Legal Questions and Answers by
Jonathan Stones of John Barkers
Question :-
In January 1992 my husband and I went to our bank to apply for an overdraft to have
some repairs done to our car. We were 'persuaded' to apply for a loan instead and we were
accepted.
The loan amount was for £6,754 over a period of four years. The monthly
repayment was £211-41
We knew we could not afford this and told the bank so. The outcome was
that we took the loan and did not repay it. After much letter writing between us and the
bank, we were asked to make a 'token payment', which we have been doing since 1994.
We pay a pound a month, which they have accepted, and we have never
missed a payment, however, now we have received a letter from their solicitors saying that
the bank has asked them to begin proceedings against us for unpaid liability of £7,688.
What I would like to know is if they can do this after all these years?
Our financial situation has not changed, if anything it is worse. This case has never been
to court, it was an agreement between us and the bank.
Answer :-
Normally the terms of overdrafts or loans mean that the bank can call them in at any
time - and certainly in situations where the debtor defaults.
Without wishing to appear unsympathetic to your plight, I have to say
that the surprising aspect of the case is not that they have decided to act but that they
have not acted long before now.
As you will realize, a pound a month - £12 a year - does not come even
close to repaying the interest on your debt, let alone repaying any of the capital amount.
You do not include details of the rate of interest but even at 1% above
the current base rate we are looking at a payment of just under £30 a month to cover the
interest.
At a pound a month the debt would never ever be paid off but would
simply go on rising year after year.
In direct answer to your question - Can they do this after all these
years? - the answer is that the bank is within its rights to initiate legal proceedings to
recover its money.
Given that you are not in a position to pay the £7,668, the obvious
course of action is to make an appointment to discuss the position with them. You will
have to explain your financial circumstances to them and it may be that in the light of
those discussions you are able to reach a realistic arrangement to start repaying the
debt.
We do not know whether or not you own your own house - your address
suggests it might be privately owned, which begs the question of whether or not you have a
mortgage on it. If it is mortgage-free, it is perhaps possible the bank would be prepared
to take a charge on the property over 25 years at a low rate of interest and with
interest-only repayments.
You may be reluctant to make such an arrangement but if you are sued by
the bank and you are not able to repay them, then the court may well eventually order the
sale of the house anyway.
If you are not able to reach an agreement with the bank, it may be that
you could take advice from the debt counseling service operated by the Citizens Advice
Bureau but at the end of the day you should accept that the bank is going to want to see
some sort of realistic repayment of the debt. The pound a month never was realistic.
Your story does underline the importance of being cautious so far as
borrowing money is concerned. We live in a society where personal debt is rising ever
higher and where people have credit, loans and overdrafts pushed at them from all
directions.
It is madness for people to borrow money that they know they cannot
possibly repay. Despite the slogans about friendly, listening, loving banks - and despite
the loan companies' television ads fronted by popular personalities - the fact is that
these are commercial organizations, not charities. They will want their money back, plus
interest.
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