Understanding a default notice and what to do when one arrives

Posted by Ben Ryland in Dealing with Debt on 23 December 2019 - Ben is a Senior Credit Analyst at checkmyfile.

No one wants a default on their Credit Report, but sometimes there’s little you can do to prevent it. Perhaps your household income dropped due to redundancy, you’ve suffered an illness, or an unexpected large expenditure has cropped up. Whatever the reason, in times of hardship financial commitments are often among the first things to be affected.

A study from 2016 found that a quarter of UK homes have less than £100 in savings, so it really doesn’t take long to feel the pinch from a financial setback - sometimes it really is out of our control that we miss payments on a credit agreement and end up with a defaulted account. But if it happens to you, there’s still plenty to do to make sure you stay in control.

To find out more information about a default, your Credit Report is likely to hold the answers you're looking for, including lender details, how much is allegedly owed and payment history for that account. If you haven't already, you can try checkmyfile free for 30 days, then for £14.99 a month afterwards, which you can cancel at any time. You'll get full access to the UK's most detailed Credit Report, with information from all four Credit Reference Agencies, not just one.

What is a default notice?

Normally the first you hear about a default is when a default notice lands on your doormat. This can be both surprising and stressful in equal measures. For many people, they simply don’t know what to do first and how to sort out the default.

A default notice (sometimes referred to as a default letter or Notice of Default) is a formal letter sent to you by a creditor as a result of payments missed on a credit agreement between yourself and a credit provider. A credit provider can most commonly come in the form of credit card and loan companies, but can also include mobile phone operators and utility companies.

The notice will give you 14 days to pay any amount owed before issuing a default. This can add to pre-existing pressures, but it is really important to not bury your head in the sand and ignore the default notice - if left unpaid a default can lead to a County Court Judgment (CCJ) or other forms of insolvency.

Where do default notices come from?

A default notice is usually issued after several payments have been missed - some will not default until six payments have been missed but others can be for three months missed. The decision to default an account lies solely with the organisation the account is with. A default notice can only be issued if the debt is regulated by the Consumer Credit Act 1974.

The default notice should include several bits of important information for the debtor. This includes the type of agreement which has been defaulted (for example, a credit card agreement), what terms have been broken due to non-payment and what you should do next.

An information sheet is usually included with a default notice, prepared by the Financial Conduct Authority (FCA), offering further guidance for debtors on what to do next and also how to get some advice (for free) with debt charities. If you can’t face dealing with your default(s) alone, seek help and advice from these organisations. You can also find more free information in our Debt Advice Centre.

What should you do next?

The sooner you act on a Notice of Default the better, as you’re only given 14 days to respond before you are issued with a default, which will remain on your Credit Report for six years and can affect your ability to get credit, a loan or any other form of finance.

If you are on the receiving end of a Default Notice, here’s what you need to do:

  • Check all the information on the default notice carefully
  • Contact the lender immediately
  • Discuss payment options

Contact with the lender is essential, whatever course of action you choose to take with a default, and the sooner you open a dialogue with them the better.

Check the details of the default

You need to ensure that the default information is correct, otherwise you could end up paying for someone else’s debt. Though incredibly rare, it is possible for another person’s default to appear on your Credit Report, either in error or as a result of fraudulent activity. That’s why it’s important to check your name, address and any other personal details listed on the default notice to verify that the debt is yours beyond any reasonable doubt.

Also be sure to check the amount of debt owed according to the notice - if the sum is for a larger amount than is really due, by accepting these terms you could be liable to repay more than you owe.

In cases of fraud, often the first time you may realise that you have been a victim is when a default notice comes through the letterbox (unless you check your Credit Report regularly). If you do not recognise the name of the lender that has sent the default notice or you believe the default may relate to fraud, don’t just leave it – speak to the creditor. The creditor needs to know if an account was opened fraudulently and can help you to get it corrected.

If you believe you are at a heightened risk of fraud, by checking your Credit Report regularly you will be able to see as and when fraudulent credit accounts are opened in your name and prevent them from going any further, which could prevent you from having to face a default notice for a loan you haven’t even taken out.

Learn more about dealing with fraud

Contact the lender

The notice will require you to get in touch with the lender who has sent the letter to you, to settle the outstanding balance on the account within 14 days of the letter’s receipt. Regardless of whether you wish to make payments to clear the debt or dispute it entirely, the first step should be to contact the lender to discuss your options.

Ignoring a default notice can lead to the creditor taking further action and could result in a County Court Judgment being sought against you. The default letter should state what further action the creditor will seek if the balance is not settled, often in the form of court action and a CCJ being issued. This is extreme, but the lender is entitled to start court action after an account has defaulted.

Discuss payment options

While the notice may demand the payment in full, it is always worth contacting the creditor to discuss repayment options – many lenders are willing to listen to and work with those who are unable to repay the balance in full, and may agree to a repayment plan in order to settle the debt. If you are experiencing financial problems, this can help reduce the burden on you and save you from making a single, larger payment as well as discourage the lender from taking court action.

If the agreement is related to an asset or good which formed part of the credit agreement, the lender may also take action to repossess that good if a method of payment is not agreed upon by you and the lender. This is most common with hire purchase agreements for vehicles where the lender may repossess the vehicle once the account has defaulted.

Can debt collectors pursue a default?

Once a default notice has been issued, the debt can be passed or sold to a debt collector. You may then start receiving letters and phone calls from the debt collector to chase up on the debt, and payments would need to be made to the debt collector rather than the original creditor. Debt collectors want to work with you to help clear the defaulted balance and may be open to arranging a repayment plan or offering a discount if part of the balance can be settled there and then.

Find out more about dealing with debt collectors

If you’re looking to check whether you have a default, you can try our Multi Agency Credit Report free for 30 days then just £14.99 monthly, which you can cancel online at any time. You’ll have access to your complete information from all four CRAs so you’ll see exactly what a potential lender can see.

Updated on 23/12/2019 by Sam Griffin

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