When everyone has a home

Housing advice for Northern Ireland

Paying off your outstanding debts

If the money from the sale of your home isn't enough to cover your debts, you will still owe the outstanding amount to your lender or mortgage indemnity insurer.

They can sue you to get the money back. This has to be done within a certain amount of time. It may be possible to negotiate a manageable way to pay off the shortfall.

Mortgage indemnity guarantee

Your mortgage indemnity guarantee will pay all or part of the shortfall to your lender. However, this doesn't mean that your debt has been paid; it has simply been transferred from your lender to the insurer. The insurer can take legal action against you to get back any money it had to pay out. Your lender may take legal action on behalf of the insurer, or the insurer can do so itself.

Understanding your debt

Your lender or insurer will send you a detailed final financial breakdown when the property is sold. This will tell you whether any debt is still outstanding, and should include a detailed breakdown of all the costs involved.

You may be contacted soon after the repossession to ask how you intend to repay the debt, although they may give you time to get back on your feet first. It is quite common for several years to pass before legal action to get back the money you owe is started. It is very important to get independent advice before you reply to any letters asking how you intend to pay off your debt.

Taking action to recover outstanding debt

If the court made a money judgment when the possession order was made, there is no time limit on when legal action has to be started. If the court did not make a money judgment, your lender has to start any legal action within a maximum of twelve years.

Most lenders and insurance companies start action within six years. Contact a local advice agency as soon as possible if your lender or insurer contacts you after six years has ended. You may not have to pay and you may be able to complain to UK Finance, formerly the Council for Mortgage Lenders, or the Financial Services Ombudsman.

Repaying the debt

Your debts can be repaid over a number of years. It is usually possible to negotiate how this will be done, but you should get always get specialist advice first. An adviser can help you to work out the best way to deal with your debt. Even if it's impossible for you to pay off everything you owe, you may be able to:

  • ask your lender to write off all or part of your debt
  • pay a lump sum as a full and final settlement - your lender may accept an amount which is less than you owe
  • make arrangements to pay off all or part of the debt in instalments over an agreed period
  • declare yourself bankrupt (if you are considering this option, you may want to speak to an insolvency practitioner or a professional financial adviser).

Your credit rating

People with a history of mortgage arrears and other debt problems often find it difficult to find a landlord or lender who will give them a tenancy or mortgage. Most landlords and lenders check:

  • your credit history with credit reference agencies such as Experian and Equifax
  • check the 'possessions register' which gives information about repossessions during the last six years.

You can write to the credit reference agency asking for a copy of the information they hold on you. You normally have to pay a £2 fee. The agency should send you a copy of the information they hold on you within seven working days, and information about how you can change the information if it is not correct. If the agency refuses to change information that is incorrect you may be able to complain to the Office of Information Commissioners.

Help with debt

The best option for dealing with your debts will depend on your personal circumstances. A specialist debt adviser can help you to work out the most realistic way to deal with your debts. Find out if your local advice agency has a specialist debt adviser. They may be able to help you:

  • manage your income and expenditure and work out your options
  • explain the reasons for your financial problems to your lender and/or insurer
  • explain the steps you have taken to keep your debts to a minimum
  • produce a detailed summary of your finances to show that you have very little money available to repay the debt, and
  • organise and prioritise payments of any other debts you have.

The best option for dealing with your debts will depend on your personal circumstances. A specialist debt adviser can help you to work out the most realistic way to deal with your debts.