A default notice is a written communication notifying a debtor that he is behind on his payments. The legal ramifications of a default notice can vary by jurisdiction, but such a notice often indicates that a specific action is imminent, such as the acceleration of a balance due, foreclosure, or legal action. In some cases, a default notice may simply inform the debtor of what is about to happen, though the notice may also offer the debtor options for settling the account or bringing it up to date.
When a debtor fails to pay a bill, creditors will usually make several attempts to contact her in order to rectify the situation. These contacts can take place over the phone or through postal mail, though in some places written contact, sent through the mail, may be legally required as part of the debt collection process in the country where the debtor lives. Accounting principles and financial law may establish the timing of when an account is considered to be in default. For example, in the United States, federal student loans are considered to be in default after the debtor fails for nine months to either make the minimum monthly payments or work out other arrangements with his lender. Other types of debt may default much more quickly after even the first missed payment.
In the United Kingdom, the Consumer Credit Act of 2006 states that a creditor must send a written default notice to a debtor prior to going to court over an unpaid debt. The debtor has seven days from receiving the notice to either repay or negotiate terms for repayment. After the seven days have passed, the creditor can file a lawsuit, although it is not required to do so. Such notice is not generally required in the United States, though many creditors provide it anyway.
A default notice may inform a debtor of the creditor's plans to turn over or sell the account to a third party. In the United States, for example, credit card companies are required to charge off accounts that have been in default for six months. Once this happens, the credit card company typically sells the debt to a collection agency, which then begins collection efforts, which may include obtaining a court judgment. As creditors typically prefer to not go to court, or to charge off a debt, the default notice may also include alternatives, including a repayment plan or a settlement for less than the amount owed.
