Debt Recovery

What is Debt Recovery?

Debt recovery is the process of demanding payments of debts owed by individuals or businesses which entails formal notices or demand, negotiation and legal proceedings. Debt recovery is a nightmare for everyone – it’s costly, time consuming and daunting. Ironically, this is the moment when many creditors start realising that their contracts were probably not drafted by a legal professional. However, the legal framework in the UK is strong enough to cover various scenarios and eventually assists genuine creditors. Debt recovery is dependent on a contract of sale or service or any other evidence that can prove an alleged debt. It is also one of the ways where a party can establish a breach of contract.

It is crucial to first identify the creditor and debtor as per the terms of the contract and secondly the amount of money owed. Creditors must start the process of debt recovery by complying with the appropriate Pre-Action Protocol as laid down in the Civil Procedure Rules. Some creditors may elect to initiate this process on their own while others would appoint authorised agents or solicitors.

At RKM Law, we advise on the recovery of the debt as well as estimated costs of the legal process. It is not uncommon to see the legal fees to outweigh the amount owed which, obviously, can be recovered from the debtor should the creditor wins at trial.

Main Categories of Debtors

Individuals
Businesses (including sole traders and partnerships)
Insolvent Businesses
Deceased Persons (or executors)

The Process of Debt Recovery

Each debt claim may differ but broadly the following outline the process:

Formal Contact

The creditor start by sending reminder letters and calling the debtor to request payment within a specified time. This is crucial to avoid unnecessary legal costs. It is very common that creditors can either recover their money owed or agree on some sort of settlement or payment plan.

Formal Demand

Where formal contact did not work RKM Law is instructed to send a formal demand, often referred to as “Letter before Action”. This step is mandatory before a creditor can issue a claim in the courts and failure of doing so, and doing so appropriately, may have an adverse effect on the claim.

Negotiation Settlement

It is not uncommon for debtors who ignored previous formal contacts come forward for settlement or payment plan but usually at an additional legal cost. RKM Law is often instructed to negotiate a settlement on behalf of the creditors bearing in mind that legal costs would accrue for both parties.

Legal Action

Where none of the above has reaped a fair outcome, a claim can be filed against the debtor in the court which will take the full process of litigation before obtaining a judgment against the debtor. Once a judgment is obtained, several mechanisms are in place to enforce this judgment against the debtor (subject to whether the debtor is a in individual or company) and are:

Warrant of Execution (County Court): This permits court bailiffs to visit the debtor’s property to take control of goods which can then be sold to pay the debt. Usually, the bailiffs must consider seizing property or assets that is adequate to cover the debts and associated costs. For e.g it is unreasonable for a bailiff to seize a car worth of £20,000 to cover a debt of £1,500.
Writ of Control (High Court): Like warrant of execution but used for larger debts. High Court Enforcement Officers can seize and sell the debtor’s assets.
Charging Orders: This secures the debt against the debtors’ property like their home. If the debt remains unpaid, the creditor can apply for an order to sell the home.
Third Party Debt Orders: This freezes money in the debtor’s bank account and transfers it to the creditor.
Attachment of Earnings Orders: This order requires the debtor’s employer to deduct a portion of their wages and send it directly to the creditor.
Insolvency Proceedings: The creditor can petition for the debtor’s (individuals) bankruptcy whereby the debtor’s assets will be sold to repay the debts and be subject to restrictions on their financial activities. If the debtor is a company, then creditors can for winding up which can result in the company being liquidated, with its assets sold to pay creditors.

Consequences on Debtors

Credit File : Debtors who obtained a County Court Judgment or CCJ will struggle to raise finance or apply for credit, loan, mortgage and even rental agreement. Once a CCJ is entered on a debtor’s name this is recorded on their credit file for at least 6 years.

Examination of Means : The court can order the debtor to attend a hearing to examine their income, assets and expenses under an Order to Attend for Questioning. Failure to comply can result in penalties, including imprisonment.

Contempt of Court : If the debtor does not comply with the court orders related to debt repayment they can be found in contempt of court. This can lead to fines, imprisonment or both.

How RKM Law can help?

RKM Law committed to providing debt recovery services tailored to your specific needs. We combine extensive legal knowledge with a strategic approach to ensure effective and efficient recovery of debts. While some of our clients instruct us to initiate legal action against debtors through to enforcement, others retain us as their legal adviser to ensure that the creditors’ interest is protected. We leave no stone unturned to achieve a favourable result.

Areas of Law