When it comes to recovering debts, it may be worth considering a solicitor to help your company retrieve these debts. Of course, no one wants to get to the point where legal action is necessary; however, often times situations come up where debts are not being paid and you, as a creditor, may need legal help and guidance.
First, it is important to know the legal steps taken when collecting debts. This process is only applicable to England and Wales, as Northern Ireland and Scotland have their own court process.
Letter Before Action
The letter before action is a letter that the solicitor, or creditor, will send to the debtor stating how much is owed. There are usually seven days to respond with payment to this letter.
This helps a debtor who may have forgotten about the debt, or let the debt slide into indefinite nonpayment prioritise the payment. The letter will state the impending court costs and interest that the debtor will be responsible for if they do not respond to the letter.
This letter is an essential first step before any further legal action can be pursued. If a letter before action is not sent to the debtor before a claim is made then legal costs and other expenses may fall to the company as opposed to the debtor.
If the debtor does not respond to the letter before action, or their response is not satisfactory then the case is moved to a county court claim. This is a small claims court issued in the county where the money is owed.
In this stage, the debtor will be sent legal documents stating the amount owed plus any interest and legal fees that have occurred on top of the debt. The debtor then has 14 days to satisfy the new terms.
If the debtor disputes the debt, or simply does not pay it within the time frame then the debtor may face consequences to their credit via public record. The unpaid debts will be on the debtor’s public record for six years. At this point, the debtor has 30 days to pay the full amount, plus any further costs in order for it to be taken off their record.
There are several methods of enforcement, and this is the point where a solicitor may be helpful, or downright necessary. It depends on the situation as to which method of enforcement the creditor may want to use.
Here are a few of the possible methods of enforcement:
High Court Enforcement
This is used in claims that are greater than £600. Many creditors in this case will use high court enforcement officers or HCEOs. HCEOs are private employees hired by the high court and are generally only paid if they secure a satisfactory result for their client.
Seizing Moveable Property
This is a method that seizes property such as vehicles, books, tools, and other items that belong to the debtor to pay for the debt. This is a typical step taken in the resolution of debts. Items that are required by the debtor to live and work will not be taken. The items are taken by way of ‘writ of control.’ The writ of control will give the HCEO the power to seize the items and give a value to those items. Then the items that have been seized will be auctioned off, and the money will be given to the creditor.
Inquire About the Debtor’s Financial Circumstances
If for some reason there is doubt about the debtor’s financial situation the creditor can require evidence of the debtor’s financial circumstances. This can come in the form of payslips, bank statements, and other financial evidence. Then the creditor can decide how to proceed with the evidence provided.
Transferring a Debt Owed to the Debtor
In some cases, a debtor will have money owed to them by another debtor. In this case, the creditor can have the court order to transfer this payment in the form of a third-party debt order.
Seizing Home or Office
If the debtor owns property, then the creditor can have the court order the debtor to give up these assets. Some of the property that can be seized is land, trust interests, and stocks. Property will be seized by way of a charging order. It is usually only worthwhile for a creditor to seize property by charging order if there is equity in the property.
Have the Debtor’s Earnings Garnished
A creditor may decide to have the court order to take monthly payments directly out of the debtor’s wages. This will happen directly in the payroll process before the debtor receives their check.
Insolvency is a method that is slightly different to the claims, judgement, and enforcement route. Instead of going to claims the creditor may decide to bankrupt the debtor, or if the debtor is a company the creditor can wind up the company. This process involves a petition and public advertising of the intention to bankrupt, or wind up the company by the creditor. It is certainly advised that the creditor use a solicitor to avoid disputes with the debt and process, which could end up costing the creditor.
So do you need a solicitor?
In many cases, a solicitor may be advised so that the creditor can avoid fees, and so they can better navigate their options. Given the many different paths a creditor can take in initiating the process of claims or insolvency, as well as the different methods of enforcing payment, it is a good idea to consult with a solicitor.
In the end, it is up to the creditor how they want to proceed, but it is important to protect yourself and your interests in the process.