Credit is assuming a larger role in the life of the average person. Living beyond your means was once considered sinful; now it is a common way to spend anticipated future earnings. This can be good or bad, depending on the individual situation. Certainly, credit is a good idea for the high priced capital items, such as cars, or household appliances; because of the length of time it would take to save and buy such items, buying on credit is a sensible way to be able to enjoy the goods now, and pay later. The alarm bells start to ring when credit is used to buy products that can be quickly consumed; food, entertainment, and utilities, are examples that immediately spring to mind.

There are many people who are in deep water as a result of abusing credit. The banks, stores, finance companies are to blame, to an extent, for their aggressive marketing or credit – “Buy now and pay later” is a phrase that will be familiar. However, ultimately, the responsibility is yours, and yours alone. Having sold you the credit you require, in the event of it turning sour, the institutions will pursue you to the end of the earth to recover their money; they will break you, and take the lot, without the slightest sign of compassion. Mis-handle the situation, and they will certainly screw you into the ground. Fight back, using the correct techniques and approaches, and you will be able to turn the tables – make it difficult for them. At the end of the day, you could emerge the winner. This manual will point you in the right direction and arm you with all the tools required to make a successful stand. No punches will be pulled; we’ll stay within the law, but you will have all of the dirty tricks at your fingertips! (We are not, of course, suggesting that you use them; we are merely making you fully aware of what goes on.)

Our approach to the subject will be ‘step by step’, comprehensively outlining the different types of debts, and moving on to deal with handling particular situations. In order to produce a comprehensive manual, from time-to-time, we will be stating the obvious for many readers. Apologies in advance!

Who Should Read This Manual?

This manual is designed to assist anyone fighting their way through the credit jungle. It is for those who cannot or will not pay! Perhaps you are being harassed by creditors, or wondering if you should file for bankruptcy! You may be spending more that you earn, or simply struggling to make ends meet. Your financial situation may be desperate or just out of control.

Recognising The Problem

Anyone who has been in serious debt or has money problems will testify as to how easy it is to push the difficulties aside – pretend it is not happening. This negative attitude is the body’s defence mechanism – preventing a nervous breakdown! Very often, the seriousness of the situation is not recognised soon enough to prevent disaster. The first lesson to learn is to change your attitude; you may well be on your way down that road having purchased this manual.

Wake Up to the fact that the problem exists. Recognise it, define it, and make up your mind to solve it. It will not be plain sailing, and there will be times when you feel like giving up. The ‘head in the sand’ type attitudes will creep back in, but you must remain positive. OK, so it is very easy to give that advice, but not so easy to follow it. In order to develop the all important attitude of mind, you must have a good understanding of your position, plans to get out of it, and the confidence and perseverance to see those plans through. This manual will give you all the information that you need to enable you to build up the right attitude, and approach your financial problems with a view to a satisfactory conclusion.

Talking about positive thinking always sounds corny, and often looks as though it has been included in a manual simply to pad it out. Not so! It does work. Many, if not all of the self made men and women in this world today got to the top of the pile aided by positive thinking. Develop the right attitude of mind, and believe me, you have got a head start.

How can this attitude of mind be developed? Well, different people work at it in different ways. Everyone can develop their own technique. For example, some may find that it helps to see the funny side of things; temper this with a touch of realism, and you may be on your way to discovering what works for you. Personally, I maintain a positive attitude by trying to see something good coming out of something bad. I once lost a large amount of money on a property deal – an extremely stupid speculation! The good thing that came out of it was that I worked harder at another business I was involved in; I developed skills that will continue to make money for me for some considerable time to come (if I had not needed the money, I would not have tried so hard!)

Part One – Assessing Your Financial Situation

In this fast moving world, we sometimes lose track of certain parts of our lives. Personal finances are often complicated; with increasing pressure on time available, many people let this aspect of their lives slide. In fact, it is probably one of the most neglected areas. It is too easy to adopt an attitude of “spend, spend, spend…” until the money runs out. However, this policy eventually turns sour, and something needs to be done. As stressed earlier, the sooner you recognise that there is a problem, the better. The next step is to do something about it.


As with anything, if you are going to do it well, you must have a plan, and it must be realistic. The best way to plan for anything is to do some research, and gather information to enable your plan to be drawn up. Our task is to devise a plan to deal with debts. It is therefore reasonable to start by quantifying the extent of the debts involved. We should also look at outgoings, income – sources of the same, and future prospects. It would also be useful to look at how much we are worth – i.e. what is left after the sale of all of your assets (essential information to prepare for a showdown with a large creditor!). Budgets are another item for the list – an essential tool for demonstrating how much spare cash you have to play with.

The main point to remember throughout this planning stage is to BE REALISTIC. Do remember, these plans, at the moment, are for your eyes only; you may be out to fool others, but for goodness sake do not attempt to fool yourself! Put everything down; check it and recheck it (if there is a large amount of information).

List Of Debts

Let us start with this one. Draw up a table with the following headings: CreditorAmount OwedMonthly PaymentArrearsComments     Use the comments column to remark on any special features – for example “creditor threatening legal action.”

List Of Outgoings

This, along with details of your income, will assist you in drawing up a budget. List your expenditure under the various headings, and eventually arrive at totals for weekly (W), monthly (M), quarterly (Q) and yearly (Y) expenditure in each category. HousingWMQYDecoratingHome InsuranceMaintenanceRepairsRatesCommunity ChargeGround RentMortgage2nd MortgageToolsWindow CleaningTOTALSFuelElectricityGasOil / Solid FuelRepairs / ServicingTOTALSHouseholdChina & KitchenwareCleaning MaterialsDomestic Appliances / PurchasesFurniture / FurnishingsGarden EquipmentTOTALSCreditCredit CardsHire PurchaseMail OrderLoansOverdraftsTOTALSFoodDrink & AlcoholEating OutGroceries, Milk etcPet FoodSchool MealsTOTALSTravelCar Purchase / CreditInsuranceTaxRunning CostsRepairsTravel – Work & SchoolTOTALSClothingClothes & ShoesDry

CleaningLaunderingRepairsTOTALSSavingsLife InsuranceEndowment PolicyPensionRegular SavingsTOTALSLeisureFilms / TheatreGambling / BingoHolidaysSportHobbiesOtherTOTALSMiscellaneousTV RentalTV LicenceBirthdaysBank ChargesBatteries / BulbsBooks / StationeryChristmasChristmas ClubsCigarettes / TobaccoCosmetics / ToiletriesEducationEmergenciesLuggageMaintenanceMedical FeesOptician / DentistNewspapersMagazinesSubscriptionsSweetsTelephoneOtherTOTALSCalculatio ns

This is where it gets frightening! Add up all of the totals, so that you have Weekly, Monthly, Quarterly and Yearly totals.

Divide the yearly total by 52

Divide the quarterly total by 13

Divide the monthly total by 4

Add up the results of all the above calculations, and then add that figure to the weekly total. You should now have a figure for your average weekly spending.

With some number crunching, you can also work out your average monthly, quarterly or annual spending.

Whatever the result, or however you analyse it, my guess is that most of you will be surprised. “Do I really spend that much…” I hear you say.


What we are looking for under this heading is a statement of regular take home money (I did not say ‘pay’, simply because we do not all work for a living). Be realistic, if you are self-employed; make adequate provision for taxes, etc.

Arrange your statement so that it is comparable with the basis on which you assessed your outgoings – i.e. weekly, monthly, quarterly, or yearly. You now have most of the information required to work out a useful budget.

Prospects For The Future

The simple answer to this one may be ‘None’! Not so fast; think about it. Most of us have some form of prospects for the future. List them, put the list to one side, return to it, and then add the ones that you forgot the first time!

The message here is to list as much information as possible; it will be useful to refer back to it at a later date (when negotiating with, or trying or convince or impress creditors).

To jog your memory on this one, what about, say:

  • Future pay rises
  • Promotion
  • Paying off a major item of credit!
  • Interest rates coming down
  • Children leaving home

In short, put down anything that is likely to improve your financial position. Look to the medium term, say six – twelve months. Put a time scale against each item. Introducing, once again, the concept of positive thinking, you should make these positive items your goals. Work towards them, and achieve them.

To keep this matter in perspective, try not to gaze too far ahead. Too much crystal ball gazing will not wash with creditors!

