Introduction

This guide has been put together to help you strategically tackle your finances and to stop you going to court however what happens if negotiation fails and your creditors resort to legal action? It is not a crime just to owe money and with certain exceptions (see STEP 2) you can't go to prison if you are unable to pay. Your case will normally be heard in the county court which is not a criminal court. The court is not there to punish you but to ensure fairness between the borrower and lender.

Always complete and return court documents within the specified time so that the court is aware of your problems and overall financial situation.

Always attend court hearings to ensure that your case is properly represented. The case will normally be heard in a private room with officials who are used to dealing with these matters.

It is helpful to be represented in court, but don't worry if you cannot afford a solicitor, just contact your local Citizens Advice who may be able to represent you or at the very least point you in the direction of someone who can assist you. Alternatively, contact the CCCS helpline free on 0800 138 1111 for further information.


If court action is taken against you:

• You will receive a claim form.
• If you do owe the money to the creditor, return the form of reply stating how much you can repay. Complete the financial statement on the back of the claim form and explain your personal circumstances in detail.
• If you dispute some or all of the debt say why on the form.
• If the creditor accepts your offer they will tell the court and you will then get a County Court Judgment (CCJ) from the court telling you to pay at the rate you offered.
• If the creditor refuses your offer the court decides how much you pay from the information provided. If they tell you to pay more than you have offered you can ask for a hearing to explain your situation in more detail.
• If necessary, seek advice in dealing with court documents but don't ignore them as it is important you put your case forward.

Special considerations apply if the court hearing is for re-possession of or eviction from your home. Other aspects of debt recovery procedures which you may become involved with are:

Debt collection agencies

Rather than accept your offer of repayment the creditor may refer your account to a debt collector. Do not be pressured, into paying more than you can afford to pay. Stand firm and refer to the financial statement sent to the creditor. Collectors have no legal right of entry to your home and cannot remove goods. Undue harassment is illegal and should be reported to Trading Standards.

Bailiffs

If you fail to make payments under a CCJ ( England & Wales) or a Decree ( Scotland ) the court will grant Warrant of Possession Order or Summary Warrant respectively. Bailiffs or Sheriff Officers may be directed by the court to implement the order by removing goods to the value of the debt and costs. You do not have to let a bailiff into your home and they cannot break in (unless they have entered previously for that debt). They can legally enter through a door or window that you have left open. Only bailiffs recovering debts owed to the State (e.g. Income Tax and VAT) can force entry to your home.

Even at this stage it could be possible to negotiate terms of payment with the bailiff. As an alternative the court can grant an Attachment of Earnings Order to deduct money directly from your wages.

Credit reference agencies

They keep records of some unpaid debts and a register of all county court judgments. Most companies will check with an agency before giving credit. You can obtain a copy of your record from the Agency and if it proves to be incorrect (or simply out of date) then it can be corrected.

Magistrates Court

Certain types of debt can be recovered through the Magistrates Court (such as council tax arrears and unpaid fines). The procedure will vary but again it is strongly advised that you do not put your head in the sand and you should respond to all court documents and seek professional advice. The magistrates have the ultimate sanction of imprisonment for some debts, although this is only used as a last resort in all cases.

Administration Orders

If you have a number of small debts (maximum £5,000 in total) you can apply to the court for an Administration Order. This means that you pay the court one regular amount and they distribute it to the creditors on your behalf, although a small charge is made. For this to be a possibility then a CCJ has to be entered against you before you can apply.

Bankruptcy

Bankruptcy is a way of dealing with debts, enabling you to eventually make a fresh start whilst at the same time making sure your assets are shared out fairly amongst your creditors. A number of assets are automatically protected under Bankruptcy/Sequestration. However you will probably lose some of your assets, there will be costs involved in the process and restrictions on your future activities so the situation needs careful consideration and you should seek professional advice before making a decision. Your creditors can also petition for a Bankruptcy Order and again it is advised that you seek advice.

Individual Voluntary Arrangement (IVA)

An Individual Voluntary Arrangment (IVA) is another way of resolving a debt problem. The equivalent in Scotland is a Trust Deed. Certain criteria must be met before this becomes a possibility and there are costs associated with the process. You must also have some means of making an offer to your creditors. It is advised that you seek advice before starting this procedure and the best type of people to see regarding an IVA/Trust Deed would be suitably qualified Insolvency Practitioners, Chartered Accountants or Solicitors. Some assets can be protected in an IVA/Trust Deed but we advise you to seek advice on this.

For free advice contact the Consumer Credit Counselling Service on 0800 1381111 or contact Credit Action (www.creditaction.org.uk). This guide does not constitute financial advice

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