More help from the Debt Doctor
02/10/2008
A great many people are now facing problems arising from debt. How can you best stop a problem becoming a crisis? Financial journalist Russell Cavanagh is our “Debt Doctor” - here to answer your queries.
Q: My wife passed away last month. She owed £2,900 on two credit cards and nothing else. Although we had no savings, we were joint owners of the house I still live in and there is no mortgage or secured loan left to pay. Do I need to repay these debts or do they die with her?
A: According to National Debtline, any debts would be repayable from your wife’s estate after deducting reasonable costs for burial or cremation. If you lived in rented accommodation with no assets, it may have been that the lenders would not have bothered to pursue the outstanding debts beyond an initial attempt.
However, with full equity available in your own home, lenders could pursue the debts and try to argue there is some realisable estate left in the form of your wife’s share of the property. Importantly, liability to pay would partly depend on how your joint ownership of your home was arranged legally. If your wife’s debts do prove to be recoverable, creditors can take pretty drastic steps to obtain the money for up to five years after your wife’s death. You need to seek advice specific to your own circumstances.
Should either situation apply to you, you are strongly advised to seek advice about your rights and available options.
Q: What is the time limit for a debt to be legally enforceable? I lost my property after a long-term ongoing illness and am now re- housed in public-sector housing. I was contacted by debt collectors at the new address and I offered small monthly payments which they refused. The debt has since been deleted from my credit record (at the end of December 2007) but I am still being chased by three debt collectors for the same debt. What are the options?
A: You should only be chased by one debt collector, probably the most recent one that contacted you. It could be useful to complain to the lender or company owed the money and ask them to confirm exactly who the collectors are. However, it’s not uncommon to receive a demand from a collector and a letter from their solicitor in the same week.
Consumer Direct – an agency of the Office of Fair Trading – can advise you if correct debt collection regulations are being followed properly or not. Their number is 0845 4 04 05 06.
According to the Child Poverty Action Debt Advice handbook, the general rule under the Limitations Act 1980 is 12 years for outstanding capital owed on a mortgage or secured loan debt and 6 years for any associated interest. The clock usually starts running from date of default in payments – i.e., not when the lender decides to repossess or sell the property.
The Council of Mortgage Lenders issued guidance to lenders several years ago saying they should not pursue a mortgage shortfall debt if they have not tried to contact you within six years of the property sale. Note that this is not the same thing as the time limit rules summarised above.
Lenders often claim interest was paid off before crediting any capital sum owed (the amount actually borrowed) after sale or auction and that the 12 year rule therefore applies to unpaid capital. This point may be worth exploring as many mortgage shortfall debts have been reduced when this issue has been investigated.
Remember that confirming the debt in writing to the lender starts the limitation period running again, as does payment by you or any joint borrower. Notably, lenders also have a duty to try to get best sale price at sale. In most instances, debts should fall off credit reference records six years after being entered. However, this fact by itself does not bar creditors from pursuing debts.
Community Legal Advice or Citizens Advice should provide free help and their contact details are further in this article. They can advise about your liability to repay the debt and, if you are liable, explain options such as making a reduced lump sum full and final offer to settle, negotiating reduced repayments based on your household budget, exploring the suitability of getting rid of the debt through applying for your own bankruptcy, requesting the debt be written off due to any ongoing disability, etc.
This article is based on journalistic research. It does not constitute financial advice. All information should be considered in regard to specific circumstances. Tips are followed at your own risk and should be followed up with independent advice tailored to your own situation.
You can ask for Russell's advice through Mature Times (in confidence) by emailing: tony.watts@maturetimes.co.uk.