What happens if you simply stop paying your credit cards?

hp48910

Hi
Just looking for a bit of clarification. Our friends have visited CAB after running into debt. They both earn a decent wage but are now at the point where they have a monthly cash flow issue due to debt repayments taking up most of their disposable income (mainly just covering the interest).

As they have assets, they were not able to go down certain routes but were advised that they could simply stop paying the debt. They were advised to cancel all direct debits and standing orders and to open a very basic bank account, clearing out the previous one including the overdraft.

What they should expect to follow is a series of letters from creditors which they have been advised to ignore and to put aside the money that would have gone towards debt so that when the companies threaten court, they can make an offer of 1/3 of the balance. Apparently the company will accept this and that is the end of it.

Apart from the fact that their credit score will be affected for up to six years, there are no other repurcussions and nothing will happen to them.

Can this actually be true? If so how come others are entering into agreements (probably morally) which can take years to repay as surely if people have defaulted whilst struggling, their credit score will be affected anyway?? Surely there is more to it?

BTW...tempting as it may seem...we are paying our balance off slowly but surely!

Tiglath

I don't know for sure but I would've thought if they have assets, one of their creditors may push to make them bankrupt.

lurvlyloz

depends on who their creditors are. lots of unsecured loans and credit cards then yes that can happen.

tallyhoh

my friend was made bankrupt by his creditors but this was some years ago.
Did the CAB really give them this advice, sounds unbelievable.

climbingoutoftheabyss

I'm not sure its as simple as the picture painted.

Not all the creditors are guaranteed to provide a F&FS at 30% and I would imagine the majority wouldn't. If they chose to pursue the debt then they would pursue a County Court Judgement and from there perhaps even a charging order on any property.

Furthermore, many credit card companies may sell the debt to collection agencies and I know (from experience) that these will pursue the debt very aggressively and you really don't want these people on your back.

While I wouldn't morally judge your method, I'm not sure its the way to go, even if I thought it was possible.

I come at this from experience, through bad business decisions and poor financial planning I got in to all sorts of trouble, but in six years I have paid back 75% of my debt and intend to clear the rest by next year.

Yes, its tough - but there is the flip side that unless you change the behaviour that got you in to debt in the first place then you'll only end up in the same situation again, and trust me, by standing up to your mistakes, and repaying them in full you learn not to make those mistakes again and to take a very different attitude to finance.

rizla_king

Might work with many creditors. Still a calculated risk though. Could backfire.

hp48910

Thanks for all the replies.
Lurvlyloz the debts are all from credit cards and a loan. Tallyhoh, yes the advice was from someone at CAB. He apparently said that it's not commonly known, which did make me wonder but they started it at the end of November. I know they are getting letters and phonecalls but they were also told to expect this.

climbingoutoftheabyss...it's our friends, not us, who are in this situation. We were really shocked when they told us about their experience. I have to admit we were also slightly gutted as we too have credit card debt but manage ours and plan to repay in full. We have passed up opportunities to go away with them etc because we couldn't afford it and it now seems that they have been able to do all this on credit and won't have to actually pay it all back. Their attitude is that if they carry on as they are, soon they will default and their score will be ruined anyway. Even if its not, they don't plan to take out any more credit and aren't bothered about the six years it could affect them for!

hp48910

The other thing is that the advisor looked at who their debt was with and said that those particular companies would be fine! That they would be sold on to a collection agency but that they would accept the 1/3 full and final settlement?!?!?!

climbingoutoftheabyss

Sorry HP, I did read that it was your friends, but forgot that as I typed my reply.

In regards to this:

The other thing is that the advisor looked at who their debt was with and said that those particular companies would be fine! That they would be sold on to a collection agency but that they would accept the 1/3 full and final settlement?!?!?!

There is no guarantee that any creditor would accept 1/3 F&FS and I'm very sceptical that many, if any, would. My experience is that they look for something like 60%.

I take your point about credit ratings being trashed anyway, and that's one of the things we take onboard when we take on a debt management plan, but I really think its highly unlikely that all those creditors are going to let your friends suddenly not pay, no communicate and when they eventually resurface simply accept a third of the balance outstanding.

I don't know who gave your friends this advice, but it sounds bogus to me and fraught with danger. I'd suggest you speak to them and get a second opinion.

hp48910

Thanks, I always go along the lines if it sounds too good to be true etc etc...

The guy also said that if they wouldn't accept 1/3 then to just go back to him and he would be able to sort it for them. He has never not been able to.

Our friends came round on the evening of their appointment and understood our scepticism, saying "We know, we were the same as you when he first told us."

My husband and I joked that we'd see how they got on and consider it! We have since mutually agreed that we want to pay it off the proper way. Like you mentioned, you have to understand the behaviour that got you there in the first place. Not simply look for the quickest cop out!

climbingoutoftheabyss

Was it the CAB that your friends spoke to?

I was interested in the way you worded:

The guy also said that if they wouldn't accept 1/3 then to just go back to him and he would be able to sort it for them. He has never not been able to.

I would be very surprised if the CAB were giving out this advice.