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How will Brexit Affect Personal Debts?


How will Brexit Affect Personal Debts?

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How Will Brexit Affect Your Debts?

Now that Theresa May has invoked Article 50, we ask how will Brexit affect your debts?

European law (EU) was once described by English Judge, Lord Denning, as being like an incoming tide. “It flows into the estuaries and up the rivers. It cannot be held back, Parliament has decreed that the Treaty is henceforward to be part of our law”.

However, when we are talking about UK debt recovery laws, EU law has had little impact. Debt recovery law in the UK have remained primarily a matter for our own parliaments. Post Brexit, therefore, it is unlikely consumers will notice any difference in how their debts are recovered by their creditors if they cannot pay them.

That is not to say that Brexit won’t have any effect on UK consumers when it comes to them dealing with their debts.

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Consumer Credit Law

EU Law has had a significant impact on a number areas of law that relate to personal finance. The first of these is consumer credit law, which is the area of law that covers the agreements we enter when we take out credit cards and personal loans. Many of the protections that currently exist for consumers in the UK, particularly in relation to unfair contract terms have their origins in the European Union. These laws, however, are not likely to disappear even after Brexit, as although they came from the European Union, they were introduced into the UK legal systems by Westminster, so are in fact now UK laws.

What people will lose after Brexit is the ability to take disputes about these issues to the European Court of Justice when they disagree with a decision of a UK court. It is also likely that our consumer credit laws will post Brexit begin diverging from those that apply across the rest of the European Union.

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Another area that may be affected by leaving the European Union is an area of law known as cross-border recognition and has in recent years led to an increase in the number of people dealing with their debts whilst working and living abroad. This is because under EU law when a citizen of one member state moves to another member state they can deal with their debts under that legal system.

This happened more often after the credit crunch, when people burdened with debts discovered that if you were made bankrupt in some countries it could last up to 12 years, whereas in the UK it only lasted one year.

Many EU countries also had no provisions in their legal system for solutions like Individual Voluntary Arrangements or Protected Trust Deeds.

For many the benefits of moving to other countries with more favourable laws was obvious, as they could still work for a couple of years and then return home debt free.

EU laws on cross border recognition means this is possible, as the courts in other member states must recognise the laws in the other country and cannot allow the debts to be recovered when people do return home.

It’s not clear, but it appears likely that when Britain exits the UK, these cross-border rules will no longer apply for new bankruptcies and personal insolvency solutions.  This is not to say no new agreements will be entered into by the EU and the UK, but this may not happen immediately. It is also not to say that all mutual recognition of solutions will disappear after Brexit, as there are United Nation rules to fall back on, but not all countries have agreed to these.

Ability to pay

The final area where Brexit may affect consumer debt in the UK, is in relation to people’s ability to pay. Some economists are already predicting that households will struggle after we leave as interest rates will increase, unemployment will rise and prices will go up, meaning household budgets will be placed under greater pressure.

Other economists are predicting that Britain will flourish and the UK economy will grow, meaning lower unemployment and higher wages.

It’s probably wise at this point to remember what the American economist Edgar Fielder said, “ask five economists and you’ll get five different answers”.

However, it’s probably prudent, as Brexit looms, for people to begin being cautious. It’s almost certain that in a couple of years’ time British consumers will have different laws protecting them from those that currently apply across the EU and not all countries may continue to recognise our solutions, or us theirs.

If you need more information about the options available to you in dealing with your debt, you can always speak confidentially with one of our friendly advisors on 0808 2085 198.

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