Mortgage arrears

Mortgage arrears

View the following links to help you deal with mortgage arrears.

Who can offer help?
If you’re struggling to pay your mortgage or rent, the council’s Housing Options and Advice Service can help with advice on how to manage your finances

What you can do about your arrears
Provides information and advice to reduce mortgage arrears. This includes tips for negotiating with your mortgage lender and advice on mortgage options.

Options for clearing your  mortgage arrears
Provides options depending on the kind of mortgage you have. These include

• Repayment mortgages
• Endowment mortgages
• Secured loans
• Leaseholders
• Shared ownership schemes
• Other options

How to present your information to your financial lenders
Advice on presenting your household income for negotiating a deal to reduce arrears. It also contains a standard letter and a financial statement to complete and send to your lenders.

Priority and non-priority creditors – actions creditors can take
Advice on debt payments that are prioritised in order to prevent losing your home, your belongings or imprisonment.

What action can your mortgage lender take about your arrears
Information on the eight stages of possession proceedings.

What you can do once court action has started
Summons, Form of reply, Adjournment etc.

More information
Links to mortgage and debt advice from the Hammersmith & Fulham website, and external links.

Mortgages - Who can offer help

Hammersmith & Fulham Council
Housing Options and Advice Service:
Tel: 0845 313 3935

Benefits questions:
Tel: 0845 803 1020

h&f Advice, 145 King Street, W6 9XY
Open Monday to Friday 9am – 5pm.

If you’re struggling to pay your mortgage or rent, the council’s Housing Options and Advice Service can help with advice on how to manage your finances.  It can also advise you on what benefits and local or central government aid you might be eligible for.  Some people might be able to claim Housing Benefit, for instance, if they’re on a low income and are struggling. 

If you live in private rented accommodation and have received some form of notice to quit from your landlord or you’re suffering from harassment from whoever you rent from, the council can also help.  You can telephone or drop into the office.

Advice & Employment Shepherds Bush
338 Uxbridge Road, London, W12.

Free, impartial and confidential advice on debt and welfare benefits is available here.  The group offers advice on mortgage arrears, rent and council tax arrears, bankruptcy, credit card debts, personal loans, bailiff action, service charges. 

There is also a monthly Managing Your Money Workshop.

Drop in service
As well as this, there is a drop-in service is where residents can obtain initial help and advice and where you can attend in person without an appointment. Opening hours are: Mondays, Tuesdays, Thursdays, and Fridays - 9 am - 4pm.  Closed 12noon - 1pm each day for lunch. Wednesday - appointments only.

Telephone advice line: 020 8753 5913
The advice line operates: Mondays 1pm to 4pm, Tuesdays, Thursdays and Fridays - 9am - 2pm and 1pm - 4pm

Citizen’s Advice Bureau (CAB)
1 Mund Street, London W14
Tel: 0845 458 2515
Email: enquiries@hfcab.org.uk

The CAB offers practical help and legal advice to anyone concerned about money they owe or mortgage or rent arrears.  Their website is particularly helpful. "Prevention and crisis management" is the way the bureau thinks of its services and it offers help with budgeting and money management. The new Moneyplan service provides help and advice with investments from a registered Independent Financial Advisor.

Open: Monday 10am – 1pm and 5pm – 6.30pm, Tuesday 2.30pm – 5pm, Thursday and Friday 10.30am – 1pm.
www.adviceguide.org.uk (opens new window) - click on "debt" on left hand of the screen.

The Consumer Credit Counselling Service
Tel: 0800 138 1111
www.cccs.co.uk (opens new window)

This charity advises people on all aspects of debt and provides help with things such as budgeting.  They can look through your income and expenditure with you and working out ways of saving money such as switching to a Direct Debit on your gas or electricity bill as well as how to increase your income by taking a lodger perhaps.

National Debtline
Tel: 0808 808 4000
www.nationaldebtline.co.uk (opens new window)

This charity offers advice free of charge on all aspects of debt and can work with callers to develop a Debt Management Plan to help them manage mortgage, rent and any other aspects of their personal finance.  You can remain anonymous if you’d prefer and advice is available in many languages other than English.
Tel: 0808 808 4000
www.nationaldebtline.co.uk (opens new window)

PayPlan
Tel: 0800 716 239
www.payplan.com (opens new window)

Free help and advice in available from this charity on issues such as budgeting, bailiff advice, repossession orders, County Court Judgments and mortgage and utility arrears.  PayPlan can help by offering solutions such as debt management plans, remortgaging and Individual Voluntary Arrangements which allow you to come to an arrangement with creditors such as credit cards and to pay them off gradually.

What you can do about your mortgage arrears

Many different changes in circumstances can lead to less money being available in the household budget for essential bills, for example, redundancy, relationship breakdown or illness in the family.

Tips for negotiating with your lender
In order to negotiate with your lender, you will need to both

• organise all your facts, and
• understand what possible options you have.

You can then start to discuss your situation.

• Make contact with your lender as soon as you know you will be having problems making regular payments.
• Send them a short letter, explaining that you are aware of the problem and will get back in touch as soon as you can with proposals to clear the arrears.
• Draw up a Financial Statement reflecting your current Income and Expenditure.
• Talk to your lender again.

Approach your lender with your proposals in person or in writing. It may be a good idea for you to put your ideas in writing, asking at the end of the letter for an appointment to come in and discuss them with your lender face-to-face. This way, your lender will have had a chance to look into your proposals (especially if they involve projected calculations) before you meet to discuss them.

Put it in writing
If, at any time when talking to your lender, you agree something by phone, remember to back this up in writing to your lender confirming what was agreed,

Pay what you can
Whilst you negotiate, it is important to pay what you can in the meantime and to be as consistent as possible in making payments regularly. The reason for this is that if your lender ever goes to court to seek possession, your payment history will be looked at carefully, and may be the cause of an offer being agreed or not by the court.

Only ever make an offer that you know you will be able to pay
The offer you make will have to be paid on a month by month basis, so you do not want the agreement to have to be varied only a couple of months after it was first agreed, only because you realise later you have not allowed enough for your household expenses. This is why any offer made should be backed up by a Financial Statement, so that everyone involved can see clearly you can afford it.

