Mon | Apr 12, 2021
ADVISORY COLUMN: PERSONAL FINANCIAL ADVISER

Oran Hall | Facing the bailiff

Published:Sunday | March 21, 2021 | 12:13 AM

QUESTION: I have an outstanding loan due with a financial institution that needs payment as soon as possible. It is an unsecured loan. They reached out to me, but the conversation was cut short. Before the call ended, I was told that I would need...

QUESTION: I have an outstanding loan due with a financial institution that needs payment as soon as possible. It is an unsecured loan. They reached out to me, but the conversation was cut short. Before the call ended, I was told that I would need to make the payment by next Tuesday, to avoid a visit by the bailiff. If a bailiff visits my home, will I be arrested?

– Lawrence

FINANCIAL ADVISER: The bailiff is not a police officer, so you will not be arrested. Moreover, this is a civil matter, not a criminal matter.

As you have acknowledged, you have not honoured the terms of the loan agreement. So the lender, wanting to recover the sum due, has decided to engage a third party independent collector. You can avoid encountering the bailiff by paying up by the stated day.

But you need not worry about being arrested. I would advise you to start thinking about how much you can reasonably pay. The bailiff will likely offer to make an arrangement with you for the settlement of the debt.

It is also likely that this could be more lenient than any arrangement you now have with the financial institution. Ultimately, much depends on the arrangement the bailiff has with the financial institution.

If you fail to make a meaningful change to the situation, it is possible the lender may opt to take legal action. Should you fail to show in court when required to, that is when you will likely be arrested.

It is important to make every effort to repair the damage that has been done to your credit rating and your reputation. This debt will impact your credit score for seven years after it has been repaid, but this does not mean that all will be lost. You can see a positive change if you clear this debt and honour future debts.

Because this is an unsecured debt, you will not experience the seizure of your assets to satisfy your obligation to the financial institution. I suggest you try for secured loans in the future, if possible: they generally attract a lower rate of interest.

I do not know why you incurred this debt or why you ran into a problem. Sometimes situations change unfavourably, so a debt which is easily serviced at one point soon runs into arrears.

Generally, serious thought should be given to how any unforeseen developments could lead to difficulties to service a debt. It is also important to avoid borrowing if the funds are not going to be used for productive purposes.

It is advisable for borrowers who experience difficulty in meeting their obligations to contact the lender. It is possible that the lender may be able to make an accommodation, not to write off any portion of the debt, but to ease the burden of repayment.

Borrowers have to be willing to make serious changes to their lifestyle, if that is necessary, to make more funds available to service the debt satisfactorily. Such adjustments are likely to be temporary, anyway, so there should be willingness to make the short-term sacrifice for the long-term benefit.

If you operate with a budget, now would be a good time to recast it; if not, now would be the time to start operating on a budget making debt repayment its most important element.

If possible, and these are very challenging times, increasing income to make more funds available to service the debt is a more desirable option than allowing the debt to get out of hand, for the longer the debt is outstanding, the more interest accumulates. In fact, the reason the debt some people owe gets so high is the level of interest which accumulates.

As painful as this may be, it may be a good idea to sell some assets to make funds available to service a debt. This is not ideal, but it may be necessary to liquidate some investment assets – and non-investments assets – to restore financial stability.

The truth is, the cost of debt is often higher than the level of returns from some investments. It is worth taking time to evaluate one’s financial situation and make the decision which makes the best financial sense.

If your credit rating has not been damaged to the point where you may find it difficult to borrow, it would be a good idea to secure a cheaper loan to generate the funds to clear this debt.

I hope you will be able to come up with some ideas about how to address this pressing matter, so you can reach a favourable agreement with the bailiff.

- Oran A. Hall, author of Understanding Investments and principal author of The Handbook of Personal Financial Planning, offers personal financial planning advice and counsel.finviser.jm@gmail.com