What happens if you can't repay?

GotNo£

Ok, so here's the long and short of it. I took out a bank loan over 1 year ago to try and better myself (educational course). But it didn't work out (long story). Anyway, I was supposed to start paying off this loan last year, but instead I moved abroad (believe me, it was a good choice as I was on JSA in the freezing cold and becoming depressed) and managed to find work (though barely enough to live on, never mind think about paying off loans etc.).
So basically what happens if you physically have no money to pay off a loan? I'm thinking about returning to the UK soon, but of course I'll be returning to the debt (which I kind of forgot about whilst living a new life in another country) and unemployment.
What makes it worse is that I'm registered at my parents address (as of course I don't have any property) so if any bailiffs get involved it will be a hassle for them I suppose.
It's a big mess, but one loads of people have gotten into. So, help, advice? Please.
I don't know what to do, but I can't keep ignoring it I suppose.

RichGold

Its not a case of "can't repay", the thing is they will hassle you untill you either repay or go bust. Its nice to see you're thinking of coming home. I would imagine that has less to do with being responsible and more to do with the holiday season being about to finish and them not needing english bar staff any more.

You do realise that your credit file will already be trashed? And that lasts for at least 6 years, no matter what you do now.

How much is the loan for? Who is it with?

KingElvis

If and when you return, it would be best to contact the place you borrowed from and try to arrange a payment plan.

Once it's passed to one of the less than reputable debt collectors, expect your parents to be hounded.

DCFC79

Its nice to see your coming back and will deal with the loan

paddyrg

Contact whoever you owe the money to and come clean, and try to work out a way to repay them even a low amount. You're lucky if the debt collections agencies aren't already hassling your parents (although they can't do any more than be a nuisance).

jamesd

Easy enough. You don't have the money. You can prove that you don't have the money. If you can do that then they will accept a Pound a month from you until your situation changes. They may not like it but that's all a court would get them anyway, so there's no point in them wasting their time doing anything else. If they threaten you with court action your correct response is "thanks, I'll appreciate the certainty of having court ordered payments that we both have to accept".

The court would ask you to fill out a form that gives your income and expenses to prove that you can't afford to pay. But the lender probably won't go there because there's no money to be had, so not worth their spending money to try to collect nothing.

You probably also lack assets so they would quickly learn that you could use a Debt Relief Order if in England or Wales. While that's insolvency, as are an IVA and bankruptcy, it's cheap, fast and easy and means that they lose all of their money, while you get a big black mark on your credit record for six years. For them, chasing you into a DRO is a losing proposition.

GotNo£

I owe around £7000, at 10% interest over 5 years.

Yeah I always thought they can't exactly take what I don't have (no real assets) and it's not like I'm living the life on the costa del crime with all my diamonds. I don't have any money and that's it.

Is £7000 worth going 'bust' over??? My credit file is already screwed because of this, so I shouldn't think I should be too bothered about that.

mabski

nothing will happen apart from you receiving lots of nasty threatening letters .....
ignore them long enough and they go away, get to six years and you dont have to pay them at all....
good luck

Solstice_Twilight

What happens is a big dirty mark on your credit.
When I was young and naive, I took out a loan to help me cover the costs of moving house. I'd never had credit before and had no real understanding of how it all worked. However, I had a full time job and excess money each month, so the bank gave me the loan with a smile.
Then life happened, my immediate family moved away and I realised I was in an area I hated, doing a job I hated so I decided that since I was moving house anyway as I'd reached the end of my tenancy agreement and the owner wanted to move back into the house, I'd up sticks and move to the other end of the country where I had some family.

