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Changes to Dealing with Debt Claims

Changes to Dealing with Debt Claims


Expert view

The way that Debt Claims are now dealt with changed on 1st October 2017. On this date, the Pre-Action Protocol for Debt Claims (“the Protocol”) came into force. This sets out  the rules for managing debt claims before they go to court.

The Protocol applies to any debts being claimed by a business (including sole traders and public bodies) against an individual. The Protocol will not apply to commercial debts where a business is claiming payment of a debt from another business, unless the debtor is a sole trader.

The Protocol will not apply where the dispute is subject to another pre-action protocol such as construction or engineering.

Claims for the recovery of taxes and duties brought by HM Revenue and Customs (HMRC) are governed by Practice Direction 7D and so the Protocol does not apply. 

Aims of the Protocol
The aim of the Protocol is to:
a) Promote early communication between the parties
b) Help parties identify and narrow the issues in dispute at the start of the claim to try to prevent the need for court action
c) Encourage parties to act reasonably and proportionately to the value of the debt
d) Support the efficient management of court proceedings, if they are commenced.

The Letter of Claim
Before starting court proceedings, the business owed money (the creditor) should send a letter of claim to the individual who owes the money (the debtor). The letter of claim should include: 

1) The amount of the debt and whether interest or other charges are continuing
2) Full details of who made the agreement, if it was a verbal agreement, when and where the agreement arose and what was agreed
3) Confirmation of the date of the agreement, if it was written, the parties involved and that a copy of the agreement can be supplied. You don’t need to include a copy of a written agreement with the letter before claim, as this may mean a financial and administrative burden on you.
4) Full details of the assignment of the debt, if it has been assigned
5) If instalments are being offered by or are being paid, an explanation as to why this is not acceptable and court action is being considered
6) Details of how the debt can be paid and how to proceed if the debtor wishes to discuss different payment options
7) The address where the Reply Form should be sent

The letter of claim should enclose one of the following:
1) An up-to-date statement of account for the debt, including any interest and additional charges
2) The most recent statement of account for the debt ( the letter of claim will set out the amount of interest incurred and additional charges imposed since the statement of account was issued)
3) The amount of interest incurred and any additional charges imposed since the debt was incurred if no statements have been provided for the debt

The letter of claim should also be accompanied by:
1) A copy of the Information Sheet and Reply Form  in Annex 1 to the Protocol
2) A Financial Statement form, example provided in Annex 2 to the Protocol

The Response
One of the main differences of the Protocol compared to the Practice Direction is that the debtor has 30 days to respond to the letter of claim, rather than 14 days under the Practice Direction.

The debtor is required to complete the Reply Form to give their response to the creditor. The debtor should also provide copies of any documents they consider relevant to the claim. They should request any copy documents from the creditor and they must provide these within 30 days.

If the debtor informs the creditor that they are seeking debt advice, but they cannot get this advice within 30 days, the Creditor should grant a reasonable extension of time for them to respond. This extension will depend upon the circumstances.

The creditor can’t begin court proceedings until 30 days after the date the Reply Form is received, or 30 days from the date the creditor provides any documents requested by the debtor. 

Where the protocol has been followed and a settlement has not been reached, the creditor should give the debtor at least 14 days’ notice before beginning court proceedings.

Impact of the Protocol
The timescales for the responses between the parties in the protocol extends the time for negotiations to take place. This could increase the likelihood of parties reaching an agreement.

It is possible that debtors will use these extended timescales to their advantage by delaying their response until the end of the 30 days and requesting documents from the creditor in a bid to buy more time to pay the debt.

Failure to Comply
If court proceedings begin without the parties complying with the Protocol, the court will take this into account when giving case management directions and making orders for costs. It is in the best interests of both parties to comply with the Protocol where possible. There may be situations where the creditor has to balance the consequences of failing to comply with the Protocol against a situation where it is imperative the debt is collected as quickly as possible

If you would like to make a debt claim or you have received a letter of claim please call 0117 926 4121 or Make A Free Online Enquiry