The default process
Missed payments trigger reminders and late payment fees. After several missed payments (usually 3-6), the lender sends a formal Default Notice under the Consumer Credit Act.
The Default Notice gives 14 days to remedy. If not remedied, the account is formally defaulted.
Default appears on your credit file for six years from the default date. It severely affects credit rating.
What happens after default
Interest and charges usually stop after default. The balance is fixed at the default amount plus any accrued interest to that point.
The account may be kept by the lender or sold to a debt purchaser. Debt purchasers (Cabot, Lowell, etc) then negotiate payment plans.
For larger balances (£1,000+), court action for a CCJ is more likely.
Options at default stage
Negotiate a settlement with the lender or purchaser (often 30-70% of balance for a lump sum).
Agree a payment plan.
DMP: include the default in a wider plan for all your debts.
DRO, IVA or bankruptcy for larger overall debt situations.
Statute-barred rule
Six years from default (in England/Wales/NI) makes the debt statute-barred if no acknowledgement, payment or court action has happened.
Statute-barred debts still exist but cannot be enforced through court.
Debt purchasers occasionally chase statute-barred debts hoping for a payment that resets the clock. Do not acknowledge without advice.