If a County Court Judgement (CCJ) is issued against you, you will normally be required to pay the associated debt in one of two ways. Either immediately in full or by monthly instalments. If you are required to pay be monthly instalments it is very important to understand whether or not additional interest can be added to the debt. If it can this will significantly increase the time it will take you to repay what you owe.
You are always likely to have to pay some interest on your debt if a CCJ is issued against you. This is added to the total debt as a fixed amount at the time that the application for the CCJ is made. The amount of interest added will either be the total interest which would have been payable under the original credit agreement or just the interest charged up to the date that the CCJ is issued.
However the important question is whether or not extra interest can be added to the debt after the CCJ has been issued by the Court. This will depend largely on the type of debt owed and the nature of the original credit agreement.
Can statutory interest be added to a CCJ?
Statutory interest is the interest which the court assumes can be added to an unpaid debt where there is not a formal agreement which defines what interest will be charged. If statutory interest applies it is charged at 8% per year.
There are many debts where statutory interest cannot be added once a CCJ is in place. These include the following:
– If a CCJ is issued for a debt regulated by the Consumer Credit Act. This includes most high street lending credit agreements, including bank overdrafts
– If a CCJ is issued for a debt worth less than £5,000 in total even if it is not covered by the Consumer Credit Act.
For this reason if you have received a CCJ for a debt which is covered by the consumer credit act such as a personal loan , credit or store card the creditor will not then be allowed to add additional interest after the Judgement is made.
However statutory interest could still be added on a debt after a CCJ has been issued if it is not regulated by the consumer credit act such as a mortgage shortfall debt or a debt which is unpaid after the supply of goods or services as long as the debt is greater than £5000.
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Can contractual interest be added to a CCJ?
Contractual interest is the interest charged on a debt as per the terms of the credit agreement. Once a CCJ is in place the creditor may still be able to claim for and be awarded additional contractual interest if the terms of the original agreement allowed for this. However there are strict rules which dictate whether this can happen or not.
In order for the creditor to be allowed to charge additional interest on any CCJ issued after 1st October 2008 there must be a specific term in your original credit agreement that states that the creditor is allowed to do so after a CCJ is issued.
Before the creditor can apply for a CCJ against you they must first issue you with a default notice. If there is a term in the credit agreement to allow them to add interest after a CCJ is issued then they must include a special statement in the default notice to warn you of this as follows:
“You should be aware that if we take you to court and get a judgement against you requiring you to pay us the money you owe us under the agreement, you may have to pay us both the amount of the judgement and the interest under the agreement on all the sums owed by you at the date of the judgement until you have paid these in full. This means that even if you pay off the whole amount of the judgement, you may still have a further sum to pay.”
Once the CCJ has been issued your creditor must send then you a notice to say they intend to charge addition interest on the judgement debt. They are not allowed to add interest until they have sent the first notice to you.
The notice must tell you the outstanding balance on which interest will be charged. It must also tell you what the rate of interest is and what date the interest will run from. It must also tell you that you can ask the court to change the interest rate and the instalments you pay.
BMD Tip: The creditor has to send you a new notice every six months if they want to keep charging interest. The notice must tell you how much interest has been added and the interest rate. If the creditor does not send you a notice within six months, they are not allowed to charge interest until a new notice is sent. They are not allowed to add interest back in for the time they have missed.
How to stop contractual interest being added to a CCJ
You can try to stop any contractual interest being added by asking the county court to make a ‘instalment order’. An instalment order is simply an agreement to pay off the debt you owe on the basis of affordable monthly payments.
If the court agrees to make the order it can revise the rate of payment and alter the rate of interest from that which is written in the agreement to that which it thinks is just and fair. This could mean a zero rate of interest if the court agrees to make the order in those terms.
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