Court Proceedings

The aim of this booklet is to help you avoid court proceedings but what happens if negotiation fails and your creditors resort to legal action? It is not a crime just to owe money and with certain exceptions (see STEP 2) you can't go to prison if you are unable to pay. Your case will normally be heard in the county court which is not a criminal court. The court is not there to punish you but to ensure fairness between the borrower and lender. So don't be afraid of court action - it can often help solve your problem because you do have some legal rights.

Always complete and return court documents within the specified time so that the court is aware of your problems and overall financial situation and will be able to take these into consideration when making an order.

Always attend court hearings to ensure that your case is properly represented. The case will normally be heard in a private room with officials who are used to dealing with these matters - they are not there to serve the interests of the creditor alone.

It is helpful to be represented in court, but don't worry if you cannot afford a solicitor, just contact your local Citizens Advice who may be able to arrange assistance or refer you to alternative agencies who can assist with court representation. Alternatively, contact the CCCS helpline mentioned in the INTRODUCTION.

If court action is taken against you:

• You will receive a claim form stating what your creditor claims from you.
• If you do owe the money, return the form of reply attached to the claim form to the creditor saying how much you can pay. Complete the financial statement on the back of the claim form and make sure you explain your circumstances fully.
• If you dispute some or all of the debt say why on the form provided.
• If the creditor accepts your offer they will tell the court and you will then get an order (a judgment - CCJ) from the court telling you to pay at the rate you offered.
• If the creditor refuses your offer the court decides how much you pay from the information you have provided. If they tell you to pay more than you have offered you can ask for a hearing to explain your situation in more detail. You have fourteen days to ask for this.
• If necessary, seek advice in dealing with court documents but don't ignore them otherwise a decision will be made without the court being aware of your actual circumstances and financial situation.

Special considerations apply if the court hearing is for re-possession of or eviction from your home - seek immediate help as there are still things you can do at this stage.

Other aspects of debt recovery procedures which you may become involved with are:
Debt collection agencies

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

Bailiffs

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

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

Credit reference agencies

They keep records of some unpaid debts and a register of all county court judgments. Most companies will check with an agency before giving credit. You can obtain a copy of your record from the Agency and if it is wrong it can be corrected and when you pay off a CCJ you can have your record marked accordingly. Full details of these procedures are contained in a free booklet entitled ‘No Credit?' which you can get from your local Trading Standards Office.
Magistrates Court.

Certain types of debt can be recovered through the Magistrates Court (e.g. council tax arrears and unpaid fines). The procedure will vary but once again you must respond to all court documents and immediately seek professional advice. The magistrates have the ultimate sanction of imprisonment for some debts, although this is only used as a last resort.

Administration Orders

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

Bankruptcy/Individual Voluntary Arrangement (IVA)

Bankruptcy is a way of dealing with debts, enabling you eventually to make a fresh start and, at the same time, making sure your assets are shared out fairly amongst your creditors. A number of assets are automatically protected under Bankruptcy/Sequestration with the Official Receiver having discretion over others.

However, you will probably lose some of your assets, there will be costs involved in the process and restrictions on your future activities so the situation needs very careful consideration and you should seek professional advice before making a decision. Your creditors can also petition for a Bankruptcy Order and, if this is the case you need to seek help immediately. An IVA is another way of resolving a debt problem. The equivalent in Scottish Law is a Trust Deed. Certain criteria must be met and there are costs involved. You must also have some means of making an offer to creditors. Seek professional advice before embarking on this complex procedure.

The best people to see regarding an IVA/Trust Deed would be suitably qualified Insolvency Practitioners, Chartered Accountants or Solicitors. With regards to the way in which assets may be protected in an IVA/Trust Deed we suggest that you discuss this with the Insolvency Practitioner/Chartered Accountant who should be able to advise which assets could be excluded from the arrangement without detriment to the agreement.