In the 29 years I have been assisting people with their finances, and doing financial counselling, I have been asked quite a few questions over those years. There are a few that are reoccurring, and worthy of addressing here.
One question I get is: Why after my car or house is repossessed, do I still owe the bank money?
The simple answer, in two words is “deficiency balance”.
To address this, we need to go back to the future! Not really, just back to the beginning.
When you finance a car or buy a property and take out a mortgage, once approved, you are getting a loan for that specific amount of money. If you buy a house for £150,000 and put £10,000 as a deposit, your loan will be for £140,000.
If the property is repossessed, and the loan balance is now £125,000, and when the property is sold by the bank or mortgage lender, it only sells for £90,000, you still owe £35,000. That is the balance left on the loan, which you are still responsible for.
The property was just collateral for the loan. If the sale of the collateral after a repossession does not fully pay the balance of the loan, that balance still needs to be paid, and you the borrower are still responsible.
Another question I get is: Why am I being chased for a loan I co-signed or guaranteed?
This was a question I used to get a lot, however, I believe the lenders are explaining things to the borrower(s) and co-signers better now.
As a co-signer or guarantor of a loan, you are in essence saying, if the borrower does not make the agreed payments, I will. You are essentially a borrower on the loan as well. So if there is a default, the bank or lender will look to you to make those payments.
A lot of couples have concerns over their partner’s or spouse’s debts and if they are also responsible for those bills and debts. A question I get is: Am I responsible for my partner or spouse’s accounts/debts?
While the quick answer is no, it can get more complicated.
As long as the accounts/debts are in just one name, and are not jointly held, in both names, then no, the only spouse or partner responsible is the one whose name is on the account.
The complex issue is if you both own property or have joint assets. While only the indebted spouse or partner’s portion of any joint asset can be looked at by a creditor, it can still cause financial injury or issues to the non-indebted spouse or partner.
However, again unless the debt or account is in both names, only the one person is responsible. So you can move in with someone in debt, and marry someone in debt, and you will not be responsible for their debts.
This also carries over to bankruptcy as well.
If a partner or spouse goes bankrupt, it does not affect the credit of the non-bankrupt spouse or partner. Each person’s credit report is their own, and unless there are joint accounts, or accounts in both your names, the non-bankrupt person is not affected, credit wise.
If any of the accounts are in both names or jointly held, the same as being a co-signer or guarantor applies. The person going bankrupt can be relieved of the responsibility of the debt, however the non-bankrupt spouse or partner will then be fully liable for the account.
I also get asked many questions about bankruptcy and the collecting of debts, but sometimes they are from the Dark Side of the Force; people looking to collect a debt or make someone bankrupt.
I do help where I can and thought it might be good to address some of their questions here.
Yes, if someone owes you £5,000 or more, you, as one of the tools at your disposal to collect the debt, can make someone bankrupt. This amount someone owes you was previously £750, but was raised to £5,000 in October 2015.
To do this you will need to get advice from the courts or an accountant or solicitor, but by following the proper procedures, such as attempting to collect the debt, sending out a Statutory Demand notice, etc, and filing the required forms and paying the appropriate fees, you could make someone bankrupt.
What’s these ‘fees’ you mention??? If you want to make someone bankrupt, you would need to pay the fees to the court to do this. The fees are just over £700.
In addition, if you do make someone bankrupt, all their debts are included in the bankruptcy and all their creditors are treated the same.
So you have made them bankrupt, paid the fees involved, and receive no preferential treatment whatsoever.
So if someone owes you £5,000, or even slightly more, is it worth it to make them bankrupt??
Probably not. That does not mean you cannot try to collect the debt, obtain a CCJ, send out bailiffs, or look at obtaining a Charging Order if they have property.
But none of this comes cheap; so for a small amount or loan owed to you, many of these collection options are not really economically feasible.
But you still want your money, right.
Then you may sell the debt off to a collection agency for pence on the pound, or just hire a collection agency to collect the debt.
But again, this doesn’t come cheap.
So unless the amount owed is substantial, trying to collect the money, may cost you more than what is owed.
That is why many people cannot understand why if they owe a bank or credit card company the company or bank just does not make them bankrupt.
Because it is not worth it to them.
Unless you have substantial assets, such as property, the creditor is better off trying to collect what they can from you, even if it isn’t much each month, then making you bankrupt.
An if you do have property, the creditor is better off obtaining a CCJ and a Charging Order against the property to insure their interests are protected as charging orders are not included in a bankruptcy.
So even if you make yourself bankrupt, or someone else does this, the charging order stands.
Now that does not mean all creditors or people you owe will not make you bankrupt; HMRC and local Councils are very aggressive in making people bankrupt, and with the use of bailiffs.
The Councils will make you bankrupt for non-payment of Council Tax. And for many of the people I have spoke with, they own their properties and can and do lose them once made bankrupt.
So pay your Council Tax please.
Yes my friend, you can be chased for debts in other countries here in the UK.
It will depend on the terms and conditions of the loan agreement, but some agreements have “non-specific jurisdiction” clauses, which means the debt can be chased outside the country of origin.
Also, if a debt is sold to a UK collection agency, they can then chase the debt in accord with the laws and rules here in the UK.
That’s the bad news, the good news is you as a debtor are afforded all the repayment schemes and insolvency options with this debt, as with any debt that originated in the UK.
And you can include the outside debt in a repayment scheme or insolvency option even if you are not being chased for payment. However the protection afforded you is only in the UK/EU.
Yes! If you have had no contact with a creditor regarding a debt for a period of six (6) years, the debt can be considered statute barred, meaning it is no longer owed.
Keep in mind, this is for debts originated in the UK. Debts from outside the UK may carry a longer period of time before they become uncollectable. Such as debts in the UAE have a 15 year statute period.
Hopefully by looking at the Dark Side for a bit, it will shed some light (yep, pun intended) on those experiencing some financial difficulties.
And what about some credit and credit scoring questions I have been asked over the years.
The answer is a bit complicated, but just by going bankrupt does not mean you will never get credit again. But it will be difficult initially, and it does take time to be credit worthy.
If you continue to pay your rent and other monthly bills, in the new credit scoring models being tested, this will help to improve your credit score.
Time is a healer as well, as the bankruptcy will drop off your credit history after six (6) years.
There are two ways you can fix or correct an error on your credit report. One is to contact the creditor in question and bring up the error to them. They can fix the error the next time they report to the credit bureaus.
The second way is to contact the credit bureau(s) in question and go through their process.
Applied for a job and the company asked me to sign a release so they could review my credit. Will this hurt my credit score, and could I not get the job?
If the job requires you to handle cash, or is in the financial sector, having poor credit could hurt your chances of getting a job.
I have a credit score that is over 800, is this good?
Different credit bureaus, while using similar scoring methods, use different scores or numbers,
A credit score of 800 may be good to one credit bureau, and may just be fair with another.
Is there a way to find out if I might get approved for credit without hurting my credit score?
Yes, many lenders are now offering what they term “eligibility checkers”.
Do you have a credit or personal financial question you would like answered?
Post your question in the comments section here below, and I will answer them.
,In the 29 years I have been assisting people with their finances, and doing financial counselling, I have been asked quite a few questions over those years. There are a few that are reoccurring, and w
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