The debt world can be nerve-wracking enough without all the financial jargon you need to wrap your head around.
But despite sounding scary, most terms aren’t quite as complex to understand once you know what they mean.
The term ‘pre-action protocol for debt claims’ is one of those terms you might have heard of at some point in your debt journey.
It describes the steps both the debtor and creditor must take before legal action can be taken on a debt.
This guide will explain what a pre-action protocol for debt claims is in more detail and what might happen when it isn’t complied with.
What is the pre-action protocol for debt claims?
Put simply, the pre-action protocol for debt claims is a series of steps the court expects the debtor and creditor to take before court proceedings can be issued.
It applies to all businesses claiming payment, including sole traders, and can be issued against an individual or sole trader.
The pre-action process will begin if the person or company you owe money to has been unsuccessful in trying to recover the debt through other options and is now considering escalating the case to the court.
Why was the pre-action protocol introduced?
The pre-action protocol was introduced to encourage early communication between the debtor and creditor in the hope of avoiding court proceedings.
Before it came into force in 2017, there was no pre-court action procedure for the debt recovery process.
In most cases, the court would prefer that legal action is avoided whenever possible and, in most cases, the protocol has helped to achieve this.
However, in instances where legal action is unavoidable, the protocol also acts to ensure both parties act in a “reasonable and proportionate manner”.
In other words, it makes sure everyone acts fairly and that no unnecessary time and money is spent.
What is a letter of claim?
Before the creditor can send you a claim form to start court proceedings, they must send you a letter of claim.
The pre-action protocol outlines what the letter of claim should include.
- The amount of debt owed
- The amount of interest or other charges imposed
- Details of the agreement (including if it was an oral or written agreement)
- Details of the creditor seeking legal action
- Why court action is being considered (if you are already paying the debt in instalments)
- How the debt can be paid and how you can discuss payment options
- The address the reply form should be returned to
The letter of claim should also come with a reply form, information sheet, and up-to-date statement form or financial statement form enclosed.
How should I respond to a letter of claim?
Receiving a letter of claim can be daunting, especially if you weren’t expecting it. But you do have options.
The most important thing to know is that you shouldn’t ignore it as this will only make the situation worse.
The right way to respond to a letter of claim depends on whether you agree you owe the debt and whether you require further assistance.
There are different sections on the reply form and the one you choose depends on how you wish to respond.
Section 1 allows you to state whether you agree to pay all, some, or none of the debt.
Section 2 should only be completed if you agree to owing some or all of the debt. This section should also include details of how you intend to pay.
Section 3 should be completed if you are seeking debt advice. If this is likely to take longer than 30 days, you must also use this section to let the creditor know and provide a rough time estimate if you can.
Section 4 is where you can request extra information from the creditor, such as how much you owe or how much you’ve paid so far.
What is the deadline to reply to the letter of claim?
The reply form must be returned within 30 days of receiving the letter of claim.
Don’t worry if you can’t complete every section on the form, it’s always better to return a partially-completed reply form that contains the basic information than nothing at all.
Once you return the partially-completed form, the creditor should see this as an attempt to resolve the matter and contact you to discuss the missing sections before initiating court proceedings.
Failure to stick to this deadline can result in legal action being taken against you and with no opportunity to give your side of the story, you might be forced to make repayments at a rate you can’t afford.
The creditor will usually wait until a few days after the deadline has passed to account for the fact that you might have posted the reply form at the end of the 30-day window.
What happens if the pre-action protocol has not been complied with?
In the event of a creditor making a court claim, the court will expect both you and the creditor to follow the pre-action protocol.
The court will always take non-compliance into account before making a decision and consider whether both parties have complied with the terms before giving any further instructions.
For example, if only minor details have been missed, the court will usually still find it acceptable.
However, if a key step has been ignored, such as the 30-day deadline, the amount of debt you originally owed might be increased the cover additional costs.
Similarly, if the creditor hasn’t followed the protocol, the court might decide that they are responsible for 100% of court costs.
What happens if a resolution still can’t be met?
The pre-action protocol has been successful in helping parties resolve debt claims without the need for court action but there is still a possibility that a resolution won’t be met.
In this case, you should take the appropriate steps to resolve the matter without the need to start court proceedings.
This is known as an Alternative Dispute Resolution (ADR) and could involve setting up a payment plan or asking a third-party mediator to step in before the case is escalated to court.