'Unenforceable debt' claims reported to lead to more debt problems

Posted in 'Dealing with Debt' by Richard Catlin

08 June 2010

Consumers who were drawn in by companies promising to be able to have their debts written off as ‘unenforceable’ are increasingly being forced to seek debt management help, after finding themselves in deeper financial difficulty, according to Blu Debt Management.

Blu reports a steep increase in the number of brokers approaching the firm for advice about more traditional debt solutions, after their clients saw their hopes dashed of having debts wiped out. It says that large numbers of consumers are now finding themselves in even deeper financial trouble – not only due to the fees charged by claims companies, but also due to them being advised in most cases to stop making repayments to their creditors whilst the claims were being lodged.

The writing was very much on the wall for unenforceable debt claims after a series of High Court test cases ruled in favour of lenders on some key points, setting precedents for thousands of cases that were on hold.

Claims management companies remain defiant about their ongoing successes, and continue to advertise their services. Despite the legal precedents, it is still possible to challenge debt that is statute barred (i.e. not acknowledged for at least six years) or which has been lent injudiciously. But it is now much less likely that errors in the small print of credit agreements will enable consumers to have debt waived, as has been strongly marketed by some claims management companies in the past.

Some claims management companies have ceased trading, such as Cartel Client Review and Ratio Money, and Credit Issues has recently been placed into administration. Other management companies have come under fire for making unrealistic claims about the chances of success. Over 100 firms were either suspended or de-authorised by the Ministry of Justice, some of which charged up-front fees of around £500. A BBC investigation in February also found that staff at Beneficial Claims misled consumers by advising that there was no risk to a consumer’s credit rating in pursuing a claim.

One of the test cases ruled that lenders should continue to report the status of a credit account to credit reference agencies even whilst an account was being disputed. As a result, where claims management companies continue to advise clients not to maintain repayments, it is likely that they will see their credit rating take a severe hit.

If you have made a claim and wish to check out what is being reported on your credit file by the lender, one of the best ways is to obtain a Triple Agency Report from checkmyfile. If you are interested in monitoring changes made to your credit files over time, our Unlimited Access service is the cheapest in the UK to monitor all three agencies.

If you are worried about debt, you can get free, impartial advice on what steps you can take through our Debt Advice Centre.

If you have a mortgage and are worried about your debt position, even if bankruptcy action has commenced or if creditors have started to take legal action, try this specialist mortgage broker, which deals in urgent and difficult cases.