What if your lender does not agree with your offer initially?
Point out to them that an offer made subject to a detailed Financial Statement is in both of your best interests, as you are most likely to be able to keep to it. If you need to, present the offer again, to a person who is senior to the one you were dealing with, or the Head Office. You can continue with this strategy right up to the level of the Chief Executive if necessary.

Complaining
All building societies and banks have internal complaints procedures, and if acceptance has still not been achieved for what you believe is a reasonable offer/proposal and mal-administration may be involved, you can also direct your complaint to the Building Societies/Banking Ombudsmen.

Start paying the amount you have offered on time
If your offer concerns money, rather than a re-negotiation of your mortgage terms. Once an offer has been agreed, try to stick to it and pay on time. As already mentioned, if your case does go to court this will be taken into account. Any offer will usually only accepted for a period of 3-6 months. It is reviewed after this time.

Difficulties paying?
However, if you are experiencing real difficulties or your circumstances change again after your offer has been accepted, you should inform your lender of this, and re-negotiate your offer on the basis of a new Financial Statement.

It is never too late to reach an agreement
To contact your lenders about your arrears, if you have a proposal for clearing your arrears within a 'reasonable time', right up to the time of a Possession Warrant being granted.

A 'reasonable time' is defined in case law as up to the lifetime of the mortgage, for most mortgages. If it is impossible to reach an agreement with your lender, and they simply proceed to court, bear in mind that you will be able to explain to the court the extent of your negotiations. You may then find that the offer you were putting forward to your lender is agreed by the court as acceptable. But you will want to be able to show evidence to the court of when and how often you contacted your lender, so remember to keep copies of all correspondence for this purpose.

About the Council of Mortgage Lenders
The Council of Mortgage Lenders have a 'Mortgage Code', and a 'Code on the Handling of Arrears and Possession', which all their members subscribe to. It
states that:

• 'We will consider cases of financial difficulty and mortgage arrears sympathetically and positively.'
• 'We will do all we can to help you to overcome your difficulties... possession of your property will be sought only as a last resort when attempts to reach alternative arrangements with you have been unsuccessful.'

You can ask the Council of Mortgage Lenders (opens new window) for copies of these.

The CML can be useful as a negotiating tool, if your building society will not agree to a strategy which appears as an option in one of these codes.

"If you can’t afford your full mortgage repayments you should talk to your lender and still pay what you can afford. This shows your lender you are committed to solving the problem and makes it easier for them to help you," advises the Council of Mortgage Lenders. 

Things to check:

• benefit receipt.
• claim on any Mortgage Protection Policy you may have.
• check the value of your home.
• claim Income Support housing costs (more about this further on).

Options for clearing your arrears

Your choice of action will depend on

• how the arrears arose in the first place
• how short or long term the remedy needs to be
• whether your lender has taken action in court yet, and lastly
• what kind and how many mortgages you have.
• how much available income you have

Some of the options outlined here will also help you reduce your future mortgage
costs as well.

1. Options for repayment mortgage

• pay mortgage interest only.

This can have short-term and long-term possibilities. Some lenders are prepared to allow borrowers to set aside capital payments for quite long periods, either as a separate arrangement, or after the surrender of an endowment and change to
a repayment mortgage.

• extend the term of your mortgage 'life'.

If you have been paying if off for a number of years, you can go to your lender and ask them to extend your mortgage, which means that your repayments will be lower and more affordable. Some lenders will extend terms up to 35 years. Your lender will check though that you will be able to meet the new repayment.

• capitalise the arrears on your mortgage.

If you have built up substantial arrears, but can otherwise meet your mortgage payment, this would be a good option to consider. It will have the effect of increasing your monthly payment, in line with the amount of capital you are adding, but will clear your arrears in one go. Sometimes you can look at this option alongside the possibility of extending the mortgage term, which will mean your arrears are paid off, but your monthly payment does not rise, and may in fact fall.

• reduce or do not pay instalments to cover a short period of reduced income.

If you are, for example, off work and without access to more than basic sick pay for a limited period, your lender may be persuaded to accept non-payment during such a period, but normally only in a situation where they know you will be going back to your employment at a confirmed time.

• pay off an increased amount (on top of your normal monthly repayment) for a certain period of time.

If your Financial Statement allows for this, you will be able to clear your arrears in full. This option will depend entirely on what extra income you have available to put into your mortgage.

2. Options for endowment mortgage

In general, an endowment mortgage is less flexible than a repayment mortgage, and there are therefore fewer options available to help you through a period of arrears.

• change to a repayment mortgage and surrender your endowment policy.

This is a major step to take and should not be undertaken without independent financial advice. If you are considering this step due to the fact that you are in arrears, it is unlikely that you will be able to afford to pay an Independent Financial Adviser so you would need to take the following steps:

• First, you must find out what the 'surrender value' of your endowment policy is.

If you have had it for longer than two years, there may be some value in it, but it is unusual to get back what you have paid in, if you are cashing it in early.

• Second, you must ask your lender to give you a quote to assess what your mortgage payments would be under a repayment mortgage.

You may find that the endowment policy has been 'assigned' to your lender. This means that you must get their agreement before the endowment policy will be surrendered by the insurance company. Also, the proceeds will pass directly to your lender. It is therefore important that you agree in advance with your lender, what will be done with the money. The bulk of the proceeds will normally go to pay off arrears. You can request that any remainder be used to pay off some monthly repayments, or be put towards the capital, thereby reducing your monthly payments.

Whilst you are negotiating the change in your mortgage, you will have a period during which you are paying interest only to your lender. Sometimes, lenders are happy to keep this arrangement going even after surrender of the endowment
policy.

• reduce or stop interest payments to the lender and pay the endowment policy only.

This is a short-term measure. You would normally only consider this if your endowment policy has been running for many years, and it is therefore important that it does not lapse (as it will be your endowment policy that pays off your mortgage at the end of the day). If your income is reduced for a short period, you may choose to do this rather than meet only part of your mortgage interest payment and pay none of your endowment payment.

