What is a default notice?
A default notice is the creditor’s way of officially informing you that you are behind on your repayments, and the account is about to default. You have to have missed at least 3 months payments, but for some companies it can be up to 6 months before you receive the notice. You are given a deadline (at least 2 weeks) and instructions on how to rectify the situation. If you are able to clear the arrears this will stop your account defaulting.
Issuing a default notice is the first step creditors need to take if they want to refer your debt for collection.
How do I know if I have received a default notice?
A default notice will clearly state on it-
‘Default notice served under section 87(1) Consumer Credit Act 1974’
There is no requirement for the creditor to prove you have received the notice, so it is possible that you may have received the notice to a previous address. You could also obtain a credit report to check to see if you have received one.
What happens if I cannot afford to pay?
If you are unable to clear the arrears, your account defaults. This means that the agreement that you had with the creditor is cancelled, and they will inform credit reference agencies. They will start to ask you for the full amount you owe them rather than the instalments you have missed. At this point they may also pass your debt to a collection agency, or take further court action.
How does it affect my credit rating?
Default notices stay on your credit file for 6 years. Even if you repay the debt afterwards, the debt will show as satisfied or settled but the default notice will remain on your file. This could mean that lenders are less likely to lend to you, or that you only have access to higher interest lenders rather than the ones offering the best rates. This could also mean that you struggle to get mobile phone contracts or you have to pay more for your house / car insurance as these also use credit agreements if you wish to pay in instalments.
What should I do?
If you are able to bring your account up to date, it is better to do this if possible. If you are not able to, it I sensible to agree a payment plan with the creditor which you can afford and they agree is acceptable. If you cannot agree a sensible payment plan with the creditor and you have other unmanageable debt, there are solutions such as debt management, IVA’s, bankruptcy or debt relief.
All debt solutions should be very carefully considered. Fees will be charged if a solution is taken in order for us to set up your plan and maintain it – all fees will be outlined during your consultation. For further information on fees, please see the FAQ section of the different solutions available.
The Insolvency Service website has helpful information on https://www.gov.uk/options-for-paying-off-your-debts/overview to support those who find themselves in financial difficulty during the recession.
There are sources of free debt advice and services. You can find out more by contacting the Money Advice Service on 0800 138 7777 or by visiting their website.