Every few weeks, my then-OH and I went to visit for a long weekend (using up our holiday entitlements as we'd kept our employers informed and been told if we didn't take it before we left our jobs, we wouldn't get the money for the days leave) and spent the time looking for work. Catch 22 was that nowhere would even accept our CVs/applications without a local address and immediate availability for interviews. So (stupidly) we said "right, fine, we'll move, live on the loan for a few weeks until we get jobs." It took me four months and my OH eighteen The upshot of it was that we almost cleared the loan out in moving costs/deposit/first month's rent, then didn't get the deposit on our previous house back and really struggled to meet the loan payments during this time. It was completely stupid as we'd taken out the loan at a time when we had the income to pay it off, then thoughtlessly put ourselves in a position where we couldn't afford it. Because we'd actually resigned from our jobs, we knew we didn't qualify for JSA, and because of that we didn't qualify for anything else except for income-based housing benefit after a few months when we cracked and realised that getting a job wasn't as easy as it sounded and admitted we were up that infamous creek without a method of propulsion.

The bank couldn't take more than we could afford (and we did the £1 a month thing until we could manage more) but we were inundated with harrassing calls and letters - I imagine if the details you gave for your loan were your parents, these letters and calls will have almost certainly begun after the first missed payment. Once we were both working, we arranged a more sensible payment plan with the bank, but a couple of years later, my ex first lost his job and then left me twelve months later, so I buried my head in the sand and tried to ignore the fact that I owed money I couldn't afford to pay off (when he left, he ran up a £900 overdraft as well on our joint account).

Eight years later, and I've almost cleared the debt (one payment to go!) BUT it'll sit there on my credit score for a long time. Being young and naive is no excuse for taking out credit and then running out on the debt, and although I appreciate that it's a hard lesson to learn, it's one that's worth learning. Ultimately, like I did, you've put yourself in this position and it sounds like you've let the balance go for a full year without any offer of payment. By this time, I would be incredibly surprised if the bank hasn't passed your debt to a collection agency, and been harrassing your parents with calls and letters for you.

No, they can't take what you don't have, but I'm sure (and I know others will correct me if I'm wrong) that it's better for your credit score to contact your lender, be upfront with them and arrange an affordable payment plan (even if it's £1 a month) on the basis that as and when your income improves, your payment will increase to clear the debt, rather than taking an IVA. It may be worth your while to seek debt counselling from a charity like CCCS, who will advise you as to whether insolvency or a debt management plan will suit your situation best. I doubt very much, once you've completed your income and expenditure forms, that the lender will think it's worth taking legal action to recover the debt.

jamesd

GotNo£ wrote: »

Is £7000 worth going 'bust' over??? My credit file is already screwed because of this, so I shouldn't think I should be too bothered about that.

Given your income and assets, that's entirely possibly the best option for you. It'll be a black mark that will negatively affect you for six years but you'd have a payment plan that would be negatively affecting you, less, for at least that long if you didn't.

But before you go there, discuss your situation and options with the lender. It'll be very obvious to them that there's no hope of full recovery, an easy alternative for you and that they might as well accept something over a reasonably short term rather than force that result. Some will choose to force it anyway. That's their right. Just go with the flow if they leave that as the route to take.

What you could do is tell them your situation and options and that you're contemplating either a DRO or, if they choose to agree, to go with a two year affordable payments plan with the remainder written off by them at the start of the plan. Ask them whether they prefer you to go with the two year plan or the DRO plan, explaining that your intent is to offer them something as better than nothing, but not to allow this to remain unresolved long term. And apologise for being in a position that leaves only such undesirable options for both of you to consider - won't change the situation but it's recognition that what you're suggesting is undesirable for both of you. That's something to make them feel better about it emotionally for the human making the decision.

Declaration of interest: I've both borrowed and lent via Zopa and the lending activity has included having borrowers use payment plans, DRO, IVA and bankruptcy.

GotNo£

Another thing is that since the lender has already passed on the debt to those collection agency types there's no point in dealing with the lender any more is there?

So what's the first step to getting this written off (is it the 'debt collection' agency I now have to spaek to)? As like you said, to pay back the money at a very low rate will still screw my credit rating, for 6 years, so that kind of defeats the whole point in paying so your credit rating doesn't get screwed.