Five big debt myths

by Ed Bowsher on 10 November 2009  |  0 comments
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Don't fall for these debt myths.

I've spent an interesting day with some of the folk at the Consumer Credit Counselling Service, a fine organisation that gives free debt advice to the many people who need it. 

One of the most interesting things I learned was the prevalence of 'debt myths' that are completely untrue. So here are five of the most common debt myths: 

1. If you miss debt repayments, you'll damage the credit score of other residents at that address

Sharing a flat with a serious debtor won't make any difference to your credit record. 

The issue is whether you share financial responsibilities with someone. So if you have a joint bank account, or jointly own a property, then you have a financial connection to that person. Then that person's debt issues can affect your credit record. 

I can understand why this myth about residence is so prevalent as the rules used to be different. Spread the word that things have changed! 

2.  If you owe money to your credit card company you could go to prison

Any money you owe on your credit card is a civil debt. You can't go to jail. The worst case scenarios here are bankruptcy or what is called a charging order.   

A charging order enables the credit card company to take some of the sale proceeds when you come to sell your home. In thoery, a lender with a charging order can also force you to sell your home immediately but that's very rare. 

If you're struggling with credit card debt, I urge you to speak to an adviser at the Consumer Credit Counselling Service or National Debtline. (Both services are free.) You may find that things aren't as bad as you feared. 

And don't worry, most people with credit card problems won't be hit by a charging order. Most won't need to go bankrupt either. 

3. Credit card companies are able to send bailiffs to a debtor's home to collect a debt

Contrary to myth, credit card companies can never send bailiffs. All they can do is ask the court to send bailiffs once a county court judgement has been granted against you. 

Credit card companies can send a debt collector or a representative to try and collect the debt. But that debt collector has no legal power. You don't have to speak to the debt collector if you don't want to. 

Bailiffs, however, do have power to take some of your property. 

Read What can bailiffs do to you for more information on this. 

4. My family will have to pay my debts if I pass away

This is not normally true. The main exception is if you have borrowed jointly with someone who has died. A widower would be fully liable for all joint debts after his wife has died. 

Also if you guaranteed the debt of someone who has died, you'll be liable for that debt. 

Of course, if the deceased dies with £80,000 of assets and £40,000 of debt, the estate has to pay off the debt with the assets. So, in this example, once the debts have been paid off, the deceased's relatives will only inherit £40,000. 

5. If you get a county court judgement you will have to attend a hearing

Many county court judgements are granted without a hearing, so there's nothing you can attend. 

That said, if you are ever invited to attend any debt-related court hearing, it's always best to turn up. Try and get some advice before the hearing too. Once again, National Debtline or the Consumer Credit Counselling Service can help. Citizens Advice is another option although there are often long waiting lists before you can speak to someone there. 

Final message 

If you're struggling with debt, the biggest mistake you can make is sticking your head in the sand. The first step to recovery is getting advice from a reputable organisation. The situation may not be as bleak as you fear.

> If you're unsure about a debt-related issue, you can ask for help from lovemoney.com users via our Q and A tool. 

> Also check out the Dealing with Debt discussion board which is hosted by our friends at The Motley Fool.