Net Worth

This is an interesting one. A statement of Net Worth basically tells you how much money you would have if you sold all of your assets and used the proceeds to pay off all your debts. It is, if you like, a snapshot of your overall financial position. A healthy Net Worth will grow each year. If it does not, then, clearly, you may be doing something wrong. (Not paying your debts perhaps?)

In order to calculate Net Worth, simply list all of your assets, and all of your liabilities; deduct the latter from the former, and there you have it.

When listing assets, do be realistic. Do not over price your house; work on the basis of a forced sale (i.e. if you had to sell it swiftly). Make sure that you do not put down too high a value for furniture – do no forget, it is second hand. Antiques, valuables, etc., may require specialist valuations. Do not forget to include life assurance and endowment policies.

With regard to liabilities, try to be precise. For example, get a surrender value on your mortgage or loans. Above all, be consistent. Make a note of how you have arrived at your calculations, in order that you use the same methods next time around. Another tip – leave out expectations, e.g. inheritance or inflated prices.


By now, you are probably ahead of me (!), and will have realised that having made a statement of your income and outgoings, you are in a position to work out a budget. Quite clearly, if outgoings are more than income, you have a problem. If you are looking to avoid paying debts, in all probability, you are in that negative cash flow situation. Whatever, it is always wise to keep your finances in reasonable shape – or, at least under control, so that you can put them in reasonable shape.

Having carefully mapped out your financial position (i.e. listing outgoings, income, debts, etc.), you are in a good position to start making plans to handle you indebtedness. You are getting ready to fight back; you have the necessary information to work on, and formulate your plans for the future. It often hurts to work out the true situation; by doing so, you have taken the first bold step to recovery.

That said, you may have confirmed your worst fears – that the situation is not just bad, but extremely bad! Swift action is required to stay afloat. You are, therefore, looking at a survival budget. Look carefully at your figures, and trim down your expenditure to the bear necessities – be brutal and cut out anything that is not needed. Remember, you are looking to survive. Leave your debts in the plan for the time being; in subsequent chapters we will be looking to demonstrate how to negotiate with your creditors. Having drawn up a “survival budget”, will be of great assistance.

Your aim, at the end of the day, is to balance the books – have a positive cash flow -more money coming in than going out. Increasing your income is a good option, for those who can do it! Later in this manual we will make a suggestion on that front. To do so now would be out of step, so bear with us for the time being. Suffice to say, we are at the planning stage. There is still more preparation work to be done before we get down to the nitty gritty. Remember anyone who is successful at anything invariably makes plans to ensure his/her success. The next chapter will take you through the various types of credit available – and give you the background information necessary to become an authority on debt. Know your subject – a vital part of the planning stage.

Part Two – Types of Credit / Creditor

For the philosophers amongst you, or simply those who wish to impress, credit comes from the Latin word ‘credere’. It means – to trust, or put faith in. a creditor is, therefore, someone who is willing to put faith in you as a debtor; trust that you will pay back exactly as agreed.

You may be familiar with many of the types of credit available. In this chapter, we will attempt to cover them all. As indicated earlier, this manual is intended to be comprehensive; again, bear with us on the more obvious points!

At this stage, we will simply discuss the various types of credit and creditor – from a debtor’s point of view. Comments on how to deal with them will follow later.


Most of us have them, and they hang like millstones around our necks, particularly for those of us who took out mortgages when interest rates were low! In a nutshell, a mortgage is a loan given against a charge on a property. There is a vast range of different types of mortgages available, involving all sorts of weird and wonderful schemes. Too many to discuss here! As a rule, the odds are weighted very much in favour of the lender; if you do not pay – the lender takes back the property, sells it at a realistic (cheap?) price, and claims under indemnity insurance for any deficit. More of this later.

The Tax Man

This is the guy that gets us all in the end! With the might of the Government and the power of the legal system behind him, all are crushed in his path. He is always first in the queue when money is owed, and will fight on relentlessly until he gets his slice of the pie. You can fight him, the fight may be long, but he won’t go away. However, you can legally reduce the amount owed – see IVA’s later.


We do, of course, mean electricity, gas, water and the telephone, without which we would all struggle to survive. My research leads me to believe that they are reasonable people – open to negotiation. Their ultimate weapon is that they will disconnect you. They must therefore be handled correctly. We will show you how – later.


These people are more than willing to lend you money – if you approach them in the right way! When then lending turns sour, they can get quite nasty, and do much damage to your pocket.

The range of facilities offered by the various banks is vast – mortgages, loans (secured and unsecured), overdrafts, savings schemes, insurance, etc. All are designed to make money for the banks. Remember that. You are the customer – the bank is working for you!

Finance Companies

Again, these institutions provide large ranges of facilities, too numerous to mention. Their lending tends to be more expensive than that provided by the banks. These people really are in the business of making money! They will not take chances, and will only take the good business – on a secured business – when possible. In general, difficult people to deal with.

Credit Cards

Our flexible friends. Or should I say enemies! Mastercard, Visa, etc. all come with pre-set spending limits, and a requirement to pay a minimum amount (usually 5% of the outstanding balance) each month. Interest charged is high. Those who benefit most are people who pay off the outstanding balance each month, thus avoiding paying interest (except in the case of cash advances). That said, the banks and companies who issue these cards do rely on a vast number of customers NOT paying off the balance each month – thus earning interest payments for the credit card company. Again, these companies are in the business of making money. In fairness to them, they do recognise some moral duty to the poor people who cannot handle credit, and will always look to doing a deal in default situations; help lines are common.

Store Cards

These are peculiar to individual stores – e.g. Harrods, Marks & Spencer, etc. The interest charged is nearly always higher than that charged by the likes of credit cards.

Charge Cards

Similar to credit cards, except that you have to pay off the entire balance each month. Some, such as American Express, have no pre-set spending limits which means that you can really go mad an run up some huge bills.

Lines of Credit

Revolving credit facilities – similar to overdrafts, except at higher rates of interest, and requiring a minimum payment each month. Financial institutions such as Forward Trust, HFC, Beneficial Trust, various building societies, banks, etc all have their own versions.

Insurance Companies

Most of us have insurance in one form or another – whether it is in the shape of an endowment policy linked to our mortgages, or for the car, or the home. We get into debt with the insurance companies by failing to pay on time, or missing payments when given extended payment terms. The threat there is that cover will be cut off.


Money owed to landlords by people renting houses is quite a common debt. For families on the ‘bread line’, the rent is usually the easiest payment to miss, and then the hardest one to catch up!

Pawn Shops

Pawnshops issue short-term loans on portable assets. Basically, a pawnbroker will provide a loan against at item of property, which he will retain. The loan will be based on a valuation of the property. Interest is paid on the loan (varies considerably). At the end of the loan period, if the loan is then repaid, the goods pledged to the pawnbroker can be recovered. Failing that, the pawnbroker can sell them. (Naturally, his original appraisal of the value of the goods will have been low, in order to ensure a profit!)

Hire Purchase

Basically loans linked to assets; you do not own the asset until the loan has been repaid. Usually used for car purchase. The goods can be recovered by the loan company if you default on payments. (Except if you have paid more than one third of the total finance cost). No so common these days.

Service Credit

Worth a mention. For example, medical insurance, dental fees, or any other service that you pay for. The big stick here is that the service is withdrawn if you do not pay.

Personal Loans

I am referring to loans made to you by members of your family or close friends. These types of loans are the most easily negotiated, since, more often than not, there is no formal written contract, or agreed interest rate. Furthermore, the people who lend to you are not professional debt collectors or negotiators. That said, these loans may well be the ones that you end up paying above all else!

Loan Sharks

These are the people who will lend you money when everyone else has refused. They will deliver the cash fast, but at a whacking great interest rate (sometimes you will end up paying many more times the amount of the debt in interest). It is easy to see how people become tempted; if you are desperate for fast money without the needs for credit checks, etc., the Loan Sharks must seem like a viable option. This form of lending, for starters, is illegal. Loan Sharks rely on their reputation to intimidate, and will make an example of you if you won’t or can’t pay. Don’t put yourself in that position. Avoid these guys at all costs.

