What Happens If A Creditor I have Goes Bust? (Do I still Have to Pay?)

 Another way to word this question, and many have this question on their minds at the moment is, “do I still have to pay my loan payments if the lender goes bust?”.

 

Another way to word this question, and many have this question on their minds at the moment is, “do I still have to pay my loan payments if the lender goes bust?”.

The answer is yes, you still owe the loan and need to make the monthly payments. Just because the lender has ceased trading, or gone out of business, does not release you from the obligation to pay the loan back.

This is something many are thinking and asking as payday lender Wonga is closing its doors and going out of business due to losses they have incurred due to compensation claims, for granting unaffordable loans, and poor collection practices.

What Happens If A Creditor I have Goes Bust? (Do I still Have to Pay?)

In many instances when a company goes bust or enters into Administration, the relationship between it and its customers is severed. The shop closes, and you can no longer shop there or make purchases.

It gets complicated with stores that have online sales, gift cards, and purchases on payment schedules.

As consumers we have some rights, but not many.

What Can Occur if a Bank or Lender Becomes Insolvent

There are two (2) perspectives as to what can occur when a company or business we do business with becomes insolvent.

What Happens If A Creditor I have Goes Bust? (Do I still Have to Pay?)

One is that we owe them money, and the other is that the business going bust owes us money.

This is where is gets a little one-sided.

If a store or company owes you money, such as you have purchased a gift card for someone, or have received one yourself, is that gift card still good at the store going out of business?

That will depend on if the store is still accepting the gift cards. They may cease accepting them, which means you as the holder of the gift card are owed money.

If the store still accepts the gift cards, run don’t walk, to a nearby shop and spend the gift card.

If you have pre-paid for a purchase, either online, or in the store, if is similar to the gift card scenario. If the store is still trading and accepting new business, you may be able to complete the transaction and get your item.

If the store or company has ceased trading, you are in the same boat as the gift card holders. Which means, the store or company owes you money. You are in essence a creditor to that company.

As to if you will ever get paid, or get a refund, depends on a few things, but don’t hold your breath. You are a very small fish in a big pond of creditors, the company owes a lot more people a lot more money than they owe you.

Chances are you will not get your money back.

What Happens If A Creditor I have Goes Bust? (Do I still Have to Pay?)

So what if you owe the company going out of business money, such as if you have a loan with a bank or lender, such as Wonga, and the lender goes into Administration. (Which Wonga has currently done, gone into Administration).

Do you still owe the loan?

As previously stated, yes, you still owe the money you borrowed. Does it seem a bit one-sided, yes, it is, but those are the insolvency laws.

The reason why you still owe the debt/account/money, is that the loan granted to you which is expected to be repaid in full, is an asset to the company going bust.

As an asset, the Administrators will look to the company’s assets to try and get as much money as they can to pay the now defunct company’s creditors.

In all probability, the loan you owe will be sold onto another agency, or lender, to be bought and collected. They now own the loan, so you still owe the money, however, you now owe the money to the new lender.

So What if I Don’t Pay?

By not paying the loan, you risk damaging your credit rating and credit score.

Some terms and conditions for loan even have a transfer clause in them, so that if the loan is transferred for whatever reason, to whomever to collect the loan, you still owe the loan.

So while it may appear that as consumers and borrowers we are getting the short end of the stick, the insolvency laws and how assets and debts are handled in insolvency, are there to try and minimise a creditor’s loss.

The FCA released a statement regarding Wonga going into Administration: “The FCA will continue to supervise Wonga once it is in administration and is in close contact with the proposed administrators with regard to the fair treatment of customers.”

“Customers should continue to make any outstanding payments in the normal way. All existing agreements remain in place and will not be affected by the proposed administration. However, the firm is no longer able to issue new loans.”

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