Top ten debt recovery misconceptions debunked

There are many misconceptions amongst debtors and creditors alike on how outstanding debts can be dealt with, causing confusion, frustration and disappointment amongst all parties involved.

In this article, we examine some of the ‘top myths’ surrounding debt recovery and dispel some of these mistaken beliefs.

Myth #1 – Creditors have to accept any offer of repayment that is made

It is possible for debtors to file paperwork to advise of their financial circumstances, and to make derisory offers of payment – however, it is then up to the creditor to file a response, and if they have information which suggests that the debt can be repaid on a quicker timescale, then the court can make an appropriate judgement that takes this into account.

Myth #2 – You are allowed to refuse entry to a bailiff

The rights that a bailiff has varies depending on the debt they are enforcing, and there is a lot of conflicting information concerning this. If a bailiff can gain peaceful entry to a property, i.e. through a door that is unlocked, then this is usually allowed. Generally speaking, bailiffs cannot force entry when enforcing a civil warrant.

If the bailiff has visited the property before, and has a signed Controlled Goods Agreement, then they are allowed to force entry.

Myth #3 – People are only liable to pay their own “share” of debt that is jointly and severally liable

A debt that is joint and several between several parties means that all parties are liable for the debt until it has been paid, rather than only being liable for equally divided shares of that debt. Any arrangements that have been made between the individual debtors about how payment of the debt will be made is not a concern of the creditor.

Myth #4 – Claim forms must be personally served

Claim forms can be served by post at a party’s last known residence, and businesses can be served by post at their principle place of trading or at their registered office.

Myth #5 – A vehicle can’t be removed by the HCEO/Bailiff if it’s needed for work

There are exceptions to this myth but only in exceptional circumstances – the HCEO is not able to remove anything deemed “tools of trade” (which are needed by debtors to run their business).

Vehicles may sometimes be regarded as a tool of trade, but only if it is exclusively used for the purpose of work/business. Any non-business use of the vehicle, such as for the weekly shop, would mean that the HCEO are able to remove it.

Myth #6 – Pursuing a debt counts as harassment

As long as a creditor is ‘proportionate’ in their pursuit of a debt, then it should not constitute harassment. For example, it would be reasonable to chase a debtor if they have defaulted, and to send letters advising them that you intend to take action in court.

However, it would be unreasonable (and therefore could be considered harassment) to contact a debtor several times during the day to remind them they owe money.

Myth #7 – Debtors can avoid debt by making themselves bankrupt

Once a person enters bankruptcy, their means and circumstances are reviewed and their assets are liquidated.

Debtors who are bankrupt may be subjected to an Income Payment Order, which would force them to pay any disposable income to the trustee for three years.

In addition, the resulting damage to the debtor’s credit record will make it difficult to obtain a mortgage or credit for many years.

Myth #8 – All agreements and/or contracts must be in writing

Whilst it is often advisable to have written agreements and contracts, there are actually few cases where there it is a legal requirement to have a contract in writing. It is therefore possible to have a verbal agreement between two parties to carry out work/business.

Myth #9 – Personal guarantees are no longer valid if the guarantor is no longer associated with the particular party they offered that guarantee for

The association between a guarantor and the party they are providing a guarantee for is separate from the association between that guarantor and the lender. Therefore, for example, a person who provides a personal guarantee to a bank for their employer’s overdraft, but is then no longer employed by that employer, would still remain liable for the overdraft.

Myth #10 – All debts are wiped out after six years

While it is true that the Limitation Act prevents creditors from issuing an action on debt if they have failed to take formal legal action on it within six years, the debt still exists and can still be paid for the debtor.

If the debtor has acknowledged the debt since the initial default date, the “six year” period can be restarted, which would enable Court action to be taken by the creditor.

Creditors can apply to Court to extend the limitation if there has been no acknowledgement of the debt by the debtor, however the Court would require very good reasons to grant this.