also lead to something more serious and if court proceedings are started against you to recover the debt you may end up with a Country Court Judgement (CCJ) made against you, which will have a negative impact on your credit file.

What Can Creditors Do Once You Have A Default On Your Credit Report?

There are a few different things that a creditor can do once you have received a default on your credit file:

Go to court in search of a CCJ (County Court Judgement)

The lender may take out a CCJ against you, otherwise known as a County Court Judgment. This will be reported to credit reference agencies, impacting your credit history for six years.

If you receive a judgment, this means that the court has formally determined that you owe the money specified to the lender.

You will receive a judgment in the post and it will state the following:

• Who to pay
• How much you owe
• The deadline for paying
• How to pay (in instalments or in full)

Unless you pay the full amount within one month, records of judgments are kept on your credit file for six years, making it more difficult to get credit.

What can you do if you receive a judgment?

You need to pay the money back if you can afford to do so. If you cannot, you can either pay it back in instalments or change the terms of the judgment.

You can apply for the judgment to be cancelled if you did not receive the original claim from the court stating you owed the money or you do not owe the money.

Pass your debt to debt collectors

The creditor may decide to sell the debt to a collection agency. When this happens, it means that you owe them the funds instead.

You still legally have to pay the money you owe; you are simply paying it to another organisation.

A debt collection agency will use a number of different tactics to try and get you to pay the money you owe, including a lot of letters, phone calls, and emails. They may even send someone to your home to attempt to retrieve the funds.

It is important to realise that debt collectors do not have legal rights like bailiffs do. Therefore, you do not have to open the door to them, and they certainly do not have any rights to take your possessions.

Repossess your goods

In the case of conditional sale and hire purchase agreements, it is possible for the creditor to repossess the goods if you do not keep up with the repayments.

A creditor cannot simply enter your home and start taking possessions that have no relation to your credit agreement.

Debt Solutions If You Can’t Afford To Pay

It is important to pay the default notice within 14 days if you are able to. This prevents further action and ensures you don’t end up with a default on your credit file.

If you do not have the funds available to do so, consider asking a friend or family member for help.

We know that it can be embarrassing to discuss this with a loved one, but you can often find that opening up and taking the burden off your shoulders can be one of the best things you can do.

However, we know that there are situations whereby people have no way of paying off the arrears in question.

So, what are your options if you cannot afford to pay the debt?

Agree on a repayment plan with your creditor

The first option to consider is agreeing on a repayment plan with your creditor. To do this, you will need to put together an accurate budget first. You will need your debts, household spending, and income per month for this.

Once a realistic budget has been put together, you will understand how much money you can afford to put toward unsecured debts per month, once your essential living costs have been covered.

So, to work out how much you can afford to pay per month, do the following:

1. Figure out how much you need to repay in debts per month
2. Work out the percentage of total debt you owe per creditor
3. Divide your total based on what you owe to each creditor as a percentage of your total debts

This will enable you to realistically determine how much you can afford to pay toward each credit card or loan per month. Don’t be pressured into paying an amount that you are unable to afford!

Once you have this information, get in touch with your creditor via letter, email, or phone. Explain the situation and tell them how much you can afford to pay per month.

Provide your budget so you can display why this is an amount you can afford. You should also explain why you cannot keep up with the payments, for example, you have a mental health issue, you are going through a divorce, or you are not earning as much as you once were.

Most creditors will work with you to come up with a plan that you can afford.

Debt Management Plan (DMP)

Another option is a debt management plan (DMP), which enables you to manage your debts and pay them off at a rate that is more affordable by making lower monthly payments.

With a DMP, you only pay what you can afford. Plus, rather than making lots of monthly payments to different creditors, you will make one monthly payment under a DMP.

Charities like StepChange can manage this for you, and they will review your DMP regularly to make sure you only pay what you can afford.

There are always some risks or drawbacks to be aware of. While a lot of creditors will stop or reduce charges and interest, they are not obligated to do so under a DMP.

Also, your credit file may be negatively impacted because you are going to be paying back your debt over long agreements.

A DMP does not remove the threat of further action, such as a County Court judgment (CCJ), which further impacts credit files.

Individual Voluntary Arrangement (IVA)

Another option to consider is an individual voluntary arrangement (IVA), which is a formal agreement that enables you to make affordable debt payments over the course of around five to six years.

Once your IVA has finished, the rest of the unsecured debt is written off. You are also able to make a lump-sum IVA, which is a one-off payment.

If you own a home, you will usually be able to keep it so long as your mortgage payments are maintained.

However, your IVA will be recorded on a public register and your credit score will be negatively impacted. This will show on your credit report for six years.

Also, please note that the only debts that are going to be written off after the six-year period are those included in the agreement. If you mount up further debts that are not included, they will not be written off, so do keep this in mind.

If your IVA is not successful, the creditors may request the supervisor of your IVA petitions for you to be made bankrupt. Bankruptcy will also stay on your credit file for six years.

Debt Relief Order (DRO)

Finally, you may be eligible for a debt relief order (DRO). This is an approach that enables you to have your debt written off if you have few assets and a relatively low level of debt.

This can be a low-cost alternative to bankruptcy. With this option, you will not pay anything toward your debt for a whole year. After this period, your debts will be written off.

During the 12-month period, the creditors cannot get in touch with you to try and get the debts back. You won’t need to appear in court. This is a formal debt solution.

However, this option is not available to everyone, so do keep this in mind. You cannot apply if you are a homeowner, for example. Moreover, you must owe less than £30,000 if you live in Wales or England. If you live in Northern Ireland, you must owe less than £20,000.

There is also a fee of £90, which is non-refundable. This is a one-off fee that needs to be paid to the Insolvency Service.

Finally, your credit report will be impacted. In terms of your credit history, a DRO will appear on the public register and your credit score will decrease too. This is something that will impact your credit file for six years, so you do need to take it very seriously.

What Impacts Will A Default Notice Have On Your Life?

If you are able to pay the default notice within the 14 days specified, it does not have to have any impact on your life.

However, if you do not pay the default notice within the time that has been specified, it can certainly have an impact on your life.

Firstly, the lender is likely to cancel your financial agreement, and this means that all of the funds will need to be paid upfront. This can place an even greater financial strain on you.

In addition to this, the default notice will go on your credit file, and it will stay on there for six years. This means that your score will reduce considerably, and whenever you apply for credit, the lender will be able to see the default.

This will make it incredibly difficult for you to get credit, whether a loan, credit card or mortgage. While the impact on your score will decrease as the years go on, there’s no denying that your lend-ability will be impacted throughout the six-year period.

Get In Touch With IVA Helpline Today For Advice On Default Notices

We know that receiving a default notice can be incredibly worrying, especially if you are unable to pay the amount you owe.

At IVA Helpline, we provide you with a safe place to discuss your debt concerns, helping you to understand the different options that are available to you.

It is important to know that there are always options, even when you feel like you don’t have a way out of debt.

Simply get in touch with our friendly and experienced team today on 0800 123 4567, and we will help you to make positive steps forward and get on the road to being debt-free once and for all.