Bankrupt

What is the Difference Between a CCJ, a Default, and Bankruptcy?

Dealing with debt is supposed to be a simple and straightforward matter. However, this becomes complicated if you are compelled to pay for something, especially if that comes with the full backing of the law. Things like a County Court Judgement, a Default, and Bankruptcy have their own implications and consequences. As such, dealing with either of these three properly requires that you be able to tell one apart from the other.

  1. What’s a Default?

Defaults commonly occurs when you miss several payments on a single debt. A default simply means that the lender has lost his faith in your ability to conventionally pay for your debts and have ended their initial agreement with you. Since they no longer believe that you can meet your obligations the normal way, the lender is now free to resort to other actions to really compel you to pay up.

It’s important that each lender has their own threshold before they declare your debt defaulted. For some, that could take in between 5 to 10 missed payments. For others, it could be a period of non-communication between a year to half a decade. There is also the fact that some loans tend to have more rigid requirements for payment than others, necessitating defaults when certain conditions are met.

The point is that there is no hard and fast rule to determine when you are at risk of defaulting on your payments.

What Happens, Then?

More often than not, you will be notified of your default through a letter which will include details such as:

  • The agreement you made with the lender
  • The terms of that agreement you allegedly broke
  • The amount you owe and when you should pay for it
  • The actions that the lender will take if you fail to comply
  • A request for a response which should be given out in no less than a week

If you do find a way to pay your dues within the time period, then no further action will be taken against you. If you do fail to comply, the lender is entitled under law to take several actions:

  • Demand the full payment
  • Pass the debt into a collection agency who shall then commence in compelling you to comply with your obligations
  • File a court action against you for the collection of the sum
  • Initiate repossession proceedings of any property you have put up as a collateral as part of the agreement

 

  1. What’s a CCJ?

This action is one of several that a lender can take against you if you fail to comply with the default notice. In here, you will be sent another notice, this time from the county court, informing you that you owe someone a considerable amount and, by virtue of this debt, are compelled to attend to your obligations.

You are also given a separate response letter wherein you will give your official response to the claim. What happens next is dependent on what your response is.

  1. If you acknowledge that you indeed have debt and that the amount is correct, you automatically enter into a re-negotiation phase with the lender. A mediation hearing might be set up where both parties can enter into an agreement as to how the debt should be paid.

In some cases, mediation can even be done away with altogether. So as long as you have come to an agreement with the lender, then the controversy is settled. However, the court will still meet out an official promulgation to legally bind all parties.

  1. If you contest the claim, this initiates a full-blown trial where both parties present their evidence why the debt should or should not be honoured. This is the longer and more exhaustive option as both you and the lender submit yourselves to the legal system. The court can either decide the case against you, for you, or come to a decision which ensures both parties will be satisfied.

Judgement

Normally, a CCJ will come in two forms. The first is by installment. In here, you are required to pay the full amount in increments over a long period of time. This usually occurs if the amount is quite large and this is your first encounter with a CCJ proceeding.

The other is the forthwith judgement. Basically, in this judgement, you would have to pay the full amount immediately. This usually occurs when the amount is considerable but not that large to make full payment impossible or if you are a repeat offender.

This is why it is important that you respond to the CCJ notice within 14 days. If you don’t inform them of your current situation or dispute the claim, the court will seek out a judgement which may be impossible for you to comply with.

What Happens If You Don’t Comply?

If you still show no sign of complying with the order even with a CCJ attached against you, the lender can ask the court to have you settle your debt in three ways.

  1. Bailiff Action – In here, the lender asks the court to authorise a bailiff to collect the amount you owe in any legal means possible. The bailiff, with the backing of the court, can come into your house, insist that you pay the money, or seize any asset that you might have that can be sold to repay the debt.
  2. Charging Order – If you happen to own a property directly due to the loan, the lender can ask the court to attach a charging order against it. Through the order, the lender opts not to pursue the amount you owe them but in exchange of you relinquishing ownership over the property. Furthermore, you will not be reimbursed for any enhancement or improvement you have made to the property during your ownership of it.
  3. Attachment of Earnings Order – In here, the lender no longer has to compel you to pay your debt up front. Instead, they can authorise the court which will then compel your employer or any agency to directly deduct a considerable amount from your salaries/income in order to repay your debt. The attachment only lasts until the debt has been paid in full.
  4. What’s Bankruptcy?

Unlike other actions wherein they are initiated by the lender, this action is initiated by you. When you declare bankruptcy, you are officially stating that you no longer have the means to pay for your debts and your creditors are no longer entitled to take any action to compel you to pay up.

Instead, the responsibility of handling your bankruptcy, from settling matters with creditors to liquidating all your assets, will be passed on to a trustee which will be assigned by the bankruptcy court.

What Happens in a Bankruptcy?

When you declare yourself bankrupt, be prepared for a massive downsizing in your home and business. For starters, every usable asset listed as part of your property will be seized and auctioned off. This will include vehicles, machines, luxury items, and even unused property. The proceeds will then be used to pay for all of your debts.

So, is declaring bankruptcy tantamount to allowing yourself to be financially bled dry? Not really. You are entitled to keep at least a handful of your properties to maintain a semblance of a home. This includes your clothes. A few furniture, a handful of utensils, and other important facilities. You might even get to keep a few things from your business depending on the case.

Also, all your bank and credit accounts will be frozen and handed over to your trustee although you are not going to be fully deprived of the means to support yourself financially. The trustee may also set up an Income Payments Agreement where a part of your monthly income is diverted to pay for your debts. However, this only occurs if all the assets seized from you were not enough to pay for the total debt.

A Word of Warning

Although declaring bankruptcy is one way of releasing yourself from your financial obligations, you cannot use this to simply escape the wrath of your lenders. If it can be determined that your declaration of insolvency was initiated to prevent your lenders from taking actions against you, you will be charged with insolvency fraud.

As a crime, fraud carries with itself both civil and criminal liabilities. In other words, not only will you still have to pay for the principal amount, you are going to pay for damages as well. Serving time in prison is also not out of the question.

In Conclusion

Either of these three, a CCJ, a default, and a bankruptcy, will have serious consequences on your credit score. As a matter of fact, these will remain in your record for the good part of a decade, leaving you to deal with the worst effects they could bring on your history as a credit holder.

Properly and promptly tackling these issues, then, can determine whether you can go through these instances with your financial credibility intact.

Have you been served a default and a county court judgement before? What strategies did you use to negotiate your terms with your lenders? The comments section below is open for all sorts of discussion.