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How do creditors react to Protected Trust Deeds?

12th November 2010

It has long been known that many people struggling with unmanageable debt levels delay taking appropriate advice. Sadly, the overall debt burden tends to increase during this time. There are many reasons for a delay in taking advice, but one reason often used by debtors is the apprehension as to how their creditors will react when it becomes clear the full contractual debt repayments will no longer be made.

We recently conducted a survey which included a question regarding the reaction of creditors to notification that a protected trust deed or other debt solution was now in place. The question and results were as follows:

“How would you rate the way that your creditors have treated you?”

Excellent: 9%

Reasonably Good: 25%

OK: 40%

Poor: 19%

Extremely Bad: 6%

In reality, 74% of the survey respondents, many of whom have been dealing with very serious debt difficulties, reported their creditor’s reaction was “OK”, or better, when they started to deal with their debt issues.

These statistics highlight that worry about creditor reaction is unfounded and should not prevent any individual from confronting their debts at the first possible opportunity.

Lenders understand that when they lend to the public a proportion of the debts will end up not being recoverable. Primarily this is due to unforeseen changes in people’s circumstances. Money lent and borrowed in a responsible way cannot always be repaid. Consideration of this is taken in advance by lenders who factor this into the interest rates they charge.

Lenders also tend to subscribe to associations which bind them to dealing with individuals who can no longer fully repay their debts in a fair and responsible way. “The Lending Code” is a prime example of the commitment to fairness made by many banks and credit card companies.

Creditors also understand that debt solutions, such as a trust deed, assist them in collecting a proportion of the debt owed, rather than receiving nothing at all as may be the case in a bankruptcy. Running debt collection departments and instructing solicitors is an expensive and often ineffective business for lenders. They generally appreciate the opportunity to collect the level of debt which can affordably be repaid.

Of course we have all heard the nightmare stories of individuals hounded by lenders seeking the full repayment of debts. We should not sweep under the carpet under the tactics used by some more unscrupulous lenders who use frightening and sometimes inappropriate pressurising techniques which cause individuals great stress and alarm. At the same time it should be pointed out that the vast majority of lenders do not do this.

The experience of many debt and trust deed advisers is that banks and credit card companies are sometimes only pressurising their non-paying clients because they have no idea of their personal circumstances. A lender that hasn’t been paid will call and write letters seeking repayment. Often they’ll make many calls and send many letters. That’s because they know there are likely to be other debts to other companies as well; they want to be top of the list when a payment is to be made.

The intervention of a debt adviser or trust deed company allows full information about an individual’s financial circumstances to be communicated to creditors, along with details of the amounts which can be paid, and when. Lenders will assess the information and decide whether the option proposed makes commercial sense to them; they will then duly accept or refuse. Direct contact with the debtor (by phone, text or letter) will tend to reduce significantly (though not always immediately) as the creditor has to first update their systems to reflect the new information.

It would therefore seem that a fear of creditor reaction should not prevent people from taking debt advice or considering a trust deed where appropriate.

In the next article connected to the Trust Deed survey, we will look at how survey-takers rated the service provided to them by the protected trust deed company they chose.

For further Trust Deed news and information, please visit our forum where we have a wealth of free advice from experienced industry experts.

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Wylie & Bisset Grant Thornton

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