Dealing with debt for renters

Debt is a worry for anyone. As the last few years have shown for so many people, our circumstances can change quickly and in ways that we could not foresee. Debt which was manageable can quickly become unmanageable due to illness, a change in family circumstances, loss of our job or being put on reduced hours.

One of the biggest issues for anyone facing debt is how it will impact on their home, whether they are homeowners or renters. Making sure that you and your family still have a roof over your heads despite the problems of debt is vital. If you are a homeowner, any debt can potentially put your home at risk. Debt collectors can apply to the court for a charging order and order for sale if a County Court Judgment is not satisfied. We will look at the particular impacts of debt on renters.

How does debt impact your current tenancy agreement?

Even if you cannot afford to pay your rent, the rent payment which would have been due to your landlord each week or month continues to accrue. This is known as being in rent arrears. If you find yourself in this position, first of all, be sure that you actually owe the rent. If you cannot find your rent book or card, or you haven’t kept a note of your rent payments, you can ask your landlord for a statement so that you know exactly how much you owe.

In some circumstances, your benefits might get paid to your landlord to help with your rent. You can check on this with your council or the Department for Work and Pensions. It is important for you to know how much has been paid to your landlord on your behalf so that you know what is left for you to pay.

If your financial circumstances change you should make sure that you are claiming all the benefits you may be entitled to.

As with any debt, do not ignore rent arrears. Ignoring it will not make the problem go away. It is best to talk or write to your landlord to tell them about the problem and the reasons for it, for example, that you have been made redundant or you are unable to work due to illness. It is possible that the landlord may agree to the repayment of the amount owing in instalments on top of your usual rent. Writing letters can be difficult and offers a letter writing service to help take the stress out of this for you.

Ultimately if you do not pay your rent then this can be a reason for your landlord to evict you. The English, Welsh and Scottish governments put a temporary hold on evictions as a result of the Coronavirus outbreak but it is not certain that this will be extended when the current arrangements expire, or if it is extended how long the extension will be. The hold on evictions does not stop the rent arrears from mounting up so although it gives tenants breathing space it does not take away the underlying problem of them being unable to keep up with their rent.

Your rent is a priority, over and above most other debts, because if you do not pay it your home is at risk. If you are struggling to pay your rent and you also have other debts you could explore what options to manage your debts may be available to you. Our AI chatbot will take you through a series of questions to guide you towards the options which may be suitable in your circumstances.

In most circumstances, you will not lose your rented home if you are made bankrupt, but it is possible for tenancy agreements to state that a tenant of the property cannot be bankrupt. It is important to check your tenancy agreement if you are considering bankruptcy as a possible means of managing your debts.

Can you get a Debt Relief Order to help?

If you live in England and Wales, a Debt Relief Order is one way in which it might be possible to manage your debts and write off some of the debts due. Whether or not it is possible will depend upon your particular circumstances. If you are eligible for a Debt Relief Order (“DRO”) then all of your debt repayments are frozen for 12 months. If your finances have not improved at the end of the 12 months the debts covered by the DRO are written off.

A DRO will affect your credit score because it appears on your credit record, but it gives you breathing space from people chasing you for debts and the chance to make a fresh start if your circumstances do not improve by the end of the 12 months. DROs are available for tenants but not for homeowners. You will only qualify if you owe less than £20,000 in total and you have less than £50 a month left after you have paid your essential living costs. The DRO will help with debts including rent arrears but not ongoing rent, council tax or utility bills which you will still need to pay. You need to be aware that a DRO does not stop your landlord evicting you for rent arrears. As you can see they are not suitable for everyone but if your circumstances fit the criteria then a DRO could be an option to help with your debt.

What happens if you have bad credit and you need to take out a new tenancy agreement?

One of the key checks letting agents make when you apply to rent a property is to check your credit file. They will obtain information about unpaid debts, missed payments, CCJs, DROs and IVAs. It is important to be aware of your own credit score and to be upfront with a letting agent that you have had difficulties in the past with debts. It isn’t impossible to rent a property with a bad credit history, but if you try to hide it you could end up losing any holding deposit you have paid to the agent to secure the property.

If you can keep on top of managing your debts before they impact badly on your credit reference file then you will find it far easier to rent a new property when you need to. This is just one of the many reasons why it is important to take control of your debts.

How do letting agencies deal with people who are working but have debt issues?

If you have debt issues but you do have an income which allows you to pay the rent there are several options open to a landlord or letting agent deal with the possible risks to them. For example, you could offer to pay extra rent in advance as security against the risk of you missing future payments if you can afford this. You can also ask for the tenancy agreement to allow for rent to be paid weekly if this makes it easier for you to budget.

Using a guarantor may help you secure a property if the landlord is unwilling to let to you due to poor credit history. A guarantor agrees with the landlord to pay the rent if you do not pay for any reason.

Can an IVA help if affording my rent is an issue?

An IVA, or Individual Voluntary Arrangement, is a form of insolvency. If your creditors agree then you pay a fixed amount towards debts included in an IVA for a set period, usually 60 months. At the end of that period, any remaining debts covered by the IVA are written off. An IVA is designed to allow you to manage your debts and move on afterwards, but it will have an adverse impact on your credit score and make it difficult for you to take out credit and tenancies in the future.

Your rent will always need to be a priority because it keeps a roof over your head. If your circumstances mean that you are struggling to afford to pay your rent, then consolidating non-rental arrears debt into an IVA may help towards freeing cash-flow to the priority outgoing that is rent and rent arears. An IVA for other forms of debt (not rent arrears) may give you enough breathing space to make paying your rent more manageable.

If you are facing problems with debts it is important to know that you are not alone. Do not ignore your debts and hope that the problem will go away: sadly, it will not. Bad debt has an impact on our lives, future finances and health so it is incredibly important that you take as much control over your debts as possible.

There are steps you can take to manage your debts and you will find plenty of information on to help you, along with our AI chatbot to take you through your potential options. The options available to you will depend on your individual circumstances. Ultimately, no-one wants to lose their home and if you allow rent payments to mount up this could be the end result.