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  • FIRST POST
    • Faldinio
    • By Faldinio 12th Jan 18, 10:14 AM
    • 41Posts
    • 17Thanks
    Faldinio
    Shall I settle debts with no interest and will it affect the defaults?
    • #1
    • 12th Jan 18, 10:14 AM
    Shall I settle debts with no interest and will it affect the defaults? 12th Jan 18 at 10:14 AM
    Hi

    I defaulted on 4 debts (3 of them in 2014 and 1 in 2015) when I tried to start my own business. I wrote to the lenders and agreed token payments. The total of the payments is £30. I knew they would disappear from my file eventually and there was no interest on them, so I thought why bother paying more?

    I have been back in full time employment for 2 years now (needless to say the business didn't do well!) earning 40k/year with a recent payrise.

    I would like to apply for a mortgage soon and wondered if settling these debts by borrowing (total around £8.5k) would be worthwhile? The default would still be there regardless? My thought process is that my potential affordability is better now because the repayments are so low and there is no interest. I really want to move this year so just upping the payments and settling them over the next couple of years is my less predferred option.

    I'm not looking for judgement about past choices, yes I have made mistakes but what would people advise now to potentially improve my file going forward?

    Thanks

    MF
Page 1
    • Gary_Dexter
    • By Gary_Dexter 12th Jan 18, 10:27 AM
    • 1,332 Posts
    • 774 Thanks
    Gary_Dexter
    • #2
    • 12th Jan 18, 10:27 AM
    • #2
    • 12th Jan 18, 10:27 AM
    Firstly, the debtors agreed to a £30 payment on £8.5k of debt!?

    The defaults will drop off 6 years from the date of default.

    What do you mean by borrowing the £8.5k? A loan? Over what period?

    This could impact your affordability for a mortgage
    • Richey_
    • By Richey_ 12th Jan 18, 11:28 AM
    • 323 Posts
    • 376 Thanks
    Richey_
    • #3
    • 12th Jan 18, 11:28 AM
    • #3
    • 12th Jan 18, 11:28 AM
    Clear the debts.
    As you are paying a token amount, they may drop off your credit report six years after the default but they are still enforceable as statute barred is six years after the last acknowledgement of the debt and paying token amounts is acknowledgment.
    You still owe the money.

    You will have to declare any debts to the mortgage company on application. They will probably want to see bank statements and the token payment will be on there. They may not wish to lend to somebody with a history of not repaying debts. However if they are paid off (you maybe able to negotiate a settlement figure less than you borrowed), they have dropped off your credit file and the company you apply for was not one of your creditors then they will never know.
    • Faldinio
    • By Faldinio 12th Jan 18, 12:02 PM
    • 41 Posts
    • 17 Thanks
    Faldinio
    • #4
    • 12th Jan 18, 12:02 PM
    • #4
    • 12th Jan 18, 12:02 PM
    My question is basically, is it better to have:
    1 new debt of 8.5k, up to date with payments but repayments possibly in the hundreds (I'm thinking how it will affect affordability of a mortgage), PLUS 4 recently settled debts with defaults in the last 6 years, or;

    4 old defaulted debts with token repayments.


    My understanding is that even if I paid the debts off, the default will still be there for another 2 years so should I why risk affecting my affordability by having larger repayments if I looked to pay them off with a new loan.
    • Richey_
    • By Richey_ 12th Jan 18, 5:31 PM
    • 323 Posts
    • 376 Thanks
    Richey_
    • #5
    • 12th Jan 18, 5:31 PM
    • #5
    • 12th Jan 18, 5:31 PM
    Because when you apply for a mortgage they will ask you what debts you have and will want to see your bank statements where they will see the token payments being made.

    It feels that you feel that you only have to make these token payments for two more years until the defaults drop off. Because you are paying monies towards the debt, stature barred does not apply. You will have to continue to pay until the debt is paid. These banks will eventually sell to debt collection agencies most likely and either the bank or the debt collection companies will look to review your financial ability to replay them the money periodically and want more money than you are paying now. Best thing you can do is to repay them the money, negotiating a settlement figure if you can.

    When you apply for a mortgage and the bank hears that you have four accounts you are making token payments to when you clearly have a deposit for the house which would have cleared these debts, how do you think they will view it? For a bank you want to lend you a considerable sum you will look irresponsible and somebody who cannot repay what you owe.

    You owe the money, itís enforeable even if it drops off of your credit reports. It will cause you a lot of damage for a mortgage. Pay it or negotiate a settlement figure now so the bank you apply for the mortgage through (unless they are a bank you defaulted with) will not know after it drops from your credit reports, as you have cleared it and donít have to tell them when they ask about current debts.
    • Faldinio
    • By Faldinio 15th Jan 18, 8:41 AM
    • 41 Posts
    • 17 Thanks
    Faldinio
    • #6
    • 15th Jan 18, 8:41 AM
    • #6
    • 15th Jan 18, 8:41 AM
    So you think getting a loan to pay off the debts now would be better when applying (in the next 6-8 months)?
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