Steps to follow
- Are you owed money and beginning to get fed up of excuse after excuse? Or, do you have debts that you can’t pay? Either way, take action and sort the problem out.
- When dealing with debtors, leave a paper trail. Keep copies of all documents received, including emails, and make a note of any telephone calls you make. These may be useful if you have to resort to legal action.
- Be clear in your correspondence, and show them you mean business! Write to the debtor, date the letter and include both your names and addresses. 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 payment is not made.
- Always stay within the law. Don’t threaten or intimidate the other person. Don’t make empty promises to take legal action.
- Asking a solicitor to send a formal lawyer’s letter may focus the debtor’s mind and make them pay up.
- If you use a debt recovery company, they will charge you a fee or a percentage of the recovered money. This is quite a heavy-handed approach and could lose you goodwill. Use as a last resort.
- Mediation, arbitration or an ombudsman scheme is cheaper and less confrontational than going to court. They will try to find common ground, and will usually resolve any dispute faster than a court.
- If you do go to court, consider the small claims court if the overall value of the dispute is worth less than £5,000. You do not need a lawyer to use this court, and it is relatively speedy and inexpensive.
- Are you in debt? You can take steps to resolve it. Do not hide your head in the sand. Keep in touch with creditors, and let them know you are doing your best to pay off the debt. Realistically appraise your income and outgoings. Are there ways in which you can cut back? Can you increase your income? Is there anything you can sell?
- Avoid private debt consolidation companies, pawnbrokers and loan sharks at all costs. Try not to overuse credit cards, which charge high interest rates. Prioritise your debts. Draw up a payback plan and stick to it. Citizens Advice and other charities can offer free advice on what to do.
- If you really can’t pay off your debts, then bankruptcy may be an option. You will be banned from certain professions and may find your credit worthiness seriously jeopardised in the future. Your assets will be sold off. This is a last resort option.
- Alternatively, consider the less serious options of an administration order (if your debt is less than £5,000) where interest is frozen and creditors forced to back off while you make regular payments to the court. An individual voluntary arrangement, where an insolvency practitioner sells off you assets to pay your creditors, may be another option.
What to watch out for
Always read the small print on any loan that you sign, and try to keep on top of specified dates for repayment. Be wary of debt consolidation companies, or loans from anyone other than banks and building societies. Watch out for high interest rates.
Solicitor’s top tip
If you are a business or a self-employed person, and the debt is owed by another business or public sector organisation, you can charge interest on the debt for late payment. This is made possible by the Late Payment of Commercial Debts (interest) Act 1998. The interest chargeable is the Bank of England base rate plus eight per cent. You can also claim reasonable debt recovery costs.
Useful links
Free advice
www.citizensadvice.org.uk
www.nationaldebtline.co.uk
www.cccs.co.uk
www.debtadvicetrust.org
www.insolvencyhelpline.co.uk
www.smallbusiness.co.uk/channels/small-business-finance/late-payment/guides-and-tips
www.businesslink.gov.uk/bdotg/action/layer?topicId=1080387371
www.adrnow.org.uk/go/SubPage_137.html
Online services
www.nationaldebtline.co.uk
www.cccs.co.uk
www.debtadvicetrust.org
www.financial-ombudsman.org.uk
www.insolvencyhelpline.co.uk
Useful articles
Managing debtors
Recovering debts from other people or companies
I have debts
Bankruptcy basics
Dealing with the bankruptcy of a supplier
Is bankruptcy right for you
Is liquidation right for you
Overview of bankruptcy
Overview of insolvency
Overview of loans mortgages and guarantees
I am bankrupt
