How can I enforce loan payments in debt recovery?
As an individual or a business, you may find yourselves in the unsatisfactory situation of having loaned monies (either informally or formally) and the debtor has now defaulted in repayment of the loan.
What do you need to do if you would like to enforce loan payments?
1. The basis of the loan
The first thing that you need to check is the terms of that the loan was paid. Ideally, this should be in a written contract which determines things like interest payments, repayment terms and what happens in a default.
In absence of a formal contract, you will need to prove the above either from oral or written evidence of the parties or other witnesses.
2. Pre-action
Once you have established the terms of the loan and that there has been defaulted then you should be sent a pre-action letter of claim to the debtor.
If you are a business seeking to enforce against an individual then you need to comply with the Pre-Action Debt Protocol and the pre-action letter needs to contain certain specified information.
3. Issuing a claim
In the event there is no response or no satisfactory response to your pre-action letter then the next steps is to issue a claim in the courts.
Advice can be found form the government website here.
Once you have a successful judgment in your favour that is not the end of it. If the debtor still refuses to pay then you will have to consider enforcement of your judgment.
Options for Enforcement of a debt judgement
1. Attachment of Earnings
If the debtor is working, you can apply to the Court for an Attachment of Earnings Order. This will result in recovering money directly from the salary of the debtor.
2. Charging Orders
If the debtor owns a property, you can apply to Court for a charging order. On obtaining a charging order, upon the sale of the asset, the debtor must satisfy the debt owed, assuming that there would be adequate equity in the property. Once a charging order is finalised, this enables you to apply for an Order for Sale to enforce any charging order.
3. Third Party Debt Order
This type of order is usually made against a debtor’s bank or building society account. Upon serving the order, a bank will pay out the judgment sums owed. This is only useful if you have their accounts details and know for sure that there are funds in the account.
4. Statutory Demands/Bankruptcy/ winding-up proceedings
Statutory demands are a formal mechanism of requesting for a debt to be paid. If the debtor is an individual then the debt must be at least £5,000 (since 1 October 2015) but if the debtor is a company this limit is only £750. When the debtor receives a statutory demand, they have 21 days to pay the debt or make an agreement to pay. If they do not, you can apply to wind up (or close down) the company or take steps to make the individual debtor bankrupt.
What option should you take?
This is a brief insight into some of the options for debt recovery. Each case should be assessed depending on value at stake, the financial circumstances of the debtor, the risks involved so that the most appropriate avenue is pursued.
If in doubt legal advice ought to be sought from the earliest opportunity so that you get it right from the start.