The Process of Debt Recovery

Being faced with collecting a debt is far from an ideal situation and one which many people are unsure how to handle or are unclear about how the process works. At Sintons, we pride ourselves on resolving debt matters quickly and efficiently, and act on behalf of clients ranging from private individuals and sole traders through to large corporate businesses.

The process of debt collection is often something people have never had to deal with before, so are not sure of what it entails and at what point to act. Here, we briefly outline several stages, with different considerations at each one, as a rough guide to proceedings, so people faced with collecting debt know what is likely to be ahead.

Identifying the debt – you will need to establish who the debt is against, what the debt is for and at what address is the debtor based. Other points to consider at this stage are whether the debt is disputed and do you need a trace to find the debtor?

Pre-Action Protocol for debt claims – the first stage is sending a Letter Before Action (LBA), before sending this you must consider what information you need to include in the letter and how much time you need to give the debtor to respond.

What are you entitled to? – there are a number of financial considerations on this point:

• Interest: the statutory rate that individuals have to pay on unpaid debts is 8% and for companies and larger businesses the interest payable is a fixed percentage above base rate, which is currently 8.75% both of which are calculated from the due date of the invoice
• Compensation: if dealing with a company statutory rates can be added to the debt.

Claims – if the debtor hasn’t responded to the LBA, the next step will be to enter a County Court claim. Before doing this, you have to consider whether the debt is going to be disputed as well as whether you have enough evidence, and especially whether it is going to be worthwhile commercially, that is, has the debtor got money or assets from which to make a recovery of your debt. There are fixed costs and court fees attached to this process, so that must be factored in.

Judgment – what is a Judgment and what does this mean for the debtor? Securing a County Court Judgment (CCJ) means the creditor is then entitled to use various mechanisms to recover the money owed to them. However, an application can be made for this to be set aside in certain circumstances by the debtor, such as if they did not have an opportunity to put in their defence.

Enforcement – there are a number of ways of collecting the debt you are owed from the assets the debtor has, with options for recovery including the involvement of High Court Enforcement Officers, Third Party Debt Orders, Attachment of Earnings, Charging Orders and an order to obtain financial information from the debtor. In the event of insolvency, a winding up petition or bankruptcy may be used.

While this is the general process, it is very common for unexpected events to occur along the way. For anything you are unsure about, it is important to seek specialist advice, to ensure your matter is brought to as swift a conclusion as possible.

Amy Carlton is a debt recovery manager at law firm Sintons. To speak to Amy about any debt-related matter, contact her on 0191 226 3649 or amy.carlton@sintons.co.uk.