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The New Pre-Action Protocol for Debt Claims – Part One

In our News Roundup a couple of weeks ago we reported on the new Pre-Action Protocol for debt claims that came into force on 1st October 2017 and promised to write about this in more details which we are doing today. 

This new Protocol has the potential to severely impact businesses that have outstanding debts due from individuals.  It applies to any business (whether limited form, partnership, sole trader or public body) when claiming payment of a debt from an individual (the definition of which also includes sole traders).  The Protocol does not apply to business to business debts unless the debtor is a sole trader.  Neither does the Protocol apply in cases where the matter is covered by another pre-action protocol, such as construction and engineering or mortgage arrears.  

The Protocol has been designed to:

  • Encourage early engagement and communication between parties, including an early exchange of sufficient information about the case to clarify whether there are any issues in dispute.
  • Enable the parties involved to resolve the matter without resorting to court proceedings – this includes agreeing on a reasonable repayment plan or considering the use of an Alternative Dispute Resolution (ADR) procedure.
  • Encourage all parties to behave in a reasonable and proportionate manner in their dealings with one another – for example, avoiding incurring costs which do not bear a reasonable relationship to the sums in issue.
  • Support the efficient management of any proceedings which cannot be avoided.

A creditor sending a letter before claim will has to include a template information sheet and a reply form.  The letter before claim should contain the following information:

  • The amount of the debt
  • Whether interest or other charges are continuing
  • If a debt arises from an oral agreement, who made the agreement, what was agreed and when and where it was agreed.
  • If a debt arises from a written agreement, the date of the agreement, the parties to it and the fact that a copy of the written agreement can be requested from the creditor.
  • If the debt has been assigned, the details of the original debt and creditor, when it was assigned and to whom.
  • If regular instalments are currently being offered by or on behalf of the debtor, or are being paid, an explanation of why the offer is not acceptable and why a court claim is still being considered.
  • Details of how the debt can be paid (for example the method of and address for payment) and details of how to proceed if the debtor wishes to discuss other payment options.
  • The address to which the completed reply form should be sent.

The creditor should also ensure that:

  • An up-to-date statement of account for the debt is enclosed, along with details of any interest and administrative or other charges added.
  • The most recent statement of account for the debt is enclosed, stating in the letter of claim the amount of interest incurred and any administrative or other charges imposed since that statement of account was issues, sufficient to bring it up to date.
  • Where no statements have been provided for the debt, the letter of claim should state the amount of interest incurred and any administrative or other charges imposed since the debt was incurred.
  • A copy of the information sheet and the reply form in the form annexed to the protocol is enclosed.
  • A financial statement form as annexed to the protocol is enclosed.

If the debtor does not respond to the letter before claim within 30 days, the creditor may commence court proceedings.

Next week, we will bring you further information on this.  Why not make sure you don’t miss out by following us on Facebook or Twitter for all the latest updates?