New debt recovery protocol comes into effect next month

A new debt recovery protocol will come into effect from 1st October 2017 which businesses and public bodies will now have to comply with before commencing court action, requiring greater patience on the creditor’s part when collecting outstanding debts.

The Pre-Action Protocol for Debt Claims will apply to businesses (including sole traders and public bodies) that are claiming payment of a debt from an individual (including a sole trader) and describes the conduct that the court will normally expect of parties prior to the commencement of court proceedings. It will not apply to business-to-business debts unless the debtor is a sole trader, or be administered if another pre-action protocol such as mortgage arrears or construction and engineering covers the matter.

The aims of the protocol are to encourage early communication between parties including the exchange of sufficient information to assess whether there are any issues in dispute; encourage the parties to resolve issues without the need for court action, including reaching an agreement in regards to a repayment plan or using an Alternative Dispute Resolution (ADR) procedure; encourage parties to act in a reasonable manner in all their dealings with one another; and support the management of proceedings that cannot be avoided.

Prior to proceeding with court action, a Letter of Claim needs to be sent by the creditor to the customer including information on the amount of debt and whether interest or other charges are continuing; details of the agreement under which the debt arises, where the debt has been assigned  and details of the original debt and creditor and when this was assigned and to whom; an explanation of why any regular payments the customer may be making are not acceptable and why court action is still being considered; and details of how the debt can be paid and what steps the debtor can take to discuss payment options.

The creditor will also need to supply additional documents including an up to date account statement for the debt including interest and charges, an information sheet and reply form and a financial statement to be completed by the customer. If within 30 days of receiving the Letter of Claim the customer has not replied, the creditor may start court proceedings.

Creditors may face additional costs and delays in the early stages of collection if parties decide to go down the route of an ADR, they will also need to be more proactive when engaging with debtors to ensure information is exchanged properly and time periods are met. However by failing to comply with the protocol, creditors could face further delays in collecting debts if legal proceedings are deferred to remedy failures to comply with the protocol; additional costs sanctions regarding payment of the debtor’s legal costs; or failure to recover costs or be unable to recover interest from a debtor or recovery at a reduced rate.

If you are a creditor who needs some advice about the new protocol contact our debt recovery team today on 0800 0886280 or email enquiries@rotherasharp.co.uk

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Terhi Sygrove - Rothera Sharp Solicitors, Nottingham