Can you go to court over not paying back a loan?
- You should never take out a loan you know you cannot repay
- If you are unable to pay back money to the lender, they may take you to court in extreme circumstances
- You should always reply to claims as early as possible to stop potential court action
What Happens If I Can’t Pay Back a Loan?
If you cannot make a repayment on your loan, the situation may not be as hopeless as you think. The first thing to do is speak to your lender and let them know as soon as you think you will be able to make a repayment. Through this, you may be able to come to an agreement with them. Communication is key and ignoring any messages from your lender will only lead to further problems. For more information, read this guide on what to do if you cannot repay your loan.
Consequences of Not Paying Back Your Loan:
- It can negatively impact your credit score
- You could be charged a fee plus interest on any missed payments
- Your lender could issue a court judgement
- In extreme cases you may have to declare yourself bankrupt
- You might lose the possessions classified as ‘security’ on a secure loan
How Can I Stop Going To Court?
If you owe money to a lender and you do not pay it back, they are within their rights to take you to court. You may be able to stop things reaching this point if you agree to pay some of the money back, even if you are unable to make the full repayment.
If you receive a claim, you should reply to it as early as possible – regardless of whether or not you agree about the debt owed. If you do not reply to the claim, you risk being taken to court for a debt that you may not owe. Once you reach this stage, it is harder to contest the decision and could even cost you more money to solve the problem.
If you agree with the debt but are unable to pay the agreed amount, you will need to propose a new payment plan to avoid further legal action. If your creditor agrees to the new plan, you can avoid going to court.
What Happens if I’m Taken To Court?
Unpaid loans only reach the court in extreme circumstances. In addition, your creditor will need to provide the right documents. If you check the initial agreement and it is covered by the Consumer Credit Act, you can challenge the claim if they do not provide you with the following documents:
- Default notice – details of missed payments and proposed repayment plan
- Letter of claim – details of why they are starting legal proceedings
- Claim pack – 4 forms including: claim form, response pack, admission, defense and counterclaim
If you are taken to court, a court order, saying how much you need to pay and when, will be made. If you are unable to pay, it is advisable to make an offer to repay as much of the debt as you can.
If your creditor rejects your repayment offer, you can ask the court to intervene and make a decision on your case. This would avoid a court hearing but might mean that you have to pay back more than you can afford. This judgement will stay on your credit record for 6 years and potentially prevent you from getting credit in the future.
If you do not agree with the judgment, you can ask the court to review it or modify the payment plan (a variation). You may also be eligible to apply to cancel the judgement and, if you are on a low income, may even be able to receive government assistance.