Secured / Unsecured Credit

This has been touched on above. Wherever, possible, if large sums of money are involved, the creditor will seek some form of security for the debt. A mortgage or second mortgage is, of course, the prime examples. In other words, if you do not pay, the creditor seeks to sell the asset over which the security (charge) has been taken. The smarter creditors will go for floating charges over all of a debtor’s assets (to prevent him/her from switching assets around and moving them away from the grasp of the creditor). A common approach by banks.

Very often, when taking out a loan, the lender refuses to hand over the cash unless security is given. If this is the case, and you need the finance, you will have no choice. Sometimes security is demanded after the loan has been granted (e.g. if it turns sour); it can then be resisted.

By agreeing to security, you should end up paying a lower rate of interest. Check the Annual Percentage Rate (APR); it must be quoted when finance is offered; the lower the APR, the better.

Personal Guarantees

Another weapon used by creditors. A wealthy relative or parent is usually the people who give personal guarantees. Beware of giving guarantees; if you do give any, be sure to put a limit on them.

Having obtained a loan on the basis of a guarantee, nothing is easier than to walk away and let the guarantor pick up the bill! However, again, as with personal loans, you may wish to put this type of loan at the top of your ‘to pay’ list, simply because you are acquainted with the guarantor.

The above has given you a potted view of the different types of credit/creditor that you may come into contact with. We will come back to the various points, putting some meat on the bones, and giving views on how such debts are dealt with.

Part Three – Creditors – How They Collect

There are no hard and fast rules as to how creditors go about recovering a debt. However, one rule that they will all bear in mind is the cost effectiveness of collection. Nobody wants to throw good money after bad!

The Identifiable Stages

Generally speaking, the debt collection proceeds as follows:

Stage One

In initial approaches are by means of standard letters; this is to keep the cost down at the early stages. Over the years, standard letters have become more sophisticated. Cast your mind back to a few years ago – did you ever receive a standard letter from your bank – yes, the ones with the spaces in them where the manager would insert, in manuscript, the amount you were overdrawn! Nowadays, you rarely see that sort of obvious standard letter. The computers and word processors have seen to that.

What you get now, by way of a standard letter, is more personalised, and the relevant details are correctly inserted into the text. Often, the computer will also sign it. As time goes by, the computer automatically churns out the letters at regular intervals, and to give the impression of escalation of action, different names are placed at the bottom of the letters! The amusing thing about some of these letters is that it is often difficult for the staff at major organisations to stop them being sent in situations where there is, perhaps, a genuine dispute over payment. Look out for standard letters – you will soon spot them. I am enclosing an amusing set of letters from Sovereign, a leasing company; please see Appendix A.

Stage Two

As time moves on, the standard letters will still flow. Some debt collection departments now start to use the telephone to chase debtors. The initial approach on the telephone will be "Is anything wrong…?" The tone will get progressively firmer, with great effort going into getting you to commit yourself to making some form of payment. Credit card companies prefer this form of harassment; it quickly lets them know if something is seriously wrong (e.g. you have died or fled the country to join the Foreign Legion), so that they can cancel the card. Time is money.

Stage Three

Threats! This is where they usually start to threaten all manner of terrible things – the dreaded default notice under the consumer credit act (see below), withdrawal of credit facilities, credit blacklisting ("this may affect your ability to obtain future credit…" is the polite form of words), etc.

Threatening to withdraw credit facilities, or endangering the prospect of getting any future credit is often enough to make folk pay up!

Stage Four

Serious defaulters, still holding out at this stage, will now start to encounter the heavy mob! Creditors knocking on the door, and default notices under the Consumer Credit Act of 1974 (where it applies – to credit transactions). In other words, the creditor is getting serious. Probably his last effort before he gives up and hands the matter over to a debt collector.

Stage Five

The matter is either handed over to the creditors’ Legal Department, or to a Collection Agency. At this point, the creditor has acknowledged that he is losing the battle! If you are dealing with the creditors Legal Department, you will now find yourself threatened with legal action. Often, the mere threat of such action will make the average person in the street pay up (if he can). Clearly, legal action can be expensive. It will not, therefore, be entered into lightly; the Legal Department will weigh up the cost of action against the amount of debt, before deciding to proceed. They may also do some background research to find out if it is worth going for recovery through the courts. Small debts (the amounts vary from company to company) may be written off (but they will take pleasure in blacklisting you with credit reference agencies!). An option at this point is to hand the debt over to debt collectors – on a "no result, no fee" basis (the collector will take between 30 and 50% of any money recovered).

When collection agencies become involved, you will detect a distinct change in attitude -a chilling of the climate! Debt collectors are the hard men; they deal with many unwilling to pay debtors every day. They have heard all of the excuses, and know all of the angles on debt. They are not hampered by an attitude of pleasing customers; their job is to collect money, and they do not have to be nice about it. They will go straight for personal contact (I don’t mean that they will beat you up!) – on the telephone, and in person. Again, this is something that we will look at in a little more detail later. Suffice to say, these people are in the business of making money, and will, if there is nothing to go for (no assets, permanent job, etc.) give up.

Stage Six

The Courts. If your creditor has decided that the size of the debt is sufficient, and the chances of success (I mean recovery, of course) are reasonable, he will go for action in the County Court. Some creditors, notably the utilities or the likes of newspapers recovering advertising debts, will go for legal action as a deterrent to others who may think that they can "get away with it".

The County Court procedures in the case of small debts are simplified to the extent that it is simply a matter of the creditor filling in a short form, and paying a small fee in order to take the first steps towards obtaining a judgement against a debtor. The court then writes to the debtor (issues a summons), who is then given the opportunity to either acknowledge the debt, or deny it in part or in whole. If there is no dispute, or the debt is not contested, then the creditor can apply to have judgement entered against the debtor. The debtor then has a County Court Judgement (a CCJ) registered against him. The creditor can demand immediate payment, or ask for payment by instalments (if he thinks that there is a better chance of recovering money in this way); the debtor also has the option to request payment by instalments. If the summons or the resulting CCJ does not have the desired effect, the creditor may back off, fearing further costs – not wishing to throw good money after bad. Tenacious creditors still feel that there is a chance of recovery (or those who have a vendetta against debtor, have a number of options:

Warrant of Execution – an order to send in the bailiff to seize and sell sufficient of the debtor’s goods to recover the money due under the judgement.

Attachment of Earnings – an order to the debtor’s employer to deduct a sum of money each pay day from the debtor’s wages.

Garnishee – an order directed to anyone who owes the debtor money; the order requires them to pay the money to the court. This method is commonly used against a debtor’s bank account. Also useful when the debtor is in business or self employed. A bit his and miss! Money can be shifted swiftly by debtors who are one step ahead.

Charging order – this prevents the debtor form selling his land or securities (stocks and shares), without paying the debt to which the order relates. If the Court agrees, a sale of property can be forced. That said, the Courts are unlikely to agree to the sale of a family home in order to discharge a small debt. A sale cannot be forced if the debt relates to only one of the parties owning the property.

Receiver by way of Equitable Execution – If a debtor is in receipt on money (e.g. landlords receiving rent), the Court can appoint a receiver to collect the money on behalf of the creditor. The costs of such action are substantial; the Court would have to be satisfied that the costs are justified in relation to the amount of debt.

Bankruptcy – to achieve this, the creditor must serve a petition on the debtor (handed to him/her) and then apply to the Court to wind up the affairs of the individual (or company) in question. Not an option taken lightly – It is expensive, and could be counter productive in that insufficient funds are raised to close out all of the individuals (or company’s) debts, particularly if a forced sale of assets takes place.

All of these options will mean that further costs will be incurred by the creditor (and ultimately by the debtor if he loses the fight!). The latter two options are the most expensive.

Very often, having obtained judgement, a creditor will wish to do a little research before pursuing the debt. An option open to him is known as an Oral Examination – not of the type initiated by the dentist, I hasten to add! What this means is that the creditor can force the debtor to attend court to be questioned, under oath, about his ability to pay the debt. If he fails to attend, he can be sent to prison for contempt of court. Oral examination is not a method of enforcement; merely a step towards ascertaining which method of enforcement (if any) should be used. The oral examination must take place at the Court for the district in that the debtor resides or carries on business. If judgement has been obtained at a different Court, the creditor will have to arrange for the proceedings to be transferred.

