DEBT RECOVERY: As a rule there are 4 options to recover debts owing to you by a person or by a business.
Your choices of financial recourse include:
- Using mediation services.
- Sending a statutory demand.
- Going to court.
- Apply to make someone bankrupt.
Recovering debts owed to you is often complicated and costly.
In most cases, if a person or company fails to pay up, it is advisable to seek help from a professional debt collector.
You can also try contacting the individual or organisation that owes you the money. If so, you should speak with the person who has the responsibility of owing you the debt.
In some cases, you can avoid expensive court costs by making an informal agreement. It is almost always better to agree on a private plan to get the money repaid.
You have the option of writing a letter if the informal approach fails. A formal letter must inform the debtor of:
- The amount that they owe to you.
- A description of what the money owes you for.
- What actions and steps, if any, you have already taken to try and get your money back.
There is also some other important information to include in the letter, such as:
- The name and address of all parties involved (you and the person who owes you money).
- Dated copies of any relevant paperwork associated with the issue.
- The date by which you expect to receive the payment (should be a notice of at least seven days).
- An opportunity for the debtor to respond or dispute your statement (in writing).
- Full details of what steps you will take if you do not get the payment.
Note: Try to avoid getting drawn into lengthy correspondences or heated arguments. Also avoid threatening legal action unless you intend to follow it through.
Using Mediation Services
Mediation is much like using an impartial ‘referee’ to settle a debt dispute. Mediation services have people trained in the recovery of debts. Mediators specialise in handling negotiations between two opposing sides.
Even though there may be a fee for mediation, it is usually cheaper than hiring a solicitor. It also quicker and often less stressful than taking court action.
In fact, the courts will often expect you to use some form of mediation service before they handle it. As a rule, the fee for a mediator gets based on the size of the debt.
Taking Court Action
If mediation fails, you can make a court claim to get your money back. In general, going to court to recoup a debt would be the last resort in most situations. This is partly because it can take months to get an outcome and there is no guarantee that you will win your case.
If the money owed is under £100,000 you can start a money claim online. That is providing the debt is not owed by more than two individuals or more than two organisations.
If you win your case the court can make an order to have the money paid back. But, if the other side is unable to pay (e.g. because of bankruptcy or not earning), it could be very hard to get back your money.
Making a Statutory Demand for Money Owed
You can choose to make a statutory demand to request money that a person or business owes you. Ignoring the statutory demand, or if they cannot repay the money, means you can then apply to a court to:
- Start making someone bankrupt if the debt is at least £5000. That lower limit applies to an individual, a sole trader, or a member of a business partnership.
- Liquidate an organisation (winding up a company that owes you money). This only applies if they owe you or any other creditors at least £750.
The costs for making a statutory demand are high. You also have no guarantee of getting any of your money returned. Seek legal advice before you using legal options if someone owes you money and will not pay.
Recover a Debt from a Bankrupt Debtor
It is a complex process to get money owed to you by a bankrupt person or a company in liquidation. You would need to register as a creditor in a bankruptcy or liquidation. If there are any funds available to pay off debts, you might be able to get a share.
Important: You can get further information about registering as a creditor in a bankruptcy or liquidation on the GOV.UK website.