The resulting arrears of mortgage interest can be dealt with in a number of ways

• you may increase your payments for a few months, or
• ask your lender to capitalise the arrears.

3. Options for secured loans

• re-mortgaging your property.

This will involve extra expense due to legal and survey fees and is only a real option for you if you have no arrears on any mortgage/loan and where there is 'equity' in your property. You need to remember to watch out for being charged higher interest rates on any new loan. This may not be an option if you are on Income Support - see section on Income Support.

• further advance from first lender to pay off the lender of your secured loan.

It can be possible to negotiate this without having to pay any fees to solicitors or surveyors, which makes this option cheaper than a re-mortgage of your property. This may not be an option if you are on Income Support.

• apply to the County Court for a Time Order.

This is an option if you have received a Default Notice on your secured loan, and the loan itself was for £15,000 or less if you took it out before 1 May 1998, £25,000 or less if you took it out on or after 1 May 2008 it would then be regulated by the Consumer Credit Act 1974

This can be a very useful way to get an order of repayment agreed, especially if you have been negotiating with the lender of your secured loan, but have not been able to reach agreement with them, but will only cover a limited period of financial hardship and will only be considered by the District Judge if you have the potential means to continue to meet full payments in the future.

There are two ways to apply for a Time Order:

• By applying direct to the County Court once you have received a default notice. The court fee should be waived if you explain that you are having financial difficulties, or are on benefits. This method of obtaining a Time Order has the advantage of not leading to you being registered on the Register of County Court Judgments.
• If your creditor has already issued a summons for possession, you can apply to the County Court, or ask for a Time Order at the possession hearing. No fee is payable for this because it is not an 'originating application'. At the hearing, the District Judge can allow you to pay lower instalments, can reduce the interest rate that you are being charged, freeze interest, reduce the total amount owed and make any other adjustments she/he sees fit.

A Time Order can be made for either the arrears alone, or the loan repayments in total. In order to come to a decision, your Financial Statement will be scrutinised. Your creditor does not necessarily have to agree with the order made - it is sufficient for the District Judge to see it as reasonable, and your creditor would then be bound to accept.

4. Options for leaseholders

Leaseholders have an added burden of needing to pay for service charges. The options as far as your mortgage are concerned if you are a leaseholder will depend upon whether your mortgage is a repayment or an endowment mortgage, and have already been outlined above. The options here refer only to
arrears with service charges.

• your freeholder may accept increased payments as long as any arrears are paid off within 12 months.
• If your arrears relate to major works bills, then either you or your freeholder can request that your lender meet the bill and add the balance to your mortgage capital.

If you require advice beyond the actual paying of any bills, you should seek specialist advice.

5. Options for shared ownership

• rent free period.
• ask lender to pay arrears of rent and add the amount to the mortgage capital.
• ask the lender to capitalise directly any arrears on the mortgage.

Discuss your difficulties directly with your landlord (usually a Housing Association) as soon as you can. This is important, not only because they may be able to help during any period of rent arrears, but also because they may have rescue schemes of their own, for example, you may be able to purchase a smaller share of a different property. It is also wise because any arrears details of either rent or mortgage will usually be communicated between landlord and lender.

6. Other options

• Handing in Keys

There are very few situations where handing in your keys is a good idea. If you do decide that this is what you want to do, your loan will continue to run and accrue interest after you have left the property. This will remain the case until the property has been sold and the loan paid off from the proceeds. Also you will find that all costs of the sale will be added onto the loan as well.

• Negative equity

If you have 'negative equity' (your property is worth less than the loan/s on it), the original loan will not be paid off. Your lender will continue to charge interest to your account and you will need to make an arrangement for payment as soon as possible.

Also, as you have voluntarily given up your home, your name will be held on the Possessions Register, along with people who have lost possession through court order. This means that you will have problems in the future obtaining credit, and if you try, also with getting another mortgage. As well as credit problems, if you will be seeking accommodation from your local authority as a homeless person, you will find that you run the risk of being found to be 'intentionally homeless', and may not be given help.

Mortgage Rescue Schemes

These schemes are run by housing associations, local authorities or your lender. One of these three will purchase your home and will rent it back to you so that you may remain there.

Therefore, you would become a tenant, but the rent you pay would almost always be less then the amount of your mortgage payments. If the scheme is run by a housing association, you may find that they allow you to retain ownership of part of the property on a shared ownership basis; you would then rent the remainder from the housing association.

Remember that if your home is purchased this way, but is worth less than the mortgage, then you will still have to come to an arrangement with your lender regarding the shortfall.

• Moving out and taking in tenants.

This option is only possible if you have access to rent-free or low rent accommodation, for example, if you could stay with relatives or friends for a period of time, or you have empty rooms in your property.

You need to get agreement from your lender before renting out your home. Check your mortgage agreement for more information on this or contact your lender direct, and put this forward as an option to clear your arrears.

Your lender may impose commercial lending rates, if they agree to you taking in lodgers/renting your property.

The other problem is that, whilst renting your home out, you decide to sell it, you may be liable for Capital Gains Tax. Again, contact your local tax office if you think you may be in this situation.

If you are considering this move and are in receipt of Income Support, the rent you receive will be seen as income (but ignored up to the value of your mortgage repayments), and your home will be seen as capital, which may mean that your benefit reduces/ceases.

• Staying put and taking in a lodger or boarder.

A better option may be to take in a lodger, if you have a spare room. The income you receive from this will be subject to Income Tax, and your Income Support will reduce as most of the rent will be seen as income - unless you have rented the room under the 'Rent a Room Scheme'.

However, renting a room to someone as a boarder (meaning that you provide some meals) will be more advantageous if you are on Income Support, as less of the rent they pay you will be taken into account as income.

Finally, remember to check your insurance policy and if you need to, contact your insurance company to let them know about who is living in your home.

• Not taking out further loans.

Adverts are often put in the local press and newsagents windows, offering no strings attached loans. Avoid this method of borrowing. If you are already having trouble paying your mortgage, even if a further loan of this type would clear your arrears, you will have problems paying the mortgage and loan instalments together, and may then fall into arrears with two loans. Often the rates of interest of loans taken from so-called 'loan sharks' are very high, and you may be faced with a large and rising debt.