Oral examinations as with other forms of action incur fees for the creditor. A Court fee is payable, as with other actions, in advance. In addition, if the debtor fails to turn up to the hearing, the Court adjourns it, and asks the creditor to supply conduct money to enable the debtor to attend the re-scheduled hearing; conduct money must cover the debtor’s reasonable expenses of travelling to and from the Court. If sufficient money is not offered, the Court may be unable to commit the debtor to prison for non-attendance. Having succeeded in getting the debtor to Court, it is up to the creditor to question him; the registrar or the officer conducting the examination may ask the questions on the creditor’s behalf. Usually, as a debtor, you will find yourself confronted with questions on the following subjects:

  • Name and address of employer; works number of pay reference number.
  • Basic pay; proof of the same; overtime; any other income.
  • Husband/wife’s pay, overtime, etc.
  • Investments – building society accounts, shares, premium bonds, etc.
  • House ownership/rental; rates, mortgage, value, etc.
  • Motor vehicle – ownership. Any car loans.
  • Outgoings, debts, loans, etc.
  • Furniture in your house – who owns it? Is any of it on hire purchase?
  • Any money owed to you by other people. If so, who, and how much?
  • Children; dependant relatives.
  • Court orders (CCJs) – any others? How many?

The smart debtor will only offer information requested; he may not have all of the information at his/her fingertips, thus necessitating a further hearing at a later date, which will obviously drag out the matter. What is said at the hearing is crucial; the information given will enable the creditor to decide whether or not to press the matter any further.

Again, this is a subject that we will come back to when discussing tactics. At this stage Stage Seven we are merely gathering information about the ‘System’.

Enforcement. We have already looked at the methods open to a creditor. Now let us see what actually happens in the case of the three most common forms of enforcement, namely:

Warrant of Execution (against goods).

This is the most frequently used method of enforcement. The warrant instructs the bailiff to call at the debtor’s home, business address or any premises it is thought he/she may have goods. The bailiff is authorised to seize goods, and sell them to satisfy the judgement and the cost of the sale. Certain goods may not be seized – clothes and bedding to the value of œ 100, and the tools of someone’s trade up to the value of £150.

The bailiff cannot force entry into a debtor’s home. He can force his way into business premises. Having gained entry, he will then inspect the goods available for sale – i.e. those encumbered by H.P. He will then make an assessment of the likely sale value, before seizing the goods. That said, the average contents of a household are often insufficient to even cover the costs of removal and sale. Remember, goods at public auction fetch very low prices.

The bailiff will endeavour to do a deal. If he thinks that he can obtain payment, he will still try to do so, before filing his report of insufficient goods. He may look to accept payment by two or three instalments.

It is not the bailiff’s job to locate a debtor. If the debtor has moved, the ball will be back in the creditor’s court, and it will be down to him to find the debtor, and advise the bailiff accordingly.

A warrant remains in force for 12 months, following which; the creditor must apply to have it renewed. If he does not do this prior to expiry of the warrant, a fresh warrant may have to be issued, and a further fee paid.

A debtor may apply to the Court to have the warrant suspended if he is seeking time to pay the money.

Attachment of Earnings.

The Court can order a debtor’s employer to make deductions from his earnings – weekly, monthly or whenever he/she is paid. Deductions are sent to the Court, who then forwards the money to the creditor. Earnings include wages or salary, bonuses and commission, and pensions (but not the State “Old Age” Pension).

The creditor will have to apply to the Court for Attachment of Earnings. The application must then be served on the debtor. If this fails, by post, then the creditor will have to enlist the services of a bailiff – for which a fee is payable. Again, if the debtor has moved away, it is down to the creditor to find him/her.

Once he has received the application, the debtor is obliged to complete the form of reply giving details of his/her earnings, and commitments. He must also make an offer to pay whatever (if anything) he can afford. Alternatively, the debtor may simply attend the court hearing, and either fill in the form, or simply give the information to the Court Registrar on that occasion.

If the form of reply is received in sufficient time, before the hearing date, a provisional order regarding the amount to be deducted will be made. Creditor and debtor have five days in which to object, before the order is sent to the debtor’s employers. If either objects, then the matter will be dealt with at the hearing, and both parties will have the opportunity to voice their views.

If the debtor fails to return the form, or attend the hearing, the Court will adjourn it, and serve the debtor with an order to attend at a later date. This may take some time, since the bailiff has to see the debtor to serve the order. Once the order has been served, the debtor must obey it. Prison is the alternative!

When dealing with the application, the Registrar may dismiss it if the debtor’s protected earnings rate is unemployed. The creditor will require the courts, to force the order to be redirected to any new employer.

Garnishee Order (attachment of debts).

If a creditor finds out that someone owes him/her debtor money, that creditor can ask the Court to order that person (the Garnishee) to pay the whole debt or sufficient of the debt to satisfy the judgement, to the Court. Most debts can be attached in this way. However, in practice, this method is used to obtain money held in a debtor’s banks account or building society. Clearly, a creditor has to first discover the name of the bank, branch, and if possible, the bank account number, before proceeding. An oral examination may have been used to discover this information.

A garnishee order, when granted, applies only to money in an account on the date on which the order is served on the bank, society, etc. Money subsequently paid in is not covered. For the creditor, and evasive debtor, timing is crucial.

A creditor attempting to serve a garnishee order will have done his homework; when going for a salaried person, it would be a good guess that there will be some funds available in a bank account at the end of a month. However, as previously stated, if there are no funds available (e.g. the account is overdrawn), the order fails.

As you can see, this method of recovery is very much “hit and miss”. In the case of someone with multiple bank accounts, garnishee orders would be complicated and expensive for the creditor. Any accounts highlighted at an oral examination, may not be in existence by the time a garnishee order has been produced; others may also have been opened.

Having read this section carefully, you will now a good idea of how your creditors will take action against you. Being prepared for the possibilities is indeed half the battle.

Part Four – Tactics

Why Do We Pay Debts?

This is something to think about, as it will affect the way you deal with your creditors. Debtor’s Prisons are now (thank goodness) extinct. So why do most people want to pay their debts? I have put together a list:

Pride. Keeping to one’s word bolsters pride for most people. Pride is so strong in some cases, a person may work all of his/her life to pay off a large debt, when, clearly, bankruptcy should have been the solution.

Loss of Credit. Not paying will knock your credit rating for six! Word quickly gets around via credit reference agencies. Ultimately, you could find credit impossible to obtain.

High Cost of Credit. Interest, and late fees quickly accumulate when you fall behind. Continually rolling over loans is expensive. Paying makes good economic sense!

Emotional Stress. Anyone who is behind in paying their bills suffers from some form of worry, which can cause stress and be the downfall of weak individuals.

Being Hassled by Creditors. Most people are bothered by the receipt of “nasty” letters from the bank, etc. Paying your debts will prevent this problem.

Loss of Spouse. A bonus to some people! Seriously, money problems are often at the route of the breakdown of relationships.

Loss of Property. If you do not pay your mortgage, you will eventually lose your house, Furthermore, creditors can, in some instances, obtain charges over property, and eventually seek to liquidate those charges.

Loss of Income. An attachment of earnings order, as previously discussed, would, if successful, reduce your income.

Bill Paying Habits Built into the Culture. Our British culture has a long established tradition of an Englishman’s word being his bond. Without mentioning any names, other cultures may take a more relaxed attitude. The list could go on and on.

Prioritising Debts

Many people who find themselves in debt trouble are often seeking a temporary solution to their difficulties – an interim measure to enable them to survive until they are in a position to meet their obligations. Those of you wearing this particular hat will need to draw up a priority list of creditors; in other words, the order in which you would choose to pay the debts. First of all, however, do remember that this list should be dynamic – i.e. be prepared to change it, should the need arise.

The list that you prepare will vary from individual to individual; base it on the list of debts, outgoings etc., that you should have prepared following Chapter One. Clearly, the utilities will be somewhere at the top of your list. You can delay paying these to an extent (see below), but ultimately, if you don’t wish to be cut off, you must pay. Personal debts -to friends and relatives would also be high on most people’s lists, depending, of course, on the circumstances. Anyone shouting the loudest – e.g. serving default notices etc., may be high on the list. Your mortgage may also be a high priority.

