Recovering debts from other people or companies

It’s infuriating, sometimes embarrassing, and can be costly. There are, however, various avenues open to you when a debtor refuses to pay up.

First steps

When attempting to recover debts, whether from individuals or businesses, it is important to leave a paper trail. This means keeping copies of all documents sent and received. These can be used as evidence if you have to take legal action.

The first step is to write to the debtor. Your letter should be dated and should include your name and address and that of the debtor. It should include a date by which you expect payment, a request for the debtor to put in writing any dispute they have with your statement, and details of the steps you will take, if the payment isn’t made. Try to avoid making threats or promising legal action that you are not prepared to carry through. Always keep within the law, and try to stay calm.

If this doesn’t work, you may want to consult a solicitor or visit a law centre or Citizens Advice office, who can advise you further. A solicitor’s letter to the debtor threatening legal action can often make the debtor pay up.

Alternatively, a debt recovery company could recover the debt on your behalf. However, they will charge a fee or a percentage of the recovered money.

Going to court is an expensive and time consuming method of recovery. You could, instead, try alternative dispute resolution (ADR). ADR is a catch-all phrase, which covers mediation, independent arbitration and ombudsman schemes. These are all less expensive and less confrontational than going to court. A mediator will try to find common ground, and will look for a solution in an unthreatening way.

As a last resort, you can take court action. Be warned, this can be an expensive means of recovery. Seek independent legal advice before doing this.

Going to court

It is best to weigh up the pros and cons before embarking on court action.

Remember, that if your case fails then you could be liable for your debtor’s legal costs as well as your own. If your debtor decides to defend the action, then the court will need to establish the facts of the case before making a ruling—this is why it is important to establish a paper trail.

Which court (and how much the court action costs) depends on how much money you are owed.

Small debts, of up to £5,000 (the government may change this figure in the future) can be heard by a small claims court. You can represent yourself. The court can issue warrants enforcing its rulings.

The county court can rule on debts of any amount. There is no minimum or maximum limit.

The high court can hear claims of more than £15,000. You must be represented by a lawyer.

If the court has ruled in your favour, and the debtor still hasn’t paid up, then you can apply for the court to enforce its ruling. This can be done in a number of ways. The court may send out bailiffs, stop the debtor’s wages or freeze the debtor’s bank account. In extreme cases, the court can force the sale of the debtor’s house.

In Scotland, the court system is different. The relevant court is the Sheriff Court, and the type of court action will depend on the size of the debt.

The court action will either be small claims, summary cause or ordinary cause. If the debtor does not defend the action or the court finds in the creditor’s favour, then the sheriff will grant a decree that the money be paid. This will then be passed to a sheriff officer to enforce. The debtor can apply for a ‘time to pay direction’, which allows him or her to pay in instalments or at a future date.

In Northern Ireland, the county court offers three types of debt recovery action, depending on the size of the debt. These are: the small claims process; the county court process; and the high court process.

As with the rest of the UK, court action should be a last resort only. You should investigate whether mediation or other forms of ADR are suitable.

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