Conundrum

Rent Arrears

Hi our tenants fell behind with their rental payment in June which left a shortfall of £300. We agreed to six equal monthly payments of £50.00 over time. Currently the outstanding amount is £200.00. Tenant advises by text that he can't pay the August payment of £650.00 and that we should use the deposit of £975.00 as compensation. The AST Tenancy agreement expired 04/09/14. Tenant advises 18th August 2014 that they will not be renewing the lease and that they will exit the property 05/09/14. Tenant advises 04/09/14 they will not be moving out as council wont supply emergency accommodation and basically council advise stay where you are until the court decides you are homeless. Only then will we consider emergency accommodation.
My wife and I hand delivered a section 21 notice under the AST agreement Friday 05/09/14 although the paperwork was dated 04/09/14 we delivered the notice on the 05/09/14 one day after the AST agreement expired.Obviously they are still there so the September rent was due 01/09/14 making a total of £1500.00
The boys mother has signed as guarantor and owns her own property.
I'm wondering if I should proceed through the courts and if so should re-issue the correct paperwork now that the AST has expired. Or should I just forward two months notice as it may be more economical and quicker.I understand the guarantor is away on holiday however I have a letter ready to forward.
I would be grateful for your advice.
Kind Regards
Paul Ross.