Buying Time

There are many techniques that can be used to buy time on the debt front. Hopefully, by now, you will have taken on board the need for preparation and planning. With your situation carefully mapped out – at your fingertips – you are in a better position to tackle problems. If the problem looks to be temporary, avoidance of debts and survival can be achieved by the use of delaying tactics. A few of these are discussed below:

Cross Firing

Shooting money from one account to another; taking cash on one credit card to pay off another. Taking unauthorised overdrafts from your bank by drawing cash (at another bank) using your bankers card – and then paying it off with something else before the manager shouts too loudly! (We should point out that the drawing of cash from a bank account when you know that there are insufficient funds in that account is technically fraudulent; Bank managers are always keen to make a point of this, but rarely do anything about it, except in extreme cases where the money is not paid back quickly).

With the vast array of different chequebook facilities on the market today, there is ample scope for some very creative “cross firing”. Remember, however, if you are not reducing the interest outstanding each month, the debt will continue to grow, and may get out of control. Cynics would argue that if you have to resort to “cross firing”, you are already out of control!


Stalling for time – paying late, or in some cases, not at all! With this one, look at your list, and decide which debts you can pay late; by defaulting on certain high repayment items for, say, a couple of months, you could give yourself sufficient breathing space to start paying again – at a slightly higher rate, perhaps, to reduce the arrears. Communication is important. Tell your creditors that you have a problem and that it is temporary; they will usually listen, and bear with you for much longer if you continue to talk to them!

Borrowing More!

Sometimes a recipe for disaster. However, not if you can borrow cheaply to consolidate all of your expensive debts (e.g. credit cards). A useful option is to take higher borrowing on your house if that is possible; going for a low start type scheme could also make your day to day situation a whole lot better (however, do be aware of the implications of rolling up the interest – it has to be paid eventually!). if you intend to take this option, do not leave it too late – i.e. do it before you hit major credit difficulties such as CCJ’s, which will make it a lot harder to obtain credit.

Re-schedule Your Debts

Good communication with your creditors is vital for this one. Tell them about your problems, and put forward realistic plans for repayment. Shoot high, and compromise to a satisfactory solution in order to get a good deal. For example, if you are paying œ 200 per month on a debt over, say 5 years, shoot for half that amount over 10 years, and then compromise at somewhere between œ 100 and œ 150. Another tactic might be to ask the creditor to suggest a realistic amount; it may be lower than the one that you had in mind.

Let us now go back over the different types of creditor and discuss how to deal with each one.


This is the cheapest form of borrowing available today. The bottom line is that if you do not pay, you lose your house. The rules vary from building society to building society, and from bank to bank. However, generally speaking, folk avoid paying their mortgages for up to three months without any serious hassle; this may provide breathing space to enable you to clear other more expensive and/or pressing debts. After three months, you will start to take some flack – nasty letters, and maybe, telephone calls.

Communication is vital; if you are able to tell the lender what is wrong, and give some positive indication as to when things will get better, this will help enormously. Some lenders will not expect you to immediately start catching up on the arrears, and will happily give you a ‘holiday’ on payment of arrears for three months or more. It is worth asking. It is also worth asking about the possibility of switching to a different scheme – involving lower payments, or roll up of interest.

As with most creditors, you can only push the mortgage company so far. Once arrears get to about six months, the situation is regarded as serious, and threats of repossession will be made. In fairness, this type of lender is nearly always open to doing a deal. Agree to pay back a bit more each month, and the dogs will often be called off. If the matter is referred to the lenders legal department, or to solicitors, costs of the same will be added to your mortgage. This is not, however, the end of the road. The solicitors will also be open to doing deals. You will be dealing directly with the solicitors, who will then have to refer any offers back to their clients. All this will buy time, particularly if the debtor deliberately tries to drag out the correspondence, by replying at the last minute, or asking all sorts of irrelevant questions that need to be referred back to the lender.

If a satisfactory solution cannot be worked out, the solicitors will apply to the Courts for a repossession order. Getting a date for a court hearing may take up to three months, with the hearing following three months later again. When the court hearing date is received, this presents another opportunity to negotiate. Demonstrating that you have maintained a certain level of payment (perhaps not as much as was required), will count in your favour; you may also be able to show that you are about to become financially better off, or the breathing space obtained has enabled you to pay off short term credit (at building society rates?!). if the case does go to Court, the chances are that a lenient view will be taken. As long as the prospects for you being able to catch up are good, you are in with a chance.

Even if a repossession order is granted, the lender will often still be looking to do a deal. The last thing he wants is to be landed with a property to sell. However, if it comes to that, he will shift it cheaply – taking the best offer he can get, and then claim under indemnity insurance for any losses made. In theory, the insurance company can chase you to make good any shortfall. If you have nothing worth going for, or prove difficult to find, you will be left alone.


If you owe money to the taxman, he will pursue relentlessly until he gets it (plus interest). By all means, use legal schemes to avoid paying tax, and be aware of the tax consequences of anything that you may be involved in, but do not attempt tax evasion! Those of us who are self-employed will come up against the taxman most frequently. In the absence of hard information, the taxman will estimate your liability, and make an appropriate demand. At that point you can appeal and have the tax set aside until you can demonstrate the extent of your liability by the use of accounts etc. Interest will accrue on any unpaid tax bill, and will eventually have to be paid. In situations of bankruptcies, or insolvent companies, the taxman is always first in the queue and gets his slice of the cake above everyone else.

Having said all that, the Inland Revenue are not unapproachable. They recognise the fact that taxpayers get into difficulties and will look for some sort of deal. The deal will usually result in the entire tax bill having to be paid (except in the case of an IVA – see later); however, you will be allowed to pay by instalments if necessary.

Beware of the new self-assessment system and the end of January deadline for returns to be submitted. There are heavy penalties for missing the deadline date – £100 fine plus interest at 9.5% The overall message here is that you can run, but you can’t hide! He’ll get you in the end.


The name of the game here is not to be cut off! The telephone people wield the most power; seven days after the red reminder, and that’s it! If you don’t mind being cut off, you will find yourself being chased through the Courts as described in Chapter Three. See below for tactics in dealing with such matters.

The electricity and gas people are always reluctant to cut you off. If you get into trouble with payments, they will bend over backwards to help you out; monthly, or fortnightly payment plans are available, with arrears added to the accounts. The main point is to communicate with them; tell them the problem, offer to pay by instalments, and they will help. Ample time will be available to enable you to pull the situation back – but be sure to monitor it carefully, and keep talking to them. Again, ultimately, they will only take so much, and will eventually disconnect your services. Again, if you are happy with being disconnected and then sued for the debt, please refer to the section on dealing with debt collectors and the Courts, below.


Many people live in fear of their Bank Managers! The first point to take on board is that they are working for you! You are their customer. Do not be intimidated. Learn that lesson, and you will be well on your way to dealing effectively with your Bank. As with most debt situations, there are no hard and fast rules. Precisely how you handle it will depend much on individual circumstances. I will give you some guidelines, but be prepared to adapt these to your individual circumstances.

Banks change their strategies on lending according to the current economic climate. Banks that are doing badly (perhaps due to Third World debts for example), will tighten up on lending; they often do this by reducing the lending limits of their managers. Those of you with business accounts may find that overdrafts are hard to get, or to renew at higher levels. Loans are granted with more caution (security demanded, for example), and called in, rather than renegotiated if payments fall behind.

The majority of people with bank accounts behave responsibly, rarely take unauthorised overdrafts, and rarely pay charges. Those of us who do not, find ourselves on the receiving end of hefty bank charges. In serious cases, where much managerial time is spent on accounts, these charges can escalate even further. Basically the bank will try to price you out of the game! A subtle way of getting you to take your custom elsewhere. At the end of the day, if relationships between you and your bank totally break down, they will issue a statutory demand under the Consumer Credit Act – effectively calling in their facilities. Debts will then be handed over to debt collectors, and ultimately, you may find yourself dragged through the courts. Again, the section below will assist you in such situations. Having said that, there is much that you can do, on the way, in terms of avoidance, and damage limitation.