• Selling Your Home.

There are only a few circumstances in which selling your home will put you in a better position. You may be able to sell, clear your existing mortgage and buy a smaller property in a cheaper area, and take out a smaller mortgage on this. This will only be the case if you do not have 'negative equity' on your existing home.

If you are thinking of selling up and moving into the private-rented sector, look carefully at what level of rents are charged in your area. Compare this to what your local Housing Benefits service would allow, if you will be claiming benefit.

Ask them to do what is called a Pre-Tenancy Determination, a decision on how much of the rent on a property will be allowed, once you have found somewhere suitable. This will affect whether it is a good option for you or not.

For more information about this option view Rent service - PTD.

As with handing in keys, if you approach the council and make a homelessness application to your local authority, you risk being seen as making yourself 'intentionally homeless', and may not be given help.

• Making a Charity Application.

Consider this as an option if you are on a limited income. Most local reference libraries stock a book named 'A Guide to Grants for Individuals in Need'. For more information view Grants for individuals in need 2713 (opens new window).

Consult this and try to match yourself to a number of charities whose criteria you meet. Some do have a policy not to provide grants to cover arrears, but your own circumstances, for example, if you recently became disabled, may outweigh this.

Also, many of the occupational/service charities will not exclude payments for arrears, so if you did a particular job or used to be in one of the services, apply to these specific organisations.

• Tax Rebate

You may have had a change in circumstances, for example you or your partner have recently left work, or you may have had many changes in tax code in the last tax year. In any case it is always worth asking your tax office to check whether you have the correct tax code, and to claim a rebate. This could then be used as a lump sum payment towards your mortgage arrears.

If you do claim and receive a tax rebate and wish to use it to pay off arrears, be careful that your lender does actually use it for the purpose that you request, for example that it is used for payments in advance if you have an immediate difficulty in paying, or is used to pay off capital.

How to present your financial details to your lender and dealing with other debts

To make an offer to your lender, and to any other creditors you may have, you will need to complete a Financial Statement.

You may be confused if you have a number of creditors, all writing to you asking for payments which you may not be able to afford in full. You may have tried to ignore the problem for sometime.

The most important creditors to deal with first are those who can take the strongest action against you if you do not pay.

These are known as Priority Debts.

There may be other payments which do not appear in this list, but which are priorities for you taking into account your circumstances. For example, if you are self-employed or have a disabled child, telephone services will probably be a priority for you.

Your household budget

You need to reflect this on your Financial Statement.

This can be drawn up on either a weekly or monthly basis as long as it clearly shows

• your income
• your essential expenditure
• whatever remains to be paid to your creditors.

[If you need to change a monthly figure into a weekly, you must multiply by 12 and divide by 52. And a weekly figure is changed into a monthly figure by multiplying by 52 and dividing by 12.]

It is difficult to assess bills for services which are often paid at 3 month intervals.

Find the last four bills you have received, add them up and divide by 52, and this should provide a good guide.

Once you have come up with a figure for what is left over after you have paid for your essential items), you will first need to look at making offers to your priority creditors - your mortgage lender will be one of these.

How much of your available income you are able to pay to your mortgage lender, will depend on what other priority creditors you have.

Lastly, if you do have any money left over for non-priority creditors, then this needs to be distributed  on a pro-rata basis between them. Non-priority debts are things like

• credit cards
• store cards
• catalogue debts
• some unsecured bank debts.

If you have no income from which you can offer creditors you may have to make an offer of, for example, £1 per month.

Your lender will look for all financial information to be presented to them. They, along with other creditors may question the figures that you quote for your expenditure. You may need to look at reducing your expenditure, but remember
never try to cut down on necessities like food and services. If you are in mortgage arrears, it will be in your interest to pay any extra money available to your mortgage lender, and any other priority creditors.

Standard Letter for Creditors

Below is an example of a letter that you could use, and modify if you need, to send to your creditors. When you write to your lender, you may need to include more details as there will probably be other options, apart from simply a repayment agreement that you need to put to them.

The parts of the letter in brackets can be included, or not, as you require.

Dear Madam/Sir,

Account No........................................... Date........................

I am writing concerning my account as above regarding the arrears that I now
owe.

My situation has changed recently, and I now need to vary the repayment arrangement. I can no longer afford to pay the amount requested/agreed each month.

To outline what my income and expenditure now are, I enclose a detailed Financial Statement, which also includes an offer of repayment which I can afford at the present time.

As you can see, I am approaching all my creditors at the same time, and they will all be asked to accept reduced instalments. All the offers are shown on the
statement.

• [Your offer is a pro-rata offer of the income I have available for my non-priority creditors, and as such, has been drawn up using County Court procedure.]
• [As you can see from my Financial Statement, I have no available income with which to pay any of my non-priority creditors, and I am therefore asking you to accept nil payments for the next 3 months.]
• [I would ask that any interest being charged is frozen, so that my payments will reduce what I owe to yourselves, and I have a realistic chance of paying off what I owe.]

Once my circumstances change, I will contact you again updating you on my situation, and increasing my offer. [Please send me a paying-in book if my offer is acceptable.]

I thank you for your help and look forward to hearing from you as soon as possible.

Yours Faithfully,
[Name]

Priority and non priority debts - action creditors can take

1. Priority creditors

1. Council tax

As an owner-occupier, you and any partner you have will be liable for Council Tax, as long as you are living in your home. If you have rented out your home, whoever is living there permanently will be liable.

There are two possible ways of reducing your Council Tax bill itself.

• Discount
• Benefit

You may be able to claim a discount for being a single adult occupier or if you are disabled and have had adaptations made to your property. These may lower the amount you owe. Then you must look at a benefit claim as well.

