Default Notice

The terms of a credit card or personal loan are regulated by the Financial Services Authority. The lender can issue a default notice when a borrower breaches the terms of the agreement. This can be done after one missed payment, although a default notice is normally only issued after three missed payments.

Before commencing any legal action to recover a debt, the creditor has to issue a default notice to the debtor, stating the name and contact details of both creditor and debtor, the type of agreement, details of how the agreement has been breached and the amount in default.

The default notice will also advise on action needed to remedy the situation in compliance with the agreement and the next action to be taken by the creditor should the debtor fail to follow the agreement.
A default notice allows the debtor at least one week to carry out the required action. A creditor may use a default notice as a warning to the debtor. They may not initially intend to start court proceedings, especially if the debtor fulfils the conditions of the notice and pays the arrears as instructed. If the debtor can afford to pay the arrears, it is better to do this than wait for court action to begin. If they are unable to make the payment, the debtor should seek debt advice and make a reduced offer based on their Income and Expenditure. The creditor will often prefer this route to taking the debtor to court.

Sending a default notice is mandatory for a creditor before taking any legal action. After meeting this requirement, the lender may start the legal action by issuing the claim form. This can be prevented by contacting with the lender at an early stage and establishing a mutually acceptable agreement. If the court action is taken by the creditor, then a County court judgement will be registered against the defaulter and the court will issue an order which will state that the defaulter is required to pay off the debt either immediately or in instalments, as agreed upon by the mutual parties. Sometimes the creditors may also threat the defaulters with making them bankrupt, but they are not normally intending to do so and this threat is only to get back their money.