The two important items are COMMUNICATION and PLANNING. If you have a particular problem with your bank, be sure to get in touch and talk about it. Bank Managers are usually prepared to help if they can. However, depending on the complexity of the problem, be sure to plan very carefully. Define the problem – write it down in simple terms; your financial assessment of your financial situation as discussed in Chapter One may help. Put down everything that is relevant. If the problem is complex, go away, and then come back to it a little later – then add what you have missed! Now try to think of possible solutions – jot those down. If you are writing to the Bank, be sure to mark the letter for the attention of a particular person – this could be the Manager, and retain a copy for future reference.

Come straight to the point in a polite and business like manner. Keep the excuses short and relevant, to the point; banks receive many queries, requests, etc. each day, and have little time to give careful consideration to all of them. Using this approach, it is often a relatively simple matter to negotiate away bank charges that you feel to be unjustified; sometimes, the bank will seek a compromise, and write off, say, half of the charges. A face to face with the bank (the Manager) is a different kettle of fish! Again, depending on the complexity of the matter, you need to plan very carefully. Having first set out the problem clearly on paper, and perhaps, devised some possible solutions (try to cover all possible outcomes), we must now concentrate on tactics. I will take you through a useful approach:

Attitude. As previously stated, you must get this right. You are going in with a plan; you have tactics; and you are aiming for a satisfactory outcome.

Planning. Carefully define the problem, and then decide exactly how you are going to introduce it to the Manager. If possible, break the problem down into clearly defined parts – list them, and tick them off as they are dealt with. Very often, the Manager will appear with a blank sheet of paper! With your plan, carefully itemised and set out, you can guide him through the various points in the order in which you would prefer to discuss them, and at your own pace. Instantly, you have the advantage.

Negotiating. Some people have an instinct for this. If, however, you have planned carefully, and covered possible outcomes, you will be well on your way to negotiating a satisfactory solution. Generally speaking, aim high – always go for something more than you actually want, and then compromise to what you DO actually want. Want an overdraft for £2,000? Why not aim for £4,000, and see what happens. Don’t be afraid to ask. If you don’t ask, you don’t get!

If you are unable to agree on a point, set it aside, and come back to it later. Try not to give any concessions without getting something in return. For example, if you bank is insisting on security for a debt, naturally you would expect to enjoy a lower rate of interest, and/or a higher facility. Give small concessions first, and give them slowly. Should you come up against something unexpected, best to back off – go away and have a think about it. Do not be hasty!

Attrition is a useful negotiating ploy. To hammer a point home – repeat it, and repeat it again. You may eventually wear down your opponent! This sort of tactic is known as the “broken record”!

Along the way, as negotiating progresses, try to find out a little about the person you are dealing with. What are his/her limits/authority? To whom does he/she report? How long has he/she been in the job/ with the bank? What else has he/she done in the bank? In other words, build up a picture, with a view to using that information at some future date.As soon as you get agreement on the various points at issue, make a note, and aim to summarise them at the end of the meeting – so that there can be no misunderstanding.

Put and anchor on him/her. What madness is this? I am talking about a manipulative technique. A one time experience can anchor you and bring back feelings of that experience. An example – someone who is bitten by a dog could get anchored – the fear could come back every time that person meets a dog. Another example – during the war, if someone gets shell shock, he gets anchored to loud noises – even years later, a loud bang can bring back all of the memories associated with the war. Top salesmen and communicators use this technique very effectively. They choose a point in conversation, when a person (their victim, if you like!) is feeling good, perhaps when they have congratulated him/her or heaped praise on him/her. They then make a distinctive gesture – a tap on the shoulder, a cough or clearing of the throat. The theory is that that the person becomes anchored to that gesture, and can be manipulated by the use of that gesture. Putting it into practice – use the gesture when you are at the point in a conversation where a favourable response is required. OK, it sounds corny! But is does work!

Adjourn. If you find yourself in a really tight spot; the Manager may have thrown something at you, which is entirely unexpected! Best to withdraw; say that you need time to think, and arrange to come back another day. Do not be pressed into doing, or agreeing to something that you are not happy with.

At the end of the day, if you cannot come to an agreement with your bank regarding money owed, they will issue the dreaded default notice under the Consumer Credit Act! Basically, they have now adopted a “cut and run” policy. The matter will be handed over to debt collectors – who will, of course, take their slice of the funds; court action may follow. In the long run, it is cheaper for the banks to take this form of action, rather than waste valuable management time. See below for details of how to handle the debt collectors and courts.

Finance Companies

These people, as mentioned previously, prefer to go for security when granting finance; in other words – a charge on your house. If you have granted the finance company such a charge, and you do not pay, they will take the matter all of the way down the line to forcing the same of your house in order to recover their money. Very careful handling is therefore required. It obviously varies from case to case, but generally speaking, you can get away with falling behind by two or three payments before matters become serious. Negotiation is always worth a shot. Using the budget figures that you prepared (massaged slightly, perhaps!), you will be able to demonstrate exactly what you can or cannot afford to pay. A lower repayment over a longer period may be an option. A holiday on repayments may also be an option. Remember the rules of the game – if you don’t ask, you don’t get! Aim high, and look to compromise.

Unsecured finance presents a better opportunity to negotiate, quite simply, because the finance company does not have the same hold over you. As with the bank, try negotiating (NB planning, etc.). If you end up fighting the debt collectors or the courts -see below.

Credit, Store and Charge Cards

I have lumped these together since the companies involved in providing these opportunities to spend too much, all act in a similar way.

The usually array of standard letters will flow when you stop paying your plastic card accounts. You can usually get away with two or three months of non-payment before these people start to get nasty. After three months avoidance, your card will undoubtedly be cancelled – and either be retained by the first automatic teller (cash card) machine that you put it in, or cut up by the retailer following insertion into the automatic credit checking machine. If you are looking to hang on to your card in a default situation, obviously, do not use cash points, beware of the automatic credit checkers (always have the card “swipe” facility, and are connected to a telephone line), and do not make large purchases for which the retailer is obliged to telephone the credit card company (limits vary widely, and are low at Christmas). Beware of committing fraud in such a situation; a grey area. As a general rule, do not take it too far. Long term default, coupled with continued usage of the card would, with doubt, be construed as fraud. Credit card companies, as with other creditors, will allow you more room to manoeuvre if you communicate with them. Your budget plan, again, will come in handy. Without doubt, you will be able to negotiate a lower level of payment. Failure to stick to that arrangement will eventually result in a default notice being issued under the Consumer Credit Act. Debt collectors, and action in the courts will follow.

Lines of Credit

Deal with these in much the same way as the banks, finance companies, etc.

Insurance Companies

These people will not chase you for the likes of payment of your endowment or household insurance policies. The weapon is simple – no pay, no cover! The trick here is to find out just how far you can push the situation before your cover lapses. On the likes of endowment policies, you will find out that you can avoid paying for approximately three months before a policy is allowed to lapse. Best to do some research – why not just ask them?

For more serious situations – for example insurance companies taking recovery action on an insurance claim, they will press hard if they think that they can get a result. That said, these people are in the business of taking risks, and will look to minimise loss wherever possible. In other words, if the situation looks like a “no hoper”, they will swiftly write off the debt. Clearly, anyone seeking a way out would be looking not to demonstrate the same at a very early stage in the proceedings.


Most landlords use a shorthold tenancy agreement, which enables them to remove you from their property at the end of a fixed period (minimum 6 months). In other words, if you are a bad payer, they will get rid of you. If you are prepared to pay that price, and move elsewhere, rent payments can be missed. At the end of the day, if you do default on rent, regardless of tenancy agreements, the courts will agree to you being removed from the rented property. It can be expensive for the landlord to take this action, but given protracted default, he will have no choice. As for recovering the outstanding debt, this can also be expensive. He will weigh up the situation very carefully before throwing good money after bad. The expense will rise should the landlord have to take the trouble to find an ex-tenant. All in all, very often, not a viable proposition.

Pawn Shops

In the case of the pawnbroker, if you default on payment, he will sell the goods that you have pledged. Communication and negotiation are the key points. You may be able to have the loan extended without losing your goods.

Hire Purchase

Deal with this in the same way as detailed for Finance Companies Banks, etc.

Service Credit

Same techniques as Insurance Companies. Find out just how far you can go. Don’t go any further!

Personal Loans

How you deal with these much depends on individual circumstances – that is, who haslent you the money, why, and what for.

Many of us who have borrowed from relatives will want to pay back the loans. We could probably get away with simply walking away from these debts, particularly if only small amounts are involved, and also it the creditor has not been astute enough to firmly tie down the precise terms and conditions of the loan.

