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Owed Money But The Debtor Won’t Pay – What Can You Do?

Many of us will have borrowed money off a friend, loaned funds of our own or have businesses that have failed to pay our invoices. Usually an agreement is made as to when the sum will be paid back or the terms of sale and repayment will be detailed in a loan agreement or sales invoice. But what can you do if you’re owed money and the Debtor refuses to pay?

Luckily there are steps you can take to recover the funds - it all depends on the size of the debt and the proof you have.

Is there a record of the loan or monies due?

Ideally you will have a written record of an agreement between the two parties. If this were a loan, it could be a written contract stating the monies paid is not a gift and will be paid back. On a sales invoice it may be that the credit was to be repaid for the goods or service rendered within a set period of time such as 28 days. If this formal agreement isn’t available, there are other forms of evidence that could be used, such as:

  • A third party may have been there at the time of agreement and would be willing to write a letter detailing their recollection of the loan being paid.
  • A text message/other correspondence may also be used as proof where the debtor says “thank you for lending me £10,000, I will pay it back as soon as possible”. This message proves the individual has accepted the loan and is willing to pay it back.

What can you claim back?

With proof of an agreement whether verbally made or otherwise, you can claim back all of the monies owed and any interest agreed. The costs that you incur trying to recover your money varies upon the legal route you take and the value of the monies to be recovered.

How long do you have to claim money owed?

Under the provisions of the Limitation Act 1980, a Creditor has six years to recover a debt. This 'limitation period' starts from the date of the last payment or acknowledgement of the debt. There are exceptions in which this limitation could be extended but this can be challenging.

What if the Debtor won’t engage with me?

The first thing you should always do if you are having difficulty recovering your money is write to the Debtor. A demand letter should be compliant with the provisions of the Civil Procedure Rules 1998. A formal letter is the first course of action as this may get the Debtor to agree to the money being owed. If that happens, you could agree to a date for payment of the debt or a payment plan being constructed so the debt can be paid off in smaller chunks acceptable to both parties.

If that has not proven successful and legal action is the only alternative, there are various routes which you can potentially follow when recovering a debt. These are:

  • Mediate with the Debtor

This structured, interactive process where a third party assists disputing parties in resolving conflict through the use of specialised communication and negotiation techniques, provides the environment where both parties can negotiate and agree terms of settlement before further action is taken. This can be a successful way of resolving a dispute as both parties in question are able to reach a favourable outcome without incurring the costs of litigation.

  • Consider insolvency proceedings

The first step following the demand letter shall be the service of a Statutory Demand upon the individual or company. The threshold for this is that the debt due must be £5,000 or more should you be pursuing an individual. The threshold is £750 if you are pursuing a company. Once served, the Debtor has 18 days to apply to the court to set aside the Statutory Demand or pay the full amount within 21 days.

If the Statutory Demand is ignored or unsatisfied then you may present a Bankruptcy Petition citing failure to comply with the Statutory Demand. The risk with this is that should a Bankruptcy Order be made, you may not recover all of your debt if the debtor’s Bankruptcy Estate is insufficient to satisfy your debt.

If the claim you have against your debtor is below the required thresholds, the insolvency route would not be available to you.

  • Money Claim

If you opt to issue a civil claim at court to recover the outstanding debt, you must comply with the Pre-Action protocol detailed within the Civil Procedure Rules 1998. Your claim will be allocated to one of three ‘tracks’ depending on the amount of money owed and sometimes, the complexity of the issues. These tracks are known as the Small Claims Track (debt below £10,000), the Fast Track (£10,000 to £25,000) and the Multi Track (above £25,000). All of these involve court hearings of different lengths and can incur costs.

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