Unsecured debt is a debt accrued where the person or company that has lent you the money does not hold any collateral against the debt. Common types of unsecured debts include credit cards, some loans, overdrafts, rent arrears and utility bills. Whilst you should make efforts to pay all of your debts, the consequences for non-payment of unsecured debts are not usually as serious as failure to pay debts secured on your home or other forms of security.
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Your creditors will expect you to continue to make payments unless you contact them and explain you are in financial difficulties. Many companies will make allowances if you communicate with them and explain your situation. Even making smaller payments than agreed towards an unsecured debt will show good faith on your part in the short term. Ask for more time to make payments or make an offer of a revised payment schedule.
Creditors can take a number of steps to recover their money and will take actions to do so quickly if you don’t talk to them. Some companies will commission debt management companies to recover the debts whilst others have their own arrears recovery teams.
County court judgement
Creditors can take you to court over the money you owe. They should send you a written notice informing you of this. It is important to read the papers, take advice and attend court. Your creditor might seek to secure a county court judgement (CCJ) against you which will affect your future credit rating. The court will ask you to complete an admission form and accept that you owe the money. At this point you can still make an offer to your creditor which might avoid the CCJ going ahead.
If you do not agree to pay, the court will consider forms of enforcement action. These will include sending bailiffs to your home to take away possessions, issuing an attachment of earning order to take money from your wages, or even taking money directly from your bank account. In the most serious cases, a charging order can be made, securing the debt against your home
If you are unable to make any payments towards your debts, the problem is quite serious and you should contact a reputable organisation such as the Citizen’s Advice Bureau for advice. Avoid the companies offering instant debt solutions via online or television advertising. Tell your creditors that you are contacting the CAB and ask for more time until they have advised you.
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