Debt problems - extra help for consumers

Posted in 'Dealing with Debt' by Richard Catlin

08 April 2009

Debt problems are far more commonplace than most people think. It is rare to see a credit report with absolutely no late payments recorded over the past six years and one in six credit reports contains a default.

Consumers struggling with their debts have been given a welcome boost after a new code of practice has been introduced, concerning the way that debt recovery firms can pursue debtors.

This new agreement is similar to the one hatched between credit card issuers and the Government at Downing Street back in November 2008. This saw the introduction of a new voluntary code, requiring lenders to act ‘sympathetically and responsibly’ as well as working closer with organisations such as the Citizens Advice Bureau.

This new code of practice came into effect on 6 April. It was conceived in a partnership between the Government and the Credit Services Association (CSA) and gives consumers a 30-day period in which to seek help from a recognised debt advisor – a non profit organisation such as the Consumer Credit Counselling Service (CCCS).

This period of grace is designed to give debt advisors more time to work on a solution with consumers and to work out a timetable for finding a solution that suits all parties. Debt Collection Agencies that are members of the CSA have been given a month to update their procedures. You can read our own guide on dealing with debt collectors here.

A new alternative to bankruptcy also went live just before Easter, with the introduction of Debt Relief Orders. As we reported back in February, this new legislation is aimed at consumers with less than £15,000 of debt, assets of less than £300, and monthly disposable income of £50 or less, and sees debts written off when the individual is discharged after 12 months.

A DRO costs only £90, compared to the current £510 it costs to be declared bankrupt – a figure that has been prohibitive for many low income consumers in the past. Applications for a DRO must be made through a recognised intermediary such as the Citizens Advice Bureau.

Like a bankruptcy, the record of any Debt Relief Order will remain on an individuals’ credit report for a period of six years, and their ability to borrow in that period will be seriously hampered.

If you are concerned that your own debt worries are growing, or even if you’ve got a short term cash-flow problem, our debt advice centre offers free, impartial advice on the steps you can take.