How council tax debts are dealt with

• Liability order

If you do not pay your council tax, or do not keep to a repayment arrangement, the council may ask the Magistrates Court to make a Liability Order. There are only a few ways of resisting this, for example, if the names on the summons are wrong or you have applied for council tax benefit. Initially, you should talk to the Council Tax section, but if they will not agree to your request and you have a good reason such as an incorrect name on the summons, you should attend the court for the hearing and an order may not be made. A Liability Order gives the council various debt enforcement powers as below:

• Deductions from wages

If you are working, the council can ask your employer to deduct a fixed amount from your wages and pass this on to them. This is an Attachment of Earnings Order. You cannot stop this happening, but you can always negotiate with the council if this is causing you hardship.

• Deductions from benefits

If you are on Income Support or Job-Seeker’s Allowance, a deduction can be made from your benefit direct to the council. It is an advantage for you to arrange this before any enforcement action is taken, as this should mean the council take no further action as long as they keep receiving money from your benefit. There is a maximum that can be taken per week.

• Distraint

The council can pass your account to bailiffs, who will visit your home to try and gain entry to it to take goods and sell them to pay for the debt. Do not sign any papers the bailiffs put through your door, and do
not allow them into your home. As long as they have never gained entry, they will not be able to return and force their way in. Ask the council to take back the account so that you can negotiate direct with
them. Do this as soon as you can, as costs will be added to your account every time the bailiffs visit.

• Charging Orders

The council, or any creditor, can attempt to get a Charging Order on your property if you owe them more than £1000.00. This would mean that the debt would be secured on your property. If any of your creditors try to do this, get legal advice quickly. If no money is collected, the council can go to the Magistrates Court and ask for an arrest warrant to be issued.

There will always be a ‘Means Enquiry’ before imprisonment is considered. This is a special hearing which looks into your income and ability to pay and whether or not you have ‘wilfully neglected’ to pay the bill. Imprisonment can result if you do not make contact or attend the means hearing. You would not be sent to prison if you did not pay because you did not have money to pay, but only if you have clearly avoided paying when you could have done.

2. Water rates, gas and electricity arrears

Here are some useful points to remember when dealing with service debts:

• Try to contact the your service provider as soon as you are aware that you  will be having a problem paying a bill that you already have.
• Your water company in particular may ask for the bill to be cleared over the rest of the billing period, and this may conflict with what you can offer per week/month, as bills are charged over a 10 month period.
• As soon as you make an offer to any creditor using your Financial Statement, start paying this amount.
• Initially you may speak to someone on the telephone, but always follow this up with a letter and Financial Statement.
• If the person you speak with is particularly unhelpful, or the company as a whole do not wish to negotiate, ask for a copy of their Code of Guidance, and check this document.

Options common to all service (utilities) arrears:

Check Liability
Are the bills you receive in the name of you or one of your family, or are you being charged for gas/electricity that you have not used because, for example, a bill covers a period when you were not living in the property.

Pre-Payment Meters
This is an option for repayment which all services may offer, but you should not feel that you have no choice but to accept it if you are in arrears for the first time.This involves charging a card at regular periods and a higher standing charge. You must be good at budgeting, as if you have no money with which to charge the card, you will have no access to gas/electricity.

DSS Deduction
If you are on Income Support/Job Seeker’s Allowance, you can ask for a deduction to be taken from your benefit on a weekly basis as long as you are in arrears with payments. This will consist of a payment for current usage and an amount towards the arrears. The advantage of this is that you will have no more bills and the money is paid direct to the service provider.

Budget Plan/Repayment Arrangement
Most service companies have repayment arrangements of their own which they can adapt to your needs. This can be a good way to deal with any service arrears initially, as the arrears are set aside on payment of a weekly/monthly fixed amount which is a combined figure for current usage plus arrears. You can ask for this option even before you are in arrears.

Use of Code of Practise
All service providers will have a regulatory code of practise, in which it will be stated what action they must take on arrears. If you are having difficulty in negotiating with someone at the company ask to be sent a copy. Reference to this document can help, up to the level of making an official complaint if you are still unable to resolve the problem satisfactorily.

Use of Regulatory Bodies - OFWAT, OFFER, OFGAS
Contact the relevant regulatory body if you have had no success with the service provider. At this stage you will be making an official complaint about the way your arrears are being handled.

A note on disconnection – water, gas, electricity
The most serious action your service provider can take is to disconnect. Below is a summary of how this comes about for each service.

If you dispute a bill, but later agree to pay it and then fall behind with your payments, your company can cut you off without the need to go to court. Your supply can be cut off in only a few weeks, if you do not pay your bills, without any court involvement needed.

If you have an unpaid bill outstanding from an old address, you can be cut off at your new address. If you have had a court order made against you and have failed to keep up payments ordered by the courts, your supply can be cut off. Your supply can be cut off in only a few weeks, if you do not pay your bills, without any court involvement being needed.

3. Magistrates court fine

You may have been fined for a motoring or TV Licence offence. If you have not yet been to court, remember to take a completed Financial Statement with you. If payment at a certain level has already been ordered by the Magistrates Court, and you can no longer afford the payment, you must contact the Magistrates Court and apply to have it lowered. They will usually agree as long as the application is backed up by clear financial details.

If you do not keep up an arrangement on a fine the court may:

• authorise bailiffs to seize goods - any payments must then be made to the bailiffs and not to the court.
• deduct money from Income Support/Job Seeker’s Allowance.
• order a prison sentence - there will always be a hearing before this and the arrest warrant can usually be suspended as long as you attend with your financial details.

4. Maintenance

Most maintenance agreements are now made by the Child Support Agency and its successor. If you have had an arrangement for sometime, then it may have been made by the court.

If you have an arrangement made by the court, and you get into arrears with the payments, you can be ordered to attend a hearing to explain why you have not kept to the sum agreed. If the court decides that your failure to pay was deliberate, it can

• ask bailiffs to take goods
• deduct money direct from your wages
• order you to be sent to prison

If your payment arrangement was set up by the Child Support Agency (CSA), you will be asked to pay a set amount, and this can be taken direct from your wages or benefit without needing to go to court. If for any reason the CSA cannot collect what is due in this way, then they can go to the Magistrates Court for a Liability Order. This would then give them the power to:

• ask bailiffs to take goods
• get a Charging Order on your property
• take money from your bank account
• ask the court to order that you go to prison

Again, the golden rule is always to contact the agency concerned as soon as possible.

