If you’ve struggled to keep up with repayments to a company you owe money to, you might find yourself getting letters and phone calls about debt collection.
Debt collection can involve lots of different steps – from urgent reminder letters to debt collectors knocking on your door. What’s more, the debt collection process can lead to additional fees and charges from a specialist debt recovery firm – so it’s important to know what to do if you think you might be facing debt collections steps.
Here, we’ve covered everything you need to know about debt collection, so you’ve got the information you need to get the right kind of help.
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What exactly does 'debt collection' mean?
Most people in the UK have some level of debt – from credit cards and overdrafts to loans and store cards. Even though this is referred to as ‘debt’ – as long as you’re repaying it as agreed, the companies you owe the money to don’t have to begin actual debt collection steps.
Debt collection (sometimes called debt recovery) happens when you miss payments or can’t pay as much as you’re supposed to.
Most companies generally understand if something unforeseen means you miss a single payment. There are often charges that will be added for missed payments like this – but as long as you let the company know (ideally before the payment is missed) – then they can usually do something to help you.
However, if you don’t let a creditor (a company you owe money to) know that you might struggle with a payment – or you keep missing payments – then you’ll probably find your account being passed to a debt collection team within that business.
If this team can’t make contact, they’ll work with a dedicated debt recovery business to take action to collect whatever debts are owed.
What does debt collection involve?
Generally, one or two missed payments will be handled by a company’s general customer service team – but if you regularly miss payments, you’ll probably find your account is passed to a debt collection team or debt collection agency.
At this point, you’ll find that you get regular calls and letters from the collection agency chasing the debt or asking you to get your payments back up to date.
If you don’t, your creditors will threaten you with consequences – including additional charges, visits from debt collectors, and possibly even taking you to court; which could result in a county court judgement (CCJ).
What can the companies you owe money to do?
The companies you owe money to may try a number of different ways encourage you to pay so they can collect the debt that is owed – including:
Making contact to collect what’s owed
This would involve writing to you and/or calling you to explain the situation and try to arrange repayment.
Increase your interest and charges
If you’ve signed a credit agreement, a debt recovery process will often involve increasing the amount of interest being charged and adding additional fees.
Default the agreement
If you don’t make your agreed payments for up to six months, a creditor will mark your account as ‘defaulted’ – which really just means you are not making payments. This will be reported credit referencing agencies and will be recorded on your credit file.
Pass or sell your debt to a collection agency
The company may pass your details to a debt recovery or debt collection agency which will then chase you more forcefully and frequently. They might even send debt collectors to your home or where you work.
Apply for a CCJ
Both creditors and debt collection agencies can apply to the court to get a county court judgement (CCJ) against you if you continually fail to make repayments. This is a serious step and can lead to further legal action.
Take steps towards making your bankrupt
If there is no other way of recovering what is owed, a company could issue a ‘statutory demand’ – the first step is making you bankrupt. This is rare, and it would only be done if you owed £5,000 or more – but this could lead to life-changing financial consequences.
What is a debt collection agency?
We’ve talked a bit about debt collection agencies already – so it’s worth understand exactly what they do and how they’re different to the company you owe money to.
Debt collection agencies are usually separate companies that work on behalf of the company you owe the original debt to. It’s important to remember that debt collection agencies only collect debt – so they are much better equipped for continually trying to track you down and get in touch with you.
In some cases, the debt collection agency will actually buy your debt off the original company for less than what you owe. They then make money by adding more charges and recovering the full amount of money from you directly.
What happens when a debt collection company gets involved?
Each debt collectors company works a little bit differently, but you’ll know when they become involved as you’ll receive a letter and/or a call telling you they’re now handling your debt and outlining the action they might take.
Most debt collectors and debt recovery firms are very professional and employ understanding customer service agents – but they will make it their job to recover what you owe as quickly as possible.
They’ll attempt to set up a payment plan with you – but you can expect hefty fees and additional charges if you don’t stick to the plan.
Can a debt collection agency send bailiffs or debt collectors?
A debt collection agency can send debt collectors to try to recover the money you owe – but you shouldn’t mistake these debt collectors for bailiffs.
Bailiffs are appointed by a court to collect debts and usually get involved much further down the line. Debt collectors do not have the same power as bailiffs.
What can a debt collection agency actually do?
Unlike bailiffs and the courts, debt collection agencies do not have any legal powers to force you to pay your debts. Instead, they will continue to use the same strategies your creditor did – with letters, calls, and possibly visits to your home or workplace.
Although they are allowed to contact you to try to get you to pay your debts, the Financial Conduct Authority (FCA) are very clear that collection agencies are not allowed to harass you with phone calls or lie about the action they can take.
What can debt collectors do?
Now we know debt collectors are not the same as bailiffs, it’s worth looking at what a debt collector can actually do if they visit you at home.
They will not be carrying a warrant from the courts – so they do not have the right to force their way into your property.
Although they can ask you to repay your debt, they cannot demand that you make a payment there and then – and they cannot seize any of your property. If a debt collector claims to be able to do this, they’re likely to be breaking the law.
It’s not pleasant having people turn up to chase debts, but you don’t have to let them in or even answer the door.
In fact, there have been lots of cases of scams involving people saying they’re debt collectors – so even if you do want to make a payment, it’s always safer to do this over the phone with the collection agency that sent them.
What should you do if a debt is passed to a debt collector?
Debt recovery firms usually only get involved when a debt has gone unpaid for a number of months. Since they tend to add charges for every letter or every time debt collectors visit, it’s a good idea to contact them as quickly as possible if you know they’ve had your account passed to them.
The first thing you should do is make sure the debt recovery company is an actual company and not a scam – then, find out which debt they want to talk to you about. As long as everything is above board, you should try to set up an affordable repayment plan to clear what’s owed.
Avoid ignoring debt recovery companies
It’s fairly common for people who are struggling financially to avoid calls or letters from companies they have debts with – but even if this has been the case up until now, it’s not a good idea to avoid a debt collection agency.
Although debt collectors don’t have the powers of bailiffs or the courts – collection firms can seek legal action if you ignore them. With this in mind, it’s a good idea to make contact with them and try to reach an affordable agreement you can stick to.
What should you do if a debt collector visits your home?
It’s fairly rare for a debt collection agency to send someone to call at your house – but collection visits can happen.
Remember, debt recovery agents are not bailiffs, so they don’t have any legal powers in this situation. As such:
- You don’t have to let collection agents into your house
- They must show you their official ID
- They cannot demand that you pay towards your debts
- They cannot seize any of your possessions
- You may ask collection agents to leave – and they must do so
What should you do if a debt collection agency is handling your debt?
If a collection organisation has got in touch with you about a debt you owe, it’s important to talk to them and see if you can set up an affordable payment plan to pay off what you owe.
If you don’t, you might find they add a lot of additional costs and pursue legal routes to get you to pay back what you own.
If you’re struggling and you know collection agencies are chasing you for repayments you can’t afford, we can help. Contact us today and talk to a friendly, professional advisor about your situation.