What will happen if I get into debt?

If you miss the odd credit card or loan repayment, probably not much will happen. There might be a penalty charge and, of course, your debt won't have got any smaller and it might get recorded on your credit file. But if you persistently miss credit card or loan repayments or fail to pay bills, you will quickly run into serious problems.

A County Court Judgement (CCJ) might be made if you are taken to court for non-payment. The County Court can make an order for monthly payments to be made to the lender. The amount is usually decided between the lender and the debtor. If this cannot be agreed upon the Court will decide.

If you have more than one lender, then you can ask the Court to arrange an administration order which allows for all the debts to be added together. An administration order can only be made for debts totalling less than £5,000. One payment is made every month to the Court who share it out among the lenders.

If your debts are severe, you might be declared bankrupt. This is usually a last resort. Things you own then have to be sold and trustees control your money to ensure that lenders you owe money to get back as much as possible of the money you owe. If you are made bankrupt on or after 1 April 2004, you will usually be 'discharged' after one year. If you were made bankrupt before this date, you will probably be discharged on 1 April 2005 (or earlier if your bankruptcy was due in any case to end before then).

If you are a home owner, the lender can, in some cases, apply to the courts for a 'charging order' to secure the debt against your home or property. This means that when the property is sold, the lender would be paid out of the proceeds. These debts often continue accruing interest until repayment.

If you are bankrupt or have a County Court Judgement or a record of unpaid debts on your credit file, you will usually find it hard to get normal credit - eg a credit card, mortgage or other loan, or quarterly bill arrangement for the phone or fuel (this involves credit because you use the service in advance of paying). See what is credit scoring?

Some lenders offer loans and credit even if you do have a bad credit record, but you have to pay a much higher interest rate and often a hefty arrangement fee too.

What can I do to sort out my debts?

Please note that the laws governing credit and debt are different in Scotland. For advice please see:

Citizens Advice Scotland
Money Advice Scotland

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