When you're saddled with debt, the world and his wife has some good idea: they know some cunning way to escape your debts, a great loophole, a little-known fact that could save your skin. Unfortunately they are simply too good to be true, and instead of just being stuck with debts, your mired in a world of half-truths and urban myths about debts.
We examine the top ten myths, and the truth behind them.
The Consumer Credit Counselling services has been interrogating its staff, who deal with those struggling with debt problems every day, and revealed a few myths and realities. They have been publishing them on a daily debt advice blog. We pick ten of the most common, and most damaging.
1. Your debts are written off if you haven't made a payment in six years.This gives some hope to people, who think that by ignoring letters and calls they can get their debt written off. The law they are relying on here is the Limitations Act, which states that the debt can become statute barred after six years if you haven't paid any of the debt or admitted to it, and the person you owe money hasn't gone to court for a CCJ before six years elapses.
2. Your bank can't take money from your account without permission.This catches lots of people out, because in many cases they can. If your salary is paid into the same bank as your loans are held with, and you are behind with your loan payments, they have the right to take the cash straight from your salary to pay towards your debts any time they like. They don't have to ask your permission, they don't even have to warn you.
The only way to avoid being vulnerable for this is to have your salary paid into a basic account elsewhere.
3. Creditors can send bailiffs to collect debtsThe people you owe money to have no right to call in the bailiffs - only a court can do this if you have defaulted on a CCJ. They can send around a debt collector, but this is very different, and in reality debt collectors don't have any powers in law to take anything from you.
4. "New government legislation can write off your debt"This is a classic claim in adverts and cold-calls, which claim they can write-off a huge chunk of your debt immediately. They are referring to formal legal arrangements like IVAs, bankruptcy or debt relief orders. In theory they can write off either some or all of your debt, but it's nothing like the easy solution they present, and in many cases it's not the best solution for the individual.
For a start, they take years to go through, during which time you will have to stick to a strict budget. An IVA will take five or six years, bankruptcy 12 months (and you may be held to an income payment agreement for three years) and under a DRO you'll usually have a three year moratorium.
5. An IVA is the answer to my debt problemPeople who watch an avert for a particular product, or hear from a friend that it worked for them may seize on the hope it will solve all their problems. However the experts are very clear that the only way to find the answer that's right for you is by going through a process with a debt charity, understand your situation as a whole and tailor the solution to your needs.
6. You have to pay a fee for a debt management planThere are plenty of commercial companies which charge a set-up fee for a debt management plan, and take a slice from your monthly repayments in order to cover it. However, there are also lots of charities who will set up a plan without a charge.
This doesn't mean the charities are inferior, or have long waiting lists, they can help immediately online or on the phone with an adviser.
7. It's free to go bankruptIt's not a 'get out of jail free' card, you'll pay £700 for the process. In England and Wales it costs £175 in court fees, and then you need to pay £525 to the Official Receiver. If you are on a low income or get certain benefits, you may not need to pay the court fee, but the Official Receiver's fee must always be paid.
In addition to this, you will have your income and expenditure analysed, and if you are deemed to have enough excess income, you may have to pay any surplus income into an income protection order for three years.
8. If you go bankrupt you will definitely lose your houseIt really does depend. If you have a lot of equity in your home, the official receiver or trustee may have to sell up in order to put the money towards your debts. However, if you have very little equity and your mortgage is both affordable and roughly the same as local market rental costs then you may be able to sell. However, the official received has two years to change their mind if house prices change significantly.
9. Bailiffs can force entry into your property and take any item they wantThey are only allowed in if you let them come in on a previous visit, or they came in through an unlocked door or window. This is called 'walk in possession'. Once they have been in once they can list off any goods that they plan to take on a second visit if you don't pay up in time. If you fail to pay at this point, they can come back for the goods.
10. You have to speak to someone or have face-to-face advice if you need help with problem debt
Some debt charities offer telephone services, some offer face-to-face advice and some have online services. Some, such as CCCS, have all three. If you're not keen to discuss your problems with someone else, you can start with the Debt Remedy online tool which will help you work out your position and the best options open to you.