How to recover a debt from an individual and/or sole trader

Depending upon who owes you a debt you are entitled to recover your losses be it from a business or an individual/sole trader.

Recovering a debt from an individual/sole trader (debtor) can present businesses with problems as individuals are given more legal protection than companies.

Therefore, in the first instance contacting the debtor yourself is the first course of action before taking any legal action. Courts expect that all possible steps to resolve the matter have been first undertaken as you never know this may prove effective and your debt is paid.

However, if after all communications have failed, the next step is to seek legal action through experienced legal representatives, and a Letter Before Action can be sent.

Once you have supplied all the relevant information to your legal representative, they will send the debtor a Letter Before Action.

As indicated above, the debtor is afforded more legal protection under what is known as the Pre-Action Protocol for Debt Claims (PAPDC). The Protocol states that it does not apply to business-to-business debts.

A brief summary of the Protocol is as follows:

• The Letter Before Action must attach all relevant information as to the debt owed.
• Include
  • an Information Sheet pointing the debtor to relevant organisations that offer free, impartial and non-judgemental advice;
  • a Reply Form (Annex 1) which the debtor is invited to complete and return; and
  • a Financial Statement which the debtor is invited to complete and return (Annex 2).
• The debtor is afforded 30 days to respond to the Letter Before Action and should use the Reply Form in Annex 1.
• The debtor should request copies of any documents they wish to see and enclose documents they consider relevant.
• If the debtor indicates that they are seeking debt advice, the creditor must allow the debtor a reasonable period for the advice to be obtained (see below Debt Respite Scheme (Breathing Space)). In any event, the creditor should not start court proceedings less than 30 days from receipt of the completed Reply Form or 30 days from the creditor providing any documents requested by the debtor, whichever is the later.
• If the debtor indicates in the Reply Form that they are seeking debt advice that cannot be obtained within 30 days of their reply, the debtor must provide details to the creditor as specified in the Reply Form. The creditor should allow reasonable extra time for the debtor to obtain that advice.
• Where a debtor indicates in the Reply Form that they require time to pay, the creditor and debtor should try to reach agreement for the debt to be paid by instalments, based on the debtor’s income and expenditure. In trying to agree affordable sums for repayment, the creditor should have regard where appropriate to the provisions of the Financial Statement or equivalent guidance. If the creditor does not agree to a debtor’s proposal for repayment of the debt, they should give the debtor reasons in writing.
• A partially completed Reply Form should be taken by the creditor as an attempt by the debtor to engage with the matter. The creditor should attempt to contact the debtor to discuss the Reply Form and obtain any further information needed to understand the debtor’s position.

If there is no response within the 30 days from the date of the Letter Before Action, Court proceedings can be started.

Since 04 May 2021 further governing changes to chasing debts against an individual/sole trader was introduced called the Debt Respite Scheme (Breathing Space). This scheme gives an individual the right to legal protections from their creditors.

There are two types of breathing space:

• A standard breathing space – This gives legal protection from creditor action up to 60 days, to include pausing most enforcement action, contact from creditors and freezing most interest and charges on debts.
• A mental health crisis breathing space – This is only available to someone who is receiving mental health crisis and has strong protections. It lasts as long as the person’s mental health crisis treatment, plus 30 days (no matter how long the crisis treatment lasts).

If you are told that your debt is in a breathing space, all action must be stopped and the protections must be applied. These protections must stay in place until the breathing space ends.

If you would like legal help on how to recover a debt from an individual or sole trader please contact a member of the Debt Recovery team.

This blog is the second in a series of blogs we are offering concerning debt recovery:

• Options for recovering an outstanding invoice B2B
• How can I enforce a Judgement Order?
• Statutory Demands : What you need to know