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Bill's Law - Consumer debt - 19 Apr


This week is the second in a new series looking at consumer debt. Bill has a commonly occurring debtor problem to discuss today which raises a number of consumer rights issues that viewers should know about.

Q: What is the problem that you want to discuss?

People often find that after they have signed a hire purchase agreement their financial circumstances change and they are no longer able to keep up the payments. I'd like to look at some of the options available to them in this situation.

1. Voluntary Repossession

The first option is to go back to the finance company and ask them whether they will accept a voluntary return of the goods. If the creditor accepts a voluntary return then you avoid the costs associated with a repossession. The creditor still has a duty to "use all reasonable efforts to obtain the best price" and will take responsibility for the sale of the goods. Once the goods are sold the consumer will have to pay any shortfall (what's owing under the HP less the net proceeds of sale). If there's a surplus then that has to be paid to the consumer.

The normal rule with goods sold after repossession is that the amount the creditor can claim is limited to the amount of shortfall (no more interest or charges can be added to that amount even if it goes to court).

One thing to note with a voluntary repossession of goods is that this limitation can be varied by express agreement between the parties, provided that agreement is in writing and the consumer has be independently advised in respect of that agreement. (e.g. with agreement the creditor may then be able to charge further interest on the shortfall and add further fees)

2. Sale by the Consumer

If the consumer has the prior consent of the finance company they can arrange a sale of the goods themselves. This is often a difficult option as once people know that goods are subject to an existing hire purchase agreement they are often not interested. The finance company may be prepared to allow an assignment of the goods to an approved purchaser, but will often also want to keep the consumer bound to the original agreement, (ie just in case the new buyer doesn't keep up the payments).
Once thing to remember with this option is that you should always get the written consent of the finance company first as you could face a criminal charge if you sell goods that are the subject of a security agreement without permission of the creditor.

3. Ordinary Repossession

If the finance company refuses a voluntary repossession and wont allow the consumer to assign or sell the goods, then the only option for a consumer who can't pay, is to allow the creditor to repossess the goods. Before repossession the creditor must issue a pre-possession notice and give the consumer 15 days to pay the arrears. Just before the 15 days are up it would make sense to deliver the goods to the creditor to avoid repo costs.
Once goods have been repossessed the creditor must issue a post-possession notice giving a further 15 days to pay the arrears and repo costs. This notice must contain the creditor's "estimate of the value of the goods" which is the cash price they must accept should the consumer have someone who is prepared to buy the goods at that price. The consumer can obtain their own valuation of the goods if they are prepared to pay for this.
The creditor can't sell the goods until the 15 days in the post possession notice has lapsed (unless the consumer consents). If the goods are to be sold at auction the creditor must advise the consumer when and where the auction will occur, and the consumer can bid for the goods and buy them free of any security interest if they are the highest bidder.

Summary of rights on repossession:

1. Settle the agreement outright (pay what's owing plus repossession costs)
2. Pay the arrears and costs and reinstate the agreement
3. Get the goods independently valued
4. Introduce a cash buyer to buy at the "creditor's estimate" of the value
5. Bid at any auction where the goods are offered for sale


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