The Pre-action Protocol for Debt Claims has been in force since October 2017. It is designed to encourage parties to communicate with each other about debts as early as possible and act reasonably, with the ultimate goal to prevent court action. Matters should be resolved with repayment plans or by opting for Alternative Dispute Resolution procedures.
A Letter of Claim is sent to the debtor which must include key information about the debt, and be presented with a detailed response form; this form must be completed and returned by the other party within a set time period.
When won’t the Protocol apply?
The Protocol won’t apply when a debt is covered by another Pre-Action protocol, like the Mortgage Arrears Pre-Action Protocol. Small businesses with outstanding invoices and landlords wishing to take action on unpaid rent may be expected to comply with the Protocol by the court if costs are to be awarded or orders made. Under the Protocol, landlords and creditors are obliged to send letters to tenants or debtors before they apply to the court for a money judgement.
What information must be included?
Landlords and creditors must include specific information in the letter of claim. This must include details on the debt and whether interest is building up. If interest is being accrued, the letter must tell them how much. The letter should also tell them whether instalment plans are being offered or paid. If the instalments are not acceptable, the letter should explain the reasons for this. It should also include details on how the debt can be paid and what can be done if the tenant or debtor wishes to explore and negotiate payment options.
What else should be enclosed?
Claimants must also enclose an up-to-date, accurate statement of account for the other party’s debt with the letter. This must feature figures relating to interest and other charges. If this statement is not given or is out of date, the interest and charges accrued since the debt was incurred must be included in the letter of claim. They also need to provide the required regulatory information sheet. This contains information on how to respond to the letter of claim and a list of debt advice organisations. A financial statement form and Reply Form at Annex 1 to the Protocol are also needed.
When should the letter be posted?
The Letter of Claim needs to be posted on the date shown at the top of page one, or the following day. It must be sent by post, but an additional copy can also be sent by email if wished. If the debtor has clearly stated that they prefer to receive digital correspondence, an email alone will suffice. The debtor is required to complete the Reply Form sent by the creditor as a response. If the form is not returned, the claimant can launch court proceedings a minimum of 30 days from the date shown on the letter of claim. It’s advisable to wait a few days if the reply form still hasn’t been received at this point, as it may have only recently been posted. The respondent is entitled to request copies of documents they deem to be relevant, and if the claimant cannot provide these, they must explain why.
When can the claimant start proceedings?
The claimant cannot start court proceedings for 30 days once the form is returned, though this may need to be extended if the other party says they are sourcing debt advice in their Reply Form. If the claimant is able to give copies of relevant documents, they must wait at least 30 days after sending these to start court proceedings. They should try to agree an instalment plan if the Reply Form says that debtor needs more time to pay. If the Reply Form is incomplete, the debtor must be notified of this by the claimant. If no agreement is made, 14 days notice of the intention to begin court proceedings should be provided.
When agreement isn’t reached
When an agreement cannot be made, all parties are expected to consider an alternative dispute resolution option. Debt claims can not be initiated whilst agreements are being adhered to; a new Letter of Claim must be sent in order to start proceedings in the future. The court may ask the claimant to show they have complied with the protocol.
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