Default Notices – What are they and what do they mean?
If you have received a Notice of Default, you’re probably feeling a little confused and might be worried.
In this guide, we explain what a default notice really is and what you can do if you have received one.
Fight back against your debts with these details, charity advice and key knowledge!
What is a Notice of Default?
A Notice of Default is a communication from your creditor, informing you that you are behind on repayments and your account is soon to default. The letter is typically sent if you have not paid the full amount agreed within your credit agreement over three to six months.
As it is a notice, you are given a minimum of 14 days to catch up by paying what you owe.
Default notices can only be issued on debts that are regulated by the CCA.
What is the Consumer Credit Act 1974?
The CCA 1974 governs some types of credit agreements. It regulates how lenders must operate. The CCA is applied to loans, credit cards, store cards and hire purchases – but not mortgage lending.
You can recognise a default notice because the letter usually has “Default notice served under Section 87(1) Consumer Credit Act” in the header.
Where do default notices come from?
A default notice is only sent by your creditor or lender as a formal letter.
Do not ignore these letters as it will likely make your situation worse. Even if you think there has been a mistake, reach out to the company or creditor and start a conversation.
You may receive a Financial Conduct Authority factsheet along with the debt notification. You can find this Financial Conduct Authority resource here.
What is the purpose of a default notice?
The purpose of a lender sending you a default notice is to get you to catch up on payments missed.
The letter may threaten further action if you do not pay, such as:
- Asking a debt collection agency to chase you for the debt
- Starting legal action
- Using enforcement methods (bailiffs etc.) if the court issues a CCJ asking you to pay
Every company or creditor chasing you for money must send a Notice of Default before taking further action, as per the CCA.
Can you stop a default notice?
You cannot stop a creditor or lender from sending you a default notice. If you have missed some payments agreed to in a credit agreement for at least three weeks, lenders have the right to send a letter.
Is a default notice bad?
A Notice of Default is a sign that you are struggling to meet the payments agreed with creditors. However, there are ways to respond and prevent your financial situation from getting worse – or from having to deal with court action.
You can always contact a free debt advice agency or charity if you are worried about any letters sent by creditors.
You can usually call them from a mobile phone without charge. Use their web address to find the correct contact details.
Some debtors may need to consider formal and informal debt solutions, some of which can be accessed through those charities. We explain the common ones here.
And in limited times, you may need the services of an authorised and regulated debt management company.
These organisations offer a number of services not usually available for free with charities. Sometimes, these professionals may be able to come to an agreement with your creditor when you could not, or secure more favourable repayment terms – but they come at a cost too!
What happens when you get a default notice?
After you receive a Notice of Default, you have an opportunity to repay the amount of money due on your account. You will usually be given at least 14 days to repay the missed payments or face further action.
So, What should you do next?
If you have received a Notice of Default and you have the money to pay what you owe without causing other debt defaults or difficulty, you should do so.
However, missed payments usually mean the individual is struggling to afford their repayment agreement and this is not realistic.
In this situation, it is best to speak with the lender or creditor directly and explain your financial situation.
They may agree to a new payment plan that accommodates your needs and assists you to become free from debt in a more affordable way. You’ll probably pay more interest and it could take you longer to pay it off.
You may want to get free debt advice from a charity registered in England and Wales. There are plenty of great ones around, not limited to Step Change and National Debtline. Scotland has its own registered debt advice charities.
On the paperwork you receive, you’ll notice that you are recommended to speak with Trading Standards or even legal experts. This is not necessary. The reason the communication suggests this is because the template for these communications was pre-written decades ago before debt advice charities existed.
Can debt collectors pursue a default?
Creditors that issue default notices without then receiving the money owed can take further action. They could use a debt collection agency to chase you for the debt; this can be stressful.
But you should remember that a debt collection company is not the same as bailiffs and they do not have the same legal powers. For example, these collection businesses cannot come inside your home or give the impression that they can repossess your goods and valuables.
If you have defaulted, the lender could take more serious action by taking you to court.
If the court finds you are liable to pay, they can issue an order. At this point, you should repay, or if you cannot afford to, you should ask for the creditor to agree on a payment plan.
If no agreement is made, they can use the order to enforce the debt, typically by employing bailiffs to collect payments or repossess items.
You’ll also be responsible for bailiff fees at this stage, which starts at £75 but can escalate to hundreds of pounds. You can complain about bailiff fees by using one of our bailiff letter templates!
How long does a default notice last?
A Notice of Default begins as soon as you receive it and further action can be taken if you do not repay your debt within the time allotted.
They will not ‘expire’ in the meantime. You can use your time to get advice and search for the most appropriate debt solutions.
Does a default notice appear on your credit file?
If you receive a default notice communication, it will not be reported and will not appear on your credit file. But if you do not take action and your account ends up defaulting, this will be reported and affect your credit file. The default will have a negative impact on your credit score.
How long does a Notice of Default stay on your credit report?
The default will appear on your credit report for six years. This has a negative impact on your credit score and can stop you from taking out a loan or other credit in the future. After six years, the defaulted payment will be deleted.
How to check your credit report
If you are wondering if a default appears on your credit file, you could take a look for yourself. This and any previous debts within the last six years will show on your reports online.
Search online for a registered credit reference service and use their checking service. You can usually sign up for free for a few weeks – but don’t forget to cancel or your account will stay active and you’ll be billed.
Make sure you do not ignore their letters. Ignoring these communications can make the situation worse – and even more expensive. There is plenty of non-judgemental support available, as well as more MoneyNerd guides to answer common debtor questions!