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Finance: Default and Reposession

Default

The most likely reason that there has been a default under the contract is because a payment has not been made. Where a mortgage is held over goods (usually a car), other reasons may include:

  • the borrower fails to maintain insurance;

  • the borrower sells the goods;

  • the borrower otherwise disposes of the goods;

  • the borrower transfers the ownership to another person.

Legal proceedings

This term generally means an action that is initiated in court. 

Although the credit provider has wide powers to begin legal action to recover a debt, in regulated contracts certain conditions must be first be satisfied:

  • the debtor (the person who owes the money under the contract) is in arrears of their payments;

  • an appropriate notice has been posted to the last known address of the debtor (or any guarantor);

  • the debtor has been given the appropriate period to pay the debt.

There are exceptions to these rules. 

For instance, where the credit provider has made reasonable efforts to contact the debtor and has been unable to do so. 

Remember, if this is a second or later default, the credit provider may have previously informed you that no further notice will be given. 

Get legal advice if proceedings have been instituted.

Extensions

It is possible to seek an extension on the loan repayments if you are in default, but it is best to have a reasonable excuse. 

Negotiation is often a good starting point. 

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For instance, if you were unemployed for a period of time but are now in a position to make the repayments, this might allow an extension to be provided. 

Where larger sums are involved, it is important to get legal advice.

Refinancing

Do not agree to a proposal to refinance without getting professional advice from an accountant, lawyer or specialist legal centre/financial adviser.

Repossession

Repossession can take place under the Consumer Credit Code following the expiry of the appropriate notice period (or following an exception to these rules as above) where the credit provider has a mortgage under the contract (usually a car). 

However, repossession cannot place if:

  • the amount still to be paid is less than 25% of the amount financed;

  • the goods are stored on private property, unless a court or tribunal has made an appropriate order or with the borrower's (or occupier of the premises) consent. Following repossession under contracts regulated by the Consumer Credit Code, the borrower must be given notice of:

  • the value of the goods;

  • the repossession expenses; and

  • the right to recover the goods by paying the debt or remedying the default.

It is still possible to negotiate a deferral of this procedure e.g. if the borrower can prove they are about to receive monies owed to them that will cover the costs. 

Sale. The credit provider must get the best price possible for the goods. 

On the other hand, it is possible for the original borrower to introduce a buyer to the credit provider. 

If the best possible price has not been obtained (this may be difficult to prove if you did not have the goods valued prior to repossession), or the provider unreasonably refuses the person you introduced, you should seek professional advice.

Money owed after sale

If the amount obtained on the sale does not equal the amount owed under the contract, the credit provider may begin legal proceedings in a local or magistrates court to recover the balance.

Guarantors

If you are the guarantor under a contract you may be liable for the amounts owed. However, this is restricted to situations where:
  • a judgement debt has been made against the borrower i.e. a borrower who has a court judgement against them that orders them to pay a sum of money to the credit provider; or

  • the court has allowed the credit provider not to obtain a judgement against the borrower; or

  • the borrower is insolvent or cannot be found. Get legal advice if you are the guarantor in this situation.

Unjust contracts

Under the Consumer Credit Code, any of the parties to the regulated credit contract can ask to get out of a contract if it was unjust or harsh at the time it was entered into. Whether the contract was unjust will depend on the circumstances. It may be because of:
  • harsh terms in the contract;

  • the way the negotiations were conducted to induce the borrower to enter into the contract;

  • a rate of interest that is excessive in the situation. It is important to get legal advice of you believe the contract is unjust because the issue must be adjudicated by a court or tribunal. Under the Consumer Credit Code the court may look into (amongst other things):

  • the inequality of the bargaining situation;

  • public interest;

  • whether independent professional advice was obtained prior to signing;

  • whether the borrower understood the terms of the contract;

  • whether there were unfair tactics or unfair pressure applied to the borrower.


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