Lloyds loan might default, need advice?

debtwithlloyds

Hi guys,

I recently lost my job and called lloyds to lower the repayments on a £18k loan I have for a few months until I get another job. Well they transferred me through to SCM Solicitors and I was told that if I keep the lower repayment rate for more than 3 months (which is likely) that they will close my account and default the loan.

I asked them to explain what that means but didn't get a satisfactory answer so have been searching online.

I was told that if it defaults, Lloyds will sell the debt to a debt collectors, effectively freezing the amount. The collector will contact me to arrange a repayment plan and a default will be marked on my credit report for 6 years.

A few things I don't understand:

What happens if by the end of 6 years I have not paid back the full amount? (or any at all?)

How bad is a default? What effect will it have on my life?

Are there alternatives to allowing the default to happen?

What happens if I manage to pay off the full amount before the 6 years is over?


It's all quite confusing and scary. I'm booking myself in with the CAB but that wont be for a couple of weeks and I think I really need to know as soon as possible what to do, this is quite stressful as you can imagine!

Thanks in advance for anyone who can help with this

Tixy

A default means that your credit agreement has broken down. It is usually issued once you are between 3 and 6months behind with the original repayments.

As you have been told the default will stay on your file for 6years. After 6years the default will be removed from your file. If you have not paid back the full amount by then it will still be removed but you will still owe the money and still need to carry on repaying.

If you pay it back in full before 6years then the default will still show but it will show as a settled default.

A default is pretty bad. Its likely that main stream lenders won't be willing to lend to you with a default. You may get credit from some of the subprime lenders. If you have a mortgage you'll find it harder to remortgage, not impossible but you won't get the best rates.

Once you have defaulted on an account your creditor has the option to take you to court to obtain a CCJ. They may choose not to do this if they think you are paying all you can afford but they have the option to.
On a defaulted account if you keep in contact with the creditor (or debt collector) and they believe you are paying all you can they may well agree to freeze interest & charges (though they don't have to).

The only way to stop the default being issued would be to make the normal repayments. If you cannot do that then you probably have no option but to default.

debtwithlloyds

Hi Tixy, thanks so much for the information!

So the default goes away after 6 years but not the debt? So if you're still unable to pay (you never know!) what happens then? Another default starts again? So effectively you can end up with default after default on an unpaid debt?

A CCJ is a lot worse than a default I take it? I assume a CCJ ends up with your wages being automatically charged with an agreed upon amount per month?

Is it preferable to declare bankruptsy in this situation then? What if I can never pay the money back?

Tixy

Hi

You only get one default for a debt. Once the default is 6years old the default and the actual record of the debt go altogether from your credit file.

A CCJ is a lot worse than a default. With a CCJ usually at first you are simply ordered to pay. If your creditor try to go for a CCJ then you can complete paperwork to ask to be allowed to pay in installments affordable to your situation. The judge should not order you to pay more than you can afford.
If you don't keep up with repayments on a CCJ then your creditor could go back to court to ask for bailiffs to be instructed or for an attachment of earnings (which is when its deducted from your salary if you are employed). If you own a property they could also ask for a charging order to be granted (which secures the debt on your property and if you sell an equity has to be used to pay the debt off).

A debt charity would advise you about whether bankruptcy might be a suitable option for you. There are lots of other options that are less extreme than bankruptcy (such as a Debt management plan) but it would all depend on your circumstances, what other debts you have etc.

What if you can never pay the money back? - assuming you didn't go for bankruptcy then if you never worked again and were just claiming benefits you would probably end up paying a token payment of a few pound a month. Hopefully that won't happen in your case and you should be able to repay the debt off over time.

Remember though bankruptcy isn't just a quick form to complete - it has some very serious long term consequences. You have to have had advice from a professional before you apply (the judge will specifically ask you), and its quite likely you will end up with an income payment arrangement where you will repay a proportion of any surplus money you have for the next 3years towards your creditors.

debtwithlloyds

Thanks again Tixy, you've given me a lot to think about. It's all very serious and I imagine a lot of people are dealing with it in these tough times. It almost triggers that "fight or flight" reflex because all I want to do is just run away and not have to deal with it! But of course, I won't.

paddyrg

You're wise to 'deal with it' in my opinion. Running away from it is not an easy option and it will hang over you in one form or another forever, even if only knowing you're a discharged bankrupt and how it affects your confidence, etc.

Apples2

debtwithlloyds wrote: »

Thanks again Tixy, you've given me a lot to think about. It's all very serious and I imagine a lot of people are dealing with it in these tough times. It almost triggers that "fight or flight" reflex because all I want to do is just run away and not have to deal with it! But of course, I won't.

The above posts have outlined the situation very well but please don't underestimate the consequences of defaulting.

It sounds an easy way out, your reply to Tixy suggests you see things this way, take out a big loan shortly before a change of circumstance and sit happily back waiting for the interest to be frozen and the debt to disappear.

You will be hounded daily, several times a day, even your new employer may get a call about your debt.

Your life will become unbearable when the debt collectors get involved. Phonecalls at all hours, knocks on the door at all hours, threatening legal looking letters arriving frequently.

You can also forget any ideas of mortgages, loans, interest free credit etc. for a VERY long time.

It does beg a question though - what on earth did you spend £18k on just before losing your job an why can't you sell it? You business of course, you don't have to reply.

debtwithlloyds

Apples2: A couple of things and answers to your questions: I don't underestimate the pain of defaulting and know I will be hounded... the only reason I feel I might be ok is that I can go live abroad with friends for a year or two and avoid the hassle. It's just an option and I'm not sure it's a good one but at least I have choices.

As for spending the £18k, I started a business a couple of years ago using that money. That failed last year for various reasons (the bad economy didn't help but that's not the whole reason, I made my own mistakes) and I took a job. The job just made me redundant and there's nothing around for me right now so I've had to minimize my payments. So I've had the debt a couple of years and have been paying it back properly up until very recently.