From 1 October 2017, new rules around debt collections and what creditors need to do before applying for court action came into effect.
There’s now an extra step creditors must take before starting any County Court judgment (CCJ) proceedings.
But what does it mean for you? Creditors now have to send you an additional letter before going to court. Don’t worry – we read through a pretty hefty protocol document so you don’t have to, and wrote down all the important bits. You can thank us later!
So you know, the new protocol applies to all debts from an individual (including a sole trader) but not a limited company. It also doesn’t apply where there’s already a pre-action protocol in place, like for mortgage arrears or tax owed to HMRC.
What the new process is all about
It’s called the ‘Pre-Action Protocol for Debt Claims’ and it gives you and your creditor extra time to come to an agreement before your debt can go through court. It also means you have additional time to check if the details about the debt are correct.
If you want more information on how the balance of your debt has been calculated, this extra step gives you time to request it before a creditor begins court action.
Look out for a ‘letter of claim’
A creditor now has to send you details of the debt in a ‘letter of claim’ before starting any court proceedings.
The letter will contain the following information:
- The amount owed
- Details of the agreement including who it’s with and the date it was made
- Whether interest or other charges will continue
- If regular payments are already being made, an explanation of why a court claim is being considered
- Details of how the debt can be paid (for example, by card or cash) and how to continue if payment is an option
- A reply form and the address to reply to
You’ll be sent a ‘letter of claim’ by post, unless you’ve previously asked a creditor not to contact you by post and have given them another way of reaching you.
How to respond to a letter of claim
If you’re sent a ‘letter of claim’, you’ve got 30 days to fill in the reply form and send it back to the creditor. It’s important to respond straight away because if you miss the deadline, the creditor can then start court action.
The reply form gives you the chance to:
- Respond to the creditor and the claim
Section 1 of the form asks if you owe the debt or not. If you’re going to reply that you don’t owe the debt, we recommend getting in touch with Citizens Advice to help you fill out the rest of the form
- Make an offer of payment
You can use Section 2 to offer to pay the debt in instalments. A financial statement should be attached to the form for you to fill in your income and expenditure and show what you can afford to repay. If you’re a StepChange client, you can also attach a copy of the budget we created with you
- Let the creditor know you’re seeking debt advice
Section 3 allows you to indicate you’re getting debt advice. The creditor should give you an extra 30 days to get advice before starting court action. That’s why we recommend you get in touch with us for free and impartial debt advice
- Ask for more information
If you’re not sure you owe the debt, or want more detail on how the amount you owe has been calculated, you can use Section 4 to request more information from the creditor.
If you and the creditor can agree a repayment arrangement from your response to the letter of claim, you can avoid court action and continue paying off the debt as per the agreement.
But what happens if the creditor wants to start court action at a later date? Well, they’ll need to send a new letter of claim and give you another 30 days to reply.
Does getting a letter of claim mean I’ll get a CCJ?
Not necessarily. The new rules mean that your creditor must send a letter of claim before going to court to request a judgment. So, getting a letter of claim gives you more time to come to an agreement with them and avoid court action.
If you ignore the letter of claim and don’t respond to it within the 30 days, your creditor can then begin court proceedings and you’ll get court forms through the post.
What happens if the protocol isn’t followed?
If a creditor doesn’t follow the new pre-action protocol, it doesn’t mean they won’t be able to get a court judgment. However, it may mean that the court decides the creditor can’t recover their court costs.
But, be aware that a creditor not following the protocol isn’t a sufficient reason on its own to defend the claim and not repay the debt. We recommend responding to court forms as soon as you get them. You can contact us for advice if you need support.
If you think the creditor hasn’t followed the new protocol properly, and you want to challenge the creditor’s costs, you can get legal advice on defending the court costs in the claim.
You can find more information about CCJs and the new debt claim process on our website.