You open the post and there among the bills and the junk mail is a letter from a debt-recovery firm claiming you owe them money. After the initial panic, you realise it's not you they want – but your problems may not be over. With collection agencies currently chasing £21bn of debt, being contacted about someone else's borrowing is becoming more common.
Lenders often don't have the time or resources to chase people, so they sell bad debt on to third-party firms at a knock- down price. These agencies then go after the debtor, knowing that every penny they recover above what they paid the lender to buy in the debt is profit. This pursuit regularly involves letters being sent to ex-partners of debtors, or simply those who have a similar name.
Godfrey Lancashire of the Credit Services Association, which oversees the debt-recovery industry, says the problem is sorting out the "can't pays" from the "won't pays". He admits that when the debtor is elusive, the agencies may contact someone with the same or a similar name. "Often, a 'soft letter' is sent to one or two people who they feel could be the person with the debt."
He adds, though, that this has to happen because in the UK it is hard to trace people who go into the red and then change address. "There's no legal obligation for debtors to tell their creditors when they move. We're one of only three countries in Europe [as well as France and Greece] where this is the case."
So if you get one of these letters, what can you do?
"Debt-recovery agencies are paid to pursue you. So if you genuinely don't owe the money, you've got to be very strong and forthright," says Alex MacDermott from Citizens Advice. But simply telling the agency you aren't the debtor may not be enough: "Say you've called or written to them in response to their letter. In that way, they have established contact, and they're unlikely to give up easily."
Instead, Mr MacDermott's advice is: "Always ask for proof that you owe the money. It's up to the person claiming the debt to show you owe it." The easiest way, he suggests, is to ask to see the signed credit agreement that went with the original loan or credit card application, to verify the signature is yours.
It's worth checking your credit record, too, in case arrears or debts show up. This can be done through the main credit reference agencies, Equifax or Experian.
And what happens if you receive notice that the debt enforcers are coming round to seize your possessions? "In order to send in the bailiffs, a county court judgment is needed," says Mr MacDermott.
But while you shouldn't be threatened with the bailiffs unless this is the case, Mr Lancashire admits: "Although we represent 95 per cent of outsourced debt collection and have a strict code of practice, there are some cowboys who operate outside our remit."
If you're having problems with a debt-collection firm or feel that they're harassing you, check first that the company is a member of the Credit Services Association, as you can report it for bad practice. You can contact the Office of Fair Trading too, since anyone collecting debts must have a credit licence issued by the OFT, which also has the power to revoke it.
As for being pursued for debts from the dim and distant past, the rules surrounding this are complex. For example, while unsecured debt, such as credit cards and personal loans, expires after six years, that timetable starts "from the last communication, not when the debt first occurred", points out Frances Walker of the Consumer Credit Counselling Service.
At the end of the six years, unpaid debts do "drop off" your credit record, says Experian. But while you can't be taken to court for unpaid debts after this period, the collection agencies can keep asking you for the money.
'I thought paying up was the only way to get them off my case'
John Smith, 32, from Luton, was contacted last year by a collection agency over a £450 debt that he knew nothing about.
"The letter didn't even say who I owed the money to; it just came out of the blue claiming I owed it. I was horrified and rang them immediately to find out what was going on."
He admits to having had a few debts in the past, but adds: "Once I'd got back on my feet, I had paid everything off over eight years previously."
The debt-collection firm couldn't provide any proof that John owed the money but claimed it had taken over an "old debt" owed on a store card. "I don't even recall ever having a card for the shop, though there's a possibility it could have been a card connected with my ex-partner," says John. "But I've had a clear credit record for years. I got my files to check I was clear after settling my debts in 2000."
Regular letters began arriving from the collection agency after he had rung the firm to query the original letter, and soon he was being threatened with the bailiffs.
"I was really worried," he recalls, "and thought paying it off was the only way to get them off my case."
So John settled the bill and has since heard nothing from the firm. Nevertheless, he feels aggrieved.
"It's frightening to think you can be contacted out of the blue by companies claiming you owe them money. I always keep my bank statements and paperwork but not going back beyond six years. I can't believe they can get away with this."