5. Hire purchase agreements

These type of agreements are not common and most often will be taken out to buy a car. This may or may not be a priority item. With this type of agreement, you do not own the goods until you have paid the last instalment. With other credit agreements, you own the goods immediately, but own money to a finance company.

The first thing you need to do if you fall behind with payments, is to check the agreement you signed. Your creditor may be able to repossess the goods. This is only automatic if you have paid less than one third of the purchase price. If your payments exceed this, the creditor would have to take you to court to seek return of the goods first. At the hearing the court can agree to suspending return of the goods, on the basis that you pay the normal payment plus an amount off the arrears, especially if you need the car, for example, for work.

You will need to look very carefully at whether this is a priority for you. If the payment of your hire purchase agreement is preventing you from making payments on your mortgage or home loan, you need to re-assess your budget, and re-prioritise your expenditure, especially if the item you are paying for is not essential for your household.

Do bear in mind that it will be very difficult to come to an arrangement with a creditor of this kind if you are already in arrears.

2. Non-Priority creditors

Creditors not listed above who do not have their debt secured on your property will normally be non-priority.

These creditors are only going to receive a proportion of what remains after you have paid priority creditors. Below are some useful pointers when negotiating with these creditors.

• Ask your creditor to freeze interest on your account, if this is applicable, so that the debt will not continue to grow. If other creditors have already agreed to freeze interest then point this out. Persist in this request, at the same time making any payment which you have offered.
• Ask for a copy of any agreement you signed if you no longer have a copy. It is always a good idea to know exactly what terms you agreed to. You do have the right to ask for this information, although there may be a charge for it.
• If you are finding it difficult to reach agreement with a creditor on what you believe is a reasonable offer, and your creditor is putting pressure on you which may amount to ‘harassment’, contact either your local Trading Standards Department or a trade association which your creditor belongs to. If they do belong to a trade association, it’s logo will appear somewhere on their headed paper and your creditor will be regulated in some way through a Code of Guidance.
• If you have provided a detailed Financial Statement and offered what is a reasonable amount of money, and your offer is still refused, point out to your creditor that taking County Court action will not necessarily increase the offer as you have already followed County Court procedure in arriving at your offered amount. By taking you to court they will simply be increasing your debt. Remember that if interest has not already been frozen, the District Judge will almost always freeze it at court.
• Keep copies of all correspondence, and if you agree something on the telephone, confirm this in writing. Make sure all letters are dated, as you may need to prove that you kept in contact and came to an agreement, either in court or in the process of making a complaint to a trade association.

Bank accounts – overdrafts

You may have a bank account which is overdrawn to the maximum, and be confused about how to deal with this situation. If you have wages paid into the account, need access to it, but find that those wages are ‘lost’ in the overdraft each month, then you must discuss the matter with your bank manager, or a debt counsellor available at the bank as soon as possible. The kind of arrangement that you need to reach is one which allows you to set the overdraft to one side (some banks will offer this facility as a loan which may mean you pay a lower rate of interest than an unauthorised lending rate), pay an agreed, affordable amount each month off this, and continue to use your account with the understanding that there will be no overdraft facility available. You may find that you only have a cashcard until the problems have resolved.

Alternatively, if your bank will not agree to this kind of arrangement, you may need to stop using that account and use a separate account, if you have one, to have your wages paid into.

Show that you have looked carefully at your own circumstances by providing a Financial Statement, and ask for interest charges to be frozen so that what you are able to pay off the balance will actually go towards reducing it.

Charge cards

Credit cards involve standard agreements whereby you pay off a minimum amount each month.

However, charge cards, where the whole balance is payable every month, are not subject to ordinary credit agreements. It is harder to negotiate repayments and court action will often be started in the High Court, which will involve higher costs and higher interest.

Apart from these guidelines, negotiate as for other creditors, and seek advice if you are not successful.

What if an unsecured creditor takes you to court?

Debt action is dealt with by the County Court. Many large organisations have centralised offices who issue summonses, and these will be to the County Court nearest to them. You can apply to that court to have the venue changed to a court near to you if you wish. This will normally be agreed.

The kind of summons you receive will be a ‘Default Summons’. It will state the amount your creditor says you owe, and a reply form will be enclosed which you must complete and return to the court. If you do not agree with the amount your creditor says you owe, you can say so on the ‘Defence and Counterclaim’ section of the form. If you agree with the figures, but need time to pay, you must fill in the ‘Reply’ section which includes a Financial Statement, similar to the one you will already have completed. The court will base a monthly offer that is reasonable on these figures. If you agree with the amount your creditor says you owe, but cannot pay the instalment ordered by the court, you can ask for a hearing at which you can explain your offer to the District Judge. This must be done within 14 days of receiving the first order. Also, if you can no longer keep to an order made sometime ago due to a change in circumstance, you can ask the court to reduce the ordered payment on a form supplied by them.

Advantages of being taken to court

• if you explain your income, outgoings and other debts clearly, the court will allow you to pay the debt in instalments you can afford.
• the process is often completed by post.
• on most standard credit debts, interest will be frozen - the amount you owe will not increase.

Disadvantages of being taken to court

• a fixed amount of court costs will be added onto your debt.
• if you do not pay the amount ordered, your creditor can take further action.
• your details will be held on the Register of County Court Judgments and will be passed on to Credit Reference Agencies - as a result you will find it difficult to get credit for as long as the entry continues - currently 6 years.

What further action can your creditor take?

• Bailiffs Warrant

If you fail to pay the amount ordered to your creditor, they can ask the County Court Bailiffs to issue a Warrant of Execution. If bailiffs do visit your property do not let them in (as this will allow them to return and force entry on another visit), but apply for the warrant to be suspended on the appropriate form and make an offer of payment which you can afford.

• Attachment of Earnings Order

This is an order your creditor can ask the court to make. A deduction will be taken from your wages according to a set formula. However, if this will have an effect on your employment, you can ask for the order to be suspended and make the payments yourself.