Renegotiating payment over a longer period is an option for those who cannot afford to pay. If you can be cold and calculating about the situation, planning and tactics outlined in the case of dealing with banks are relevant.

Loan Sharks

First of all – don’t get involved with these people! If you do, best to pay.

Handling the Debt Collector

This is the man who will not be very pleasant. He will go for instant personal contact – on the telephone, and in person. In dealing with him, try to remember that he is profit motivated, his earnings depend upon getting results. If he does not think that he can get a result, he will back off. Certainly, he will not handle old debts (over two years as a guideline), nor will be handle debts for small amounts. He will look to do a deal -payment over the shortest period possible. Negotiating tactics are vital in these circumstances.

Be prepared by planning carefully, as soon as you have a hint that he is onto you. If you do pay, go for the smallest payments you can achieve over the longest period, interest free. Aim high, and compromise to a lower figure. Agreeing to his proposals and then failing to adhere to them will buy you time if necessary. Certainly, these people can be work down by protracted negotiations. Accusations of harassment may make them back off. The people that they find the most difficult to deal with, are those who appear to have given up! Fold who are past caring what happens to them; threats just bounce off such people.

Tactically, it is probably best to be as polite as possible with the debt collector. Don’t put yourself in the position where the man decides to take the matter personally – or you will never shake him off!

The truly professional debt collector will start off in a polite, but firm manner. He will be constantly “fact finding” – pumping for information in order to enable him to make an assessment of the situation. Remember, you do not have to tell him anything! On balance, however, best to be polite, and give some information and comment on the situation.

If there is a dispute over the debt, and that dispute has some credibility, this may cause him to back off. Protracted negotiations in such areas will also make him think twice. Time is money.

Still on the theme of protracted negotiations, you may find it beneficial if the more complex situations, to press the debt collector for more information – e.g. how is the debt calculated – precise breakdown required, etc. Very often, the issue can become foggy! He will always be seeking to pin you down on a repayment plan, or course of action. Beware of jumping in too quickly. Take a note of his suggestions, and ask for time to consider. He will, of course, have to call back again at a later date, by which time you may have a list of queries to raise with him – points on which he has to go back to the creditor.

When the debt collector has gone as far as he can, and failed to recover money, he will then take a step back, and having consulted the creditor, will then look into taking legal action. This decision will depend on whether it is thought that there is anything to go for – i.e. assets. He may move to obtain a County Court Judgement against you, and then seek to enforce it by sending in the bailiffs (more of this later). Another option might be to go for a charge on your house; this is expensive to achieve, but effectively secures the debt, along with interest on the same. If the house is solely in the name of the debtor, a sale can be forced; otherwise, if it is in joint names, and one of the joint owners is not party to the debt in question, a sale cannot be forced (the debt is avoided until the house is eventually sold – if indeed you ever chose to sell it!).

A further option at the hands of the debt collector is to make you bankrupt; this is expensive, and may result in the creditor failing to recover the debt (e.g. the taxman always gets first bite!). Bankruptcy is often a threat, and the mere threat of this sometimes makes the debtor pay up. Any petition for bankruptcy, remember, must be served on the debtor personally, and this is often done by a solicitor. Watch out for a man in a grey suit! Look to negotiate with anyone who threatens you with bankruptcy. If possible demonstrate the futility of the action. If you are really hard pressed, you may welcome it! However, not something to be rushed into; see later for details.

Debt collectors do not like handling old debts. Certainly if the debt is over 2 years old they may not take it on. Otherwise, if the matter is seriously protracted, they may also eventually back off.

Handling the Courts

Your attitude here much depends on whether or not you wish to pick up County Court Judgements. You will have plenty of warning of legal action; the Courts expect creditors to take reasonable steps towards recovery of their debts. When the summons finally arrives, if there is any dispute over payment, it may be worth contesting the matter; for small amounts, where there is doubt, the creditor may not wish to risk throwing good money after bad, particularly if there is a chance that proceedings may be protracted. A useful ploy, if you have a case, is to get a barrister to draft your defence – this is impressive, and clearly shows that you mean business.

If you cannot shake off a creditor at this stage, you will end up with a CCJ. This will limit your ability to obtain credit; this remains on the register of CCJ’s for six years. Having obtained the judgement, it remains to be seen whether or not the creditor will attempt to enforce it. We have already discussed, in Chapter Three, the methods of enforcement of judgements. A forerunner may be an Oral Examination. Play this one carefully. When the creditor does eventually get you to court (penalty – arrest and prison, if you don’t attend upon the second summons), you must answer truthfully; give away the bear minimum – i.e. be economical with the truth!

If there is any negative information that casts doubt on the viability of further action, be sure to weave this into your answers, if the particular point is not raised directly – e.g. you may be losing your job, or, if self-employed, there may be a doubt over continuing your business. You may have to give out information on bank accounts, etc., that have ample plus funds in them, thereby opening up the possibility of the creditor going for a garnishee order. Although correct at that time, you could immediately open other accounts and move funds! A wise precaution. Some may make a big play of the fact that funds are in a particular place, thus inviting a garnishee order; when the creditor fails to recover as a result of the garnishee; he has incurred further expense, and may begin to think twice about taking further action.

Let us now take a look at the most common methods of enforcement. We have already described these earlier, in some detail. What we have not done is to comment specifically on how to deal with them.

Warrant of Execution (against goods)

This, of course, involves the bailiff. As we have already established, he cannot force entry into domestic property. Beware of inviting him in! Often, he will find that there are insufficient goods to discharge the debt. Do not forget – he can only seize and sell what belongs to the debtor – i.e. not the debtor’s wife’s goods, jointly owned goods, goods belonging to the landlord; nor can he take goods that are on hire purchase. When he does seize goods, he must look to reselling them, not only to satisfy the debt, but also to satisfy the costs of the sale. Second hand furniture and electrical goods will fetch low prices at public auction.

The bailiff often finds, in these modern times, that although there are many valuable items in a house, and a valuable car outside (on lease, contract hire or hire purchase), there is nothing for him to go for! He backs off!

Attachment of Earnings

As we have said earlier, this involves serving an application on the debtor. If the postal system fails, as I am sure it often does (or seems to!), then the services of the bailiff, to personally serve the application, may be employed; the creditor must pay a fee. If the debtor has moved away, it is not the bailiff’s job to locate him. Furthermore, if the debtor has moved outside the district of the court, the proceedings will have to be transferred to the appropriate court.

The chances are that any creditor applying for Attachment of Earnings will have done at least some research – possibly by Oral Examination. However, circumstances change, particularly for those of use who are self employed – one week we may be working, the next week – back on the scrap heap, and claiming unemployment benefit. The court will not make an order in circumstances where it believes that there is little or nothing to attach. The order may be adjourned if, for example, the debtor is on sick leave from his employment (i.e. not earning), and probably dismissed if he is deemed unlikely to recover sufficiently to return to work.

Let us look at the possibilities, should the order succeed. If the debtor becomes unemployed (which he may do if the order is particularly onerous), the order lapses. Should the debtor then take further employment, the creditor must then seek court action to have the order transferred to the debtor’s new employer. Move jobs quickly enough, and you may keep one step ahead of it!

Garnishee Order (attachment of debts)

We have already said quite a lot about this one. The main point to be aware of is that it is very much "hit and miss". If the Garnishee is against a bank account, it will not succeed if the account is overdrawn on the day the order is served. Creditors sometimes discover that their debtor is a salary earner, and go for garnishee at the beginning of the month when funds are likely to be in the account. Swift removal or an overdraft is the get out. You may have no warning of garnishee; anticipate the problem if possible and set up a suitable scheme to protect yourself against such action. Nothing elaborate; for example, simply remove all of the money in one go, and find a safe home for it.

Taking out the interest element

If pressed hard enough, or if convinced of extreme hardship, the likes of credit card companies (e.g. American Express), finance houses and some banks will stop interest accounts. This usually happens for a limited period until debtors get back on their feet; continuing hardship would need to be demonstrated to ensure continuance of such a facility. Certainly by the time matters get to court, interest is suspended; creditors can apply for a commercial rate of interest to be applied to debts, but they rarely succeed for amounts of less than £5,000.

