Don’t put your head in the sand over unpaid loans
If envelopes with demand letters for repayment are mounting or there’s a court date on the cards, it’s still not too late to act
Looking down: if an unpaid loans case proceeds to court, coming without evidence of your sincere efforts to engage with your lender will be to your disadvantage.
If you’re being taken to court over an unpaid loan to a bank or credit union, what should you do?
The short answer is to face it head on. Whether you took out the loan to buy a car, to pay for your wedding or revamp the kitchen, lower wages, unemployment and just trying to keep the roof over your head could mean you’re having trouble paying it back.
But if envelopes with demand letters are mounting or there’s a court date on the cards, it’s still not too late to act.
“It’s important for people in arrears on a personal loan to engage as best they can with the lender to reschedule payments and avoid legal proceedings altogether,” says senior policy analyst with the Free Legal Advice Centre (Flac), Paul Joyce.
Head of the government-funded Money Advice and Budgeting Service (Mabs), Michael Culloty agrees. “By engaging with the lender, even if it does go to court, it’s good to have a paper trail to show that you’re a ‘can’t payer’, not a ‘won’t payer’.
To counter the power imbalance, Culloty advises engaging with your creditor in writing rather than by phone.
A sample letter on the Mabs website shows exactly how to do it. Using this template, you can inform your creditor that you are experiencing financial difficulties but are trying to resolve them. It advises that you’ll be in contact again, once you’ve assessed your financial situation, with a proposal. It also asks that any action being taken to recover the debt be put on hold and that interest and other charges being added to the account be suspended until you can do so.
Assessing your financial situation is about figuring out how much it costs for you or your family to live. By cataloguing your spend on everything from food to toiletries, utilities to insurance over a number of weeks, factoring in seasonal hikes in heat and light, you can gauge how much you need to survive and what if anything is left over.
“People put down notional figures but they shouldn’t do that because you could do yourself an injustice,” says Culloty. Expenditure on social life and savings should also be included, he warns, because if your budget is too tight, it will fracture.
A useful tool is the minimum income standard calculator on misc.ie. Created by the Vincentian Partnership and Mabs, the calculator shows the income people need to buy the goods and services that experts agree are the minimum essential for everyone in Ireland.
From these calculations, you can then complete a financial statement, itemising your weekly income and expenditure, your net income, priority debts and secondary debts. Finally, a copy of this statement, along with a letter outlining what you can afford to pay should be sent to your creditor.
The statement might demonstrate that you can pay a little or perhaps nothing at all. “Increasingly, we are offering creditors nil offers,” says Culloty. “Because you have to protect the roof over your head, provide nutritious food for you and your family, pay for your light and your heat, those are your priorities.”