• Charging Order

This is an order which your creditor can apply for if you have a County Court judgment against you and;

• you have been ordered to pay the money ‘forthwith’ and cannot do so, or
• you have been ordered to pay in instalments, and you have fallen behind with these payments; and you own property on which their debt may be ‘secured’.

There will be a court hearing before this order is made ‘absolute’ and you will need to seek further advice and possibly representation for this. The reason for this is that a creditor with this order can go as far as to apply for a Possession Order on your home - although most creditors will be satisfied with being paid on the sale of the property.

Other options

Administration Orders
An order of this type is a way of putting all your debts together. You can apply for an Administration Order if you have two or more credit debts, and at least one County/High Court Judgment against you, and your total debts are less than £5000.00. Once you have this order, your creditors cannot take any further action against you.

You can apply for an Administration Order on Form N92 from the County Court. Seek advice if you are not sure how to apply or fill in the form.

Individual Voluntary Arrangements - IVAs
These need to be drawn up with the help of an Insolvency Practitioner, and will therefore involve some kind of cost to yourself.

Bankruptcy
This is a last resort - most non-priority creditors are unlikely to make you bankrupt, unless you own property which they think has equity in it. You may see it as an option, but only if you have no assets and will never be able to pay back the money you owe. It is expensive to declare yourself as bankrupt and it is also important to do it at a time in the month when your bank account is empty, as once you go bankrupt all funds in your account will be held by the Receiver. The bankruptcy lasts for 3 years normally, although it may be discharged after 2 years in some circumstances. Most debts ‘die’ on your discharge from the bankruptcy.

If you are considering this option, get in touch with a nearby advice bureau for assistance.

What action can your lender take about your mortgage arrears?
You may already be in the process of negotiating with your lender and be confused over what action your lender can take and when.
 
There are 8 main stages that your lender will go through before possession may be granted to them. Remember that all lenders are different. Some may proceed more quickly than others: but the procedure itself is standard.

Stage 1 – Standard arrears letter
If you have missed one or two payments, your lender will send you standard letters, or telephone, asking you to bring your mortgage account up to date. They may also give you the opportunity to come in and talk face to face or be visited by one of their mortgage arrears officer, to discuss your payment difficulties.

Stage 2 – Seven day letter
If you have not managed to reach agreement on your arrears and they are still rising, your lender will send a more strongly worded letter, advising you that, unless the arrears are cleared and you make contact with them within the next seven days, your case will be passed onto their solicitors.

Stage 3 – Solicitors letter
If no contact is made by you with your lender, they will instruct their solicitors to send you a letter asking you to clear your arrears in full within seven days. The letter will state that possession proceedings will start without any further notice if you do not clear the arrears, or put forward an acceptable proposal to clear them.

Stage 4 – Possession summons
Approximately, four to six weeks after receiving a letter from your lenders' solicitors, you will receive a Possession Summons from your local County Court, or if you live in the London area it may come from the High Court. This is a legal document summonsing you to court on a particular date and time for a Possession Hearing. It will include the Particulars of Claim which contain details provided by your lender regarding your mortgage loan and arrears. There will also be a Form of Reply which you must fill in and return to the court.

Stage 5 - Possession hearing
Your Possession Hearing will take place in front of a District Judge normally in a less formal atmosphere than a full courtroom. The District Judge will look at why you have got into arrears and will need to know if you are going to be able to meet the monthly repayments and clear the arrears within a 'reasonable period'.

Stage 6 – Judgement
The District Judge can grant one of two orders of court, unless your case is adjourned or dismissed. These are either a Suspended Possession Order or an Outright Possession Order.

Sometimes your lender will seek a ‘Money Judgment’ as well, for repayment of the money you owe under the mortgage agreement. This is likely if you are in a negative equity situation, but some lenders ask for this type of judgment as well, for every case. A Money Judgment means that your lender can use standard debt enforcement procedures after eviction to seek repayment of the remainder you owe.

Stage 7 – Application for warrant
If your lender has been granted possession, or if you do not keep to the terms of a Suspended Possession Order, your lender's solicitors can apply to court (without informing you beforehand) for a Warrant of Possession of your home. This Warrant will then be passed to the court bailiffs to be 'executed', or carried out.

Stage 8 – Eviction
Once the bailiffs receive the Warrant of Possession, they will contact you and let you know in advance of the date and time of the eviction. On the day you are due to be evicted, the bailiffs will come to your property, check that you have left, and that possession is handed over to your lender.

If you have to leave items of furniture, for example, inside the property at the time of eviction, you will be able to collect these at a later date by prior arrangement with the building society or bank.

You will remain liable for mortgage payments until the property is sold, and may then still be liable for payments on any amount of the loan which the sale of the property did not meet: this is the case if you have a negative equity problem.

Secured loans

The court process for secured loans is the same as the above process. The lender of your secured loan has the same rights to re-possess borrowers as your first lender. The lender of your secured loan does not need permission from your first lender before taking court action for possession. But if the lender of your secured loan was to take action first, your first lender would be paid, before the lender of your secured loan could be paid. So if your home would not be worth enough to cover both loans, for example if you have a negative equity problem, your second lender would be unlikely to take action for possession, as they may not receive the money they are owed.

Leaseholders

If you fall into arrears with your service charges, you run the risk of 'forfeiting your lease', meaning your lease will pass back to your freeholder. However, following the introduction of the Housing Act 1996, it has become more difficult to lose your lease through forfeiture, and easier to challenge your service charge bill itself. So, in practise this rarely happens. Another reason for this is that your lender may step in and pay any arrears of service charges, in turn increasing your mortgage and monthly repayments. But, if you have already increased your mortgage by adding mortgage arrears to it, then this may not be a practical option.

Shared ownership

If your home is owned under shared ownership, you could have both mortgage and rent arrears. In this situation, information on arrears will be shared by your lender and landlord. If rent arrears build up, your lender may agree to add these to the capital of your mortgage, but if mortgage arrears build up (apart from the standard process already described), the outcome for you will depend on your ability to clear them, and the flexibility your Housing Association (landlord) is able to offer you. They may agree to you buying a lesser share of a smaller/cheaper property.