If companies do show a reluctance to take out the interest, it is well worth pressing the point – taking it higher up the line. Do not be put off by the initial response (often a standard one), which is to refuse point blank to move on interest. Obviously the more hardship that can be demonstrated, the better!

Part Five – Individual Voluntary Arrangement

Many people who are up to their eyes in debt carry on paying their debts and make their life a misery! Very often, what makes them continue to pay is the worry of bankruptcy; the stigma of it; the thought of being a social outcast; the humiliation, perhaps; thought of losing their house; the worry of never being able to buy a house again. The reasons are many. However, there is a half way house, which not that many people are aware of.

Individual Voluntary Arrangement – The Half Way House

Very often, when someone goes bankrupt, the impact for the creditors of that person is that they will lose most or all of the money that is owed to them. From the creditor’s point of view not a desirable position, I am sure you will agree. However, many creditors will press matters as far as bankruptcy (even though they will get no return) as a matter of policy in order to set an example to others. The type of creditor that I am talking about is perhaps one of the big banks, or the mortgage companies; they see it as their duty. However, from the debtor’s point of view, when faced with this sort of pressure (under which many just give up), there is a viable alternative; one that many do not even consider.

This is the Individual Voluntary Arrangement otherwise known as the IVA. The essence of this scheme is that a creditor should be allowed to trade out of his debt. In doing so, the creditors receive some of the money owed to them and the debtor gets to pay back only a small part of his debts (sometimes as little as a few pence in the pound), over the space of a few years (usually three, but sometimes up to five years). It also allows the debtor to keep his house and other important property (more of this later). It is a perfectly legal arrangement and is handled through the courts. Put simply this sort of arrangement is beneficial to both parties and is better from both viewpoints than bankruptcy.

Is an IVA suitable?

An IVA is not for everyone. Much depends upon individual circumstances. However, let me now put together a profile of someone for whom this arrangement may be suitable:

  1. High debts and little chance of paying them off in the medium term.
  2. Ongoing income. Enough money coming in to service a smaller debt than the total of the current debts in question.
  3. Small assets. Someone who, for example, has a house with only, say, 20% equity in it. A forced sale would result in little or no money being available when the property is sold. Or perhaps someone who has a house which is difficult to sell or will sell for only a fraction of the market value (perhaps because it has tenants.
  4. Bankruptcy looming as one or more big creditors start to press hard.
  5. No benefit for creditors in the event of bankruptcy.

What exactly is an IVA and how is it set up?

An IVA is an arrangement made between a debtor and his creditors, whereby the creditors agree to accept a lower amount of money from the debtor over an agreed period of time. At the end of that agreed period of time, when all of the instalments have been paid, the debtor is released from his debts and is free to get on with his life. In order for the setting up of the arrangement to succeed, it must be presented to creditors on the basis that it is a better alternative to bankruptcy. In other words creditors stand to gain more out of the arrangement than if the debtor was declared bankrupt. An IVA is usually set up by an insolvency practitioner, perhaps in conjunction with a specialist consultant who works with the debtor to identify the important areas and presents the case correctly to the insolvency practitioner. There are many such firms who specialise in consultancy in this area; they recover their fees either by an up front payment or by including them in the IVA. The Insolvency Practitioner is given a one off payment and (usually) an ongoing service charge taken from the repayments each month.

The Mechanics of an IVA

This is a typical step-by-step approach to an IVA:

  1. The debt consultant works with the debtor to make a detailed assessment of the debtor’s financial situation. He gives the debtor advice as to whether an IVA is suitable and as to what can and what cannot (or should not) be included in the proposed arrangement. He will gather together all of the necessary information to enable a "case" to be put forward to the insolvency practitioner. The "case" will include realistic proposals for clearing down a proportion of the overall debt by monthly instalments, resulting in the eventual payment of a very much reduce overall debt.
  2. The "case" is submitted to the insolvency practitioner who then formulates it into an official document to be submitted to the court. The debtor signs the necessary paperwork indicating that he agrees with what has been set out and the proposals made.
  3. The paperwork is submitted to a magistrate’s court in the locality of the debtor and a small fee is paid to the court. A date is set for the matter to be heard by a judge in chambers. The judge may wish to see the applicant; this is, however, quite painless and meeting (if required) will take place in the judge’s chambers at court. By the time the paperwork gets to the judge, all of the background work has been done. All the facts are correctly presented in front of him; all he will do is have a brief look at paperwork and agree the order of the IVA to be approved by the court. The effect of this is to legally stop any further action against you until after the creditors meeting (below).
  4. The next step is a meeting with creditors. This is not as daunting as it may sound. The insolvency practitioner will organise this at a convenient location and time; he will also send out the invitations to attend, and chair the meeting. All you have to do is turn up. The purpose of the meeting is to get creditor’s approval of the IVA. In order for it to go through, 75% of creditors (in terms of money owed) have to vote in favour of the agreement. More often than not, no creditors turn up in person! Many simply send their vote; some do not even bother at all. The Inland Revenue are often the largest of the creditors; they usually respond in writing rather than attending the meeting. Generally speaking, they are warm to IVA arrangements since more often than not, they would be faced with losing all of the money owed to them; any recovery is better than nothing. It is therefore unlikely that they will attempt to block an arrangement since thus would not be in the public interest; however, they will sometimes hedge for a slightly better deal -and increased payment after year two, perhaps.

Tactics in Setting Up IVA’s

Buy Out Clause

There is usually a "buy out" clause in the agreement. This enables the debtor to buy out of the arrangement for a one-off payment, which includes payments already made by instalments. To take an example, a debtor might be paying, say £500 per month over three years; if the "buy out" clause for say, £10,000 was taken up after the first year, by the raising of the £2,000 extra needed to make up the total paid to £8,000, the debtor can reduce this debts even further and exit from the arrangement early.

Friendly Creditor

Some unscrupulous consultants or debtors arrange to owe money to a "friendly creditor". This creditor is someone the debtor knows personally; the value of money owed is large enough (over 75% of the amount outstanding to all creditors) to enable that creditor to force the vote at the creditors meeting and thus secure a much smaller monthly payment than would perhaps have been agreed otherwise.

Outside Deals With Creditors

Some debtors look to make special arrangements with creditors and pay them extra money outside the IVA. There is nothing illegal about this. It can be used as a tactic to persuade a creditor to support a proposed arrangement in circumstances where that creditor may have voted against it. Sometimes a special arrangement outside the IVA is necessary if you still wish to do business with a particular creditor.

Aim High

In any negotiation, seasoned negotiators employ this tactic; they aim for a higher target than they actually want. To translate this into the context of IVA’s, you would aim for a much lower repayment of repayment period than you require and then compromise to what you actually require.

Part Six – Bankruptcy – The Final Solution!

This is a complex subject, which requires advice from professionals according to individual circumstances. This chapter can, therefore, only comment generally.

A Rule of Thumb

If your liabilities far exceed the value of your assets, you are technically insolvent (your net worth calculation is relevant here). Should there be little or no possibility of repaying your debts, bankruptcy is the obvious solution.

In a nutshell, a court order is made, by your creditor/s, for your affairs to be wound up, and the proceeds distributed amongst your creditors – the taxman being first in line to be paid; it takes three years to emerge from it, and in the meantime, you must make some form of payment, if possible, to satisfy your debts. Not always a satisfactory solution from the point of view of the creditor; it is expensive and may result in a low or nil return. A nice threat, however.

There are many businessmen and women today who appear well off, at the pinnacle of their careers, and yet, they are undischarged bankrupts! These are the people who, for a variety of business reasons, have decided that bankruptcy is the solution for them. Cynics might say that these people have probably planned it very carefully. Prior to bankruptcy, assets have been subtly transferred into the names of spouses; spouses or close friends now run businesses previously run by the bankrupt. The bankrupt continues to live in the manner to which he/she was accustomed prior to bankruptcy! And legally walks away from debt.

Take Advice

Bankruptcy is not always the straightforward solution that some people make it out to be! You will be asked a lot of questions, many of these probing deeply into the circumstances in which you obtained the credit, which you are now unable to pay. You could find that criminal prosecution will follow, in some cases, where credit was obtained by deception. A lawyer specialising in the matter is essential. The final £200 on your credit card – well spent!

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