Trying to recover money that is owed to you by a debtor can be a frustrating and time-consuming process.
However, there are steps creditors can take to increase their chances of successfully retrieving the funds. Understanding the legal debt recovery process and seeking professional help from an experienced solicitor where needed can make all the difference.
This article will walk through the key stages creditors should follow when trying to collect on a debt.
1. Write and Send a Letter Before Action
The first step is to send the debtor a formal letter, known as a ‘letter before action’ (LBA). This letter should clearly state how much money is owed, what the debt relates to, and request payment within a reasonable timeframe, usually 14 or 30 days.
The letter should be polite but firmly worded, stating that legal action may commence if payment is not received. Make sure to keep a copy of the letter and proof it was delivered.
Sending a letter before action puts the debtor on notice that you are serious about pursuing the debt. It gives them a chance to pay before formal legal proceedings begin. If you do later make a court claim, you will need to provide evidence that this notice was given.
How To Write A Debt Recovery Letter
When drafting the letter before action, include key details like:
- Your name and address, or your company name if applicable
- The total amount owed
- A breakdown of the debt – e.g. the original amount, interest, any charges
- The reason for the debt – e.g. unpaid invoice number 123
- A demand for payment within a set timeframe
- The payment methods you will accept
- A statement that court action may be taken if payment is not received
- Your signature and date
The letter should be concise but cover all relevant information about the debt. More than 75% of debts are settled this way, with no further action needed. LBAs sent on a solicitor’s letterhead are usually more effective than letters sent without.
2. Commence Legal Action
If the letter before action is ignored and the debt remains unpaid, the next step is to start legal proceedings through the County Court. Generally speaking, claims for less than £10,00 will be allocated to the Small Claims track, whilst claims for above that sum will be allocated to the Fast Track (or Multi Track).To begin, you will need to complete the relevant court claim form, providing details of the debt and debtor, and pay the court fee. You can seek to recover this fee from the debtor later.
The Court fee is based on the amount you are trying to recover. For example, in a small debt of £300 or less, the fee is £35. For a debt of £10,000 to £200,000, the fee is 5% of the claim.
The court will then send a copy of the Claim Form to the debtor who must respond within 14 days.
If the debtor disputes the claim, the court will give directions and may schedule a hearing. If they do not respond, you can apply to the court to enter a County Court Judgment (CCJ) by default. This formally records the debtor owes the money.
3. The Judgment
Throughout the legal process, you must prove the debt is owed to you and the debtor was made fully aware of this. The court will examine evidence from both sides and make a judgment on the balance of probabilities.
If the judgment goes in your favour, the debtor will be formally ordered to pay the amount owed. However, a CCJ does not guarantee payment. Creditors must take further action to enforce it.
4. Take Enforcement Action
There are various enforcement actions creditors can pursue if a CCJ is awarded but payment is still not made:
- Instruct court bailiffs to seize assets like a vehicle – they can force entry into premises if needed.
- Apply for an attachment of earnings order – a deduction from the debtor’s wages.
- Apply for a charging order – a charge on the debtor’s property restricting a sale until the debt is paid.
- Pursue insolvency options – compulsory liquidation or bankruptcy petition.
The court can provide information on appropriate enforcement based on the debtor’s financial circumstances. Using a solicitor is the best way to navigate suitable options.
Frequently Asked Questions on Debt Recovery
Is There a Time Limit on Debt Recovery?
In England and Wales, the limitation period to start legal action to recover simple contract debts is generally six years from the date payment was due. Hence, legal action should commence before this window expires. However, interest on the debt can still be claimed after this date.
For debts created by a deed, e.g. mortgages or loans, the limitation is 12 years in England and Wales. The time limit may also be different if the debtor has acknowledged the debt in some form, e.g. made a partial payment.
What Is the Law Around Debt Recovery?
There are various laws surrounding debt recovery in the UK that creditors must abide by. Key legislation includes:
- The County Courts Act 1984: covers the county court system for recovering debts under £100,000.
- The Late Payment of Commercial Debts Regulations 2013: gives businesses the right to claim interest and debt recovery costs for late B2B payments.
- The Consumer Credit Act 1974: governs debt recovery relating to consumer credit agreements.
Recovering consumer debts is also subject to regulations like the Consumer Rights Act 2015 and Financial Conduct Authority rules. Hence, the relevant law depends on the nature and size of the debt.
How Much Do Debt Recovery Companies Charge?
The cost can vary.
In our case, we offer a fixed-fee service that is calculated according to the value of the debt:
| Debt value | Court fee | Our fee (Exc. VAT) | Total |
|---|---|---|---|
| Up to £300 | £25 | £50 | £75 |
| £300 – £500 | £35 | £70 | £105 |
| £500 – £1,000 | £60 | £90 | £150 |
| £1,000 – £1,500 | £70 | £100 | £170 |
| £1,500 – £3,000 | £105 | £150 | £255 |
| £3,000 – £5,000 | £185 | £300 | £485 |
| £5,000 – £10,000 | £410 | £500 | £910 |
| £10,000 – £200,000 | 4.5% Value of the claim. | 7% Value of the claim. | |
| Over £200,000 | £10,000 | 5% Value of the claim. |
Should I Use a Solicitor?
Using a solicitor or debt recovery company for the legal process can make sense, especially for complex or high-value cases. Their expertise in navigating the system could save considerable time and improve your chances of successfully retrieving the debt.
For commercial debts or larger sums, professional support is usually advisable, particularly when court action begins.
Recovering overdue debts need not be an endless struggle for creditors. With patience and perseverance, you can take action to retrieve what is rightfully yours.
Contact us today to learn more about our fixed-fee debt recovery service.