Registration of county court judgements

If your lender asked for a ‘money judgment’ to be made at the same time as the Possession Order, a record of the judgment will be held on the Register of County Court Judgments, once your lender has taken enforcement action. This will cause you difficulties when you try to obtain credit.

The Council of Mortgage Lenders (opens new window) have a register of people who have been repossessed or have handed back their keys. Once you have been evicted, or have handed back your keys, your details would be passed on to the 2 main credit reference agencies, which would hold them for 6 years. The result of this is that you will have difficulty in obtaining a new mortgage or credit during this period.

What you can do once the court action has started

It is never too late to start to negotiate with your lender. This is a golden rule. The first legal notice you will receive regarding your mortgage will be a

Possession summons

As well as stating a date for a possession hearing at the local County Court (in London this could be the High Court), there will be attached to the summons a 'Particulars of Claim' document. It is important to scrutinise the information contained in the Particulars of Claim, as, unless the case is being heard in the High Court in London, it must comply with the list below:

• a redemption figure for your mortgage (what it would cost you to pay off the loan)
• an account statement indicating what was due and what you paid.
• separate details of the arrears isolated from all other charges.
• a breakdown of how your monthly payment is made up.
• a list of interest rates used when the loan was first taken out, at the time directly before arrears accrued, and at the point possession was applied for.
• some information about your lenders knowledge of your financial situation.
• details of the steps your lender has taken to recover the arrears.

Read this carefully. If any of the information is incorrect, you must challenge it, and at court if the details have still not been provided correctly, this may be cause for an adjournment.

Once you have read through what your lender is claiming, you will have to put forward your own details.

This is done on the 'Form of Reply’, which is enclosed with the summons and Particulars of Claim. This must be returned to court within 14 days.

Form of Reply

There are 3 sections to the Form of Reply:

• The first involves what the lender is claiming - this is your opportunity to question what your lender has put in the Particulars of Claim. You can also give details of offers you have made/tried to make to your lender, including what you can currently offer to them.
• The second section requests details of your income and expenditure, benefit receipt, and other debts.
• The third section asks you to explain why you have got into arrears and whether you have any alternative accommodation available to you - it is important here to explain any special reasons you may have for remaining in your home, so that the court has a full picture of what your situation is. (If a Possession Order is granted, the comments you make here, will effect how much time you have before the Possession Order takes effect.)

If you have a proposal to make to your lender, put it to them both personally, and via the Form of Reply. You could use a new offer as a basis upon which to ask for an adjournment, for example, for six months whilst you make the payments indicated in your offer

Adjournment
.
There are 2 ways in which you can ask for an adjournment:

• by requesting it on the Form of Reply.
• by asking the lender/lender's solicitor, to adjourn the case.

Bear in mind though that any extra costs that your lender incurs through adjournment will probably be met by you (they will be added onto the amount owing on your mortgage).

The Court hearing

The following are some useful points to guide you through the court process:

• Always attend the court hearing, even if you have already come to an arrangement with your lender.
• The hearing itself will usually take place in the District Judge's 'chambers', and is often over very quickly.
• If you are representing yourself, and as your lender will have a solicitor acting on their behalf, the District Judge will often take account of this, and should not allow you to feel drowned in legal 'jargon'.
• Whatever your offer to the lender, try to present this clearly.
• Generally, the court will be more interested in what you are now able to do to clear the arrears, than how you got into arrears in the first place.
• The court will also want some assurance that you will be able to keep to the arrangement you are proposing.
• It is a good idea to write down what you want to say, because you do not want to recall an important point after you have completed the hearing.
• The District Judge will first of all check that all the details on the Particulars of Claim are correct.
• Then your lenders will be asked by the judge to state whether any payments have been received since the summons was issued, and what orders they are seeking from the court. They will present their case.
• You will then have an opportunity to state whether you dispute anything the lender states.
• The judge will ask you what proposals you have to repay the arrears.

Orders that the court can make

Case Dismissed
Your case will be dismissed if your lender's solicitors have followed the wrong procedure in summonsing you.

You can also ask for the case to be dismissed if you have made an arrangement with your lender, which they have been accepting, but your lender is now asking for a suspended possession order.

Case Adjourned
Your case can be adjourned if it is obvious to the court that you need further time to provide financial details/seek advice, or if your circumstances are about to change and you wish to present these details to the court. Bear in mind that this will increase your costs, as it will involve another hearing at court.

Suspended Possession Order
This type of order is the most common form of order. It is made in circumstances where you have offered, and possibly started to pay, an amount which is acceptable to your lender and the court.

As long as you continue to pay the amount ordered, no action will be taken. You must go back to court to vary the order, if you cannot meet the terms of the order through change of circumstances. If you fail to make the payments agreed under the order, your lender will go back to court and ask for a possession warrant to evict you, without any further hearing.

You would be sent a copy of the warrant giving a date for eviction, but even at this stage you can apply to the court for the warrant to be set aside. You should give brief details of why you have defaulted on the court order, and a proposal to rectify the situation. A hearing will then be set to discuss the new circumstances.

Outright Possession Order
If the court is not convinced that you can clear the arrears an order for outright possession will be issued. This will normally give you 28 days before possession is given to your lender.

You can argue for more time if you have special needs. It is also a good idea to ask the court to allow you time to try to sell your home yourself, as you are more likely to get a better sale price than your lender, who will simply sell it as fast as they can.

You do not have to leave your home at this point, as your lender cannot evict you without a Possession Warrant.

Possession Warrant
They can apply for this once the period of the order for possession has expired. You can still negotiate with your lender at this point if you have a positive change of circumstances and can make a new offer.

There are several reasons for asking to have a Possession Warrant suspended;

• you can make a new offer of payment
• you were ill and could not attend the Possession hearing
• you need more time in which to sell your home
• you need more time in which to look for some where to live.

A new hearing will be arranged which you must attend, allowing you to put your proposal forward in more detail. If you decide to do this, it is a good idea to contact the bailiffs to inform them of your intention.