Personal Debt Collection

Balancing the books of a business is very different to making sure you’ve got enough money until payday. That is why there are two distinct branches of debt recovery – Business and Personal.

At Advocate we specialise in Business debt recovery. The legislation we use to charge our fee to the debtor only applies to debt owed by one business to another. The same legislation cannot be applied when it is a Personal matter for one of the participants.

Although we cannot accept cases where a person/consumer is an interested party, we can explain the distinction and point you in the right direction. If you wish to instruct recovery of a personal debt, an internet search for ‘consumer debt collection’ may provide a suitable firm to assist.

Understanding the Terminology

Business: a company or trader that raises invoices for the provision of goods or services. This includes Limited, which is a privately owned company; Public Limited Company (PLC), where shares can be bought by the general public; Limited Liability Partnership (LLP); and non-registered partnerships, where the partners can have limited or full liability for debts; Charity and other non-profit organisations such as a Community Interest Company (CIC); a Sole Trader is the exclusive owner of a non-registered company and is personally liable for the business debts.
Consumer: also known as a person, private individual, householder, patient, or tenant. Someone who buys goods or services from a business. It can also be someone who takes out a loan from a bank or other financial institution.

Debtor: the business or consumer that owes money.

Creditor: the business or consumer to whom money is owed.

Sale of Goods Act 1979: a legal framework for the supply of goods and services. For consumers, this was superseded with the Consumer Rights Act 2015.

FCA Financial Conduct Authority: regulator tasked with protecting consumers and financial markets and promoting competition for the benefit of consumers. The FCA has a broad scope that includes banks, credit cards, store cards, unsecured loans, mortgages, pensions, and late payment charges.

The Late Payment of Commercial Debts Regulations 2013: allow statutory interest, compensation, and debt recovery costs to be added to the amount payable by the debtor. This applies only to transactions where both creditor and debtor (see above definitions) are UK registered businesses.

MoneyClaim Service: also known as MCOL This is the Small Claims Court online for when legal action is the only option remaining. You can issue a claim yourself without using a solicitor. If the Claim is Defended, you would represent yourself at the hearing.

Types of Debt Recovery

Business → Business: this is within the scope of The Late Payment of Commercial Debts Regulations 2013 and allows Advocate to recover payment of your unpaid invoices on a no cost to you basis in accordance with current late payment legislation.

Business → Consumer: for example, Ann O’nymous has not paid for items from a mail-order catalogue. Advocate cannot accept instruction because this falls under the Consumer Rights Act 2015.

Consumer → Business: for example, Ann O’nymous has not received payment for a mobile phone that a recycling business agreed to buy. Ann’s partner wants the dealership to reimburse them for repairs on a car that broke down shortly after taking ownership. Advocate cannot accept instruction because this falls under the Consumer Rights Act 2015.

Consumer → Consumer: for example, Ann O’nymous has not received payment for an item they sold on social media to Abbey Seconded who lives nearby. Advocate cannot accept instruction because The Late Payment of Commercial Debts Regulations 2013 does not apply.

There are a number of organisations that can give advice to consumers such as: 

Common Debt Collection Myths

Myth: the creditor can send bailiffs without going to court. Truth: bailiffs can only be sent once a County Court Judgment is awarded against you or when the courts make a Repossession Order.

Myth: the creditor can contact me any time of day or night. Truth: late-night calls and visiting your home at unsociable hours are harassment and not permitted.

Myth: I can be jailed for non-payment of a debt. Truth: debtors’ prison was abolished in 1869 and no longer exists. Custodial sentences can be given for debt owed to government departments, but only in exceptional and rare circumstances.

Myth: I am liable for the inherited debt. Truth: the debt belongs to the estate of the deceased. Any debt remaining after being offset against the estate’s assets will be written off.

Myth: marriage or CP means taking on each other’s debt. Truth: you do not take on your partner’s debt. A joint loan, credit card or mortgage will make you both liable. The exception is council tax and water rates which dictate any adult living in the property is liable, regardless of who’s name is on the bill.

Myth: I can be put on a blacklist and banned from taking out credit. Truth: there is no such thing as a blacklist. A missed payment will show on your credit file and may reduce your choice of lenders.

Myth: the previous tenant/owner’s debt will affect my credit score. Truth: credit files follow the individual and do not stick to an address.

Myth: I can move to a different country to escape debt. Truth: creditors can take action against you in your absence. There are a number of firms that successfully pursue international consumer debt.

Myth: my friend is an expert on debt because they have lots. Truth: no two situations are the same. The landscape of debt management is constantly evolving which is why Debt Advisors are licensed and regulated by the FCA.

Taking Time for the Limitation Act 1980

There are time limits enshrined within the law for creditors to seek payment from debtors. It is a common misconception the Limitation Act of 1980 makes debt disappear if you avoid it long enough. The time period starts and resets from the last point you (or a joint debt holder) either made a payment or acknowledged the debt. The limitation for the supply of goods/services is 6 years. This also applies to unsecured debt such as credit cards and loans, council tax, benefit overpayments, and enforcement of County Court Judgments (CCJs) unless the court has given special permission. There are some notable exceptions: Mortgage Shortfalls are limited to 12 years, with 6 years for the interest part of the shortfall. Income tax and VAT have no limitation, but National Insurance is limited to 6 years. Child Support Agency (CSA) and Child Maintenance Service (CMS) payments have no limitation, but a 1 year period applies to Liability Orders. Joint debt holders such as guarantors are subject to the same limitations above and are each liable for the full amount. It is a common misconception that joint debt holders owe 50% each.

Consumer Rights Act 2015

Consumer protection can be traced back to the Sale of Goods Act 1893, which defined the rights and duties of buyers and sellers. Consumer rights were updated during Britain’s membership of the EC/EU from 1973 to 2020, including the Consumer Credit Act 1974 & 2006, Sale of Goods Act 1979, Sale and Supply of Goods Act 1994, Consumer Credit Act 2006, and Consumer Rights Act 2015. Further updates are expected before 2030.

The Consumer Rights Act 2015 replaced the Sale of Goods Act 1979 to enhance and simplify the rights of consumers when buying/selling in the UK. Amongst other things, it specifies goods must be as described and of satisfactory quality…something which can be difficult to verify when buying online or over the phone. There are now rules for the replacement and repair of digital content and for when a substandard service is provided. The vast majority of transactions are trouble-free, but when things go wrong, it is always useful to know how to proceed.

I bought faulty goods; what now?

The first action should be to contact the seller. Give them the opportunity to repair or replace the item. It is also worth rereading the seller’s terms and conditions. Prudent sellers will outline what to expect if a dispute is raised and the process they will follow to resolve it. Depending on the type of product, consumers have the right to repair, replace, return, and compensate.

Consumers are entitled to request mediation to resolve a dispute, typically through Alternative Dispute Resolution (ADR). Not all businesses are only obliged to offer ADR. If a business declines to participate in ADR, it must tell the buyer. ADR is normally done through an industry trade body or association if the seller is a member of one. ADR is supposed to avoid cases proceeding to court that the judge would otherwise have to mediate on before a judgment can be made. The courts are trying to be more efficient with their resources.

If the seller does not have an ADR provider but is willing to proceed, there are firms that will provide mediation. The cost is usually shared equally between both parties. There is no statutory requirement for mediators to be regulated or licensed. The Civil Mediation Council runs a voluntary register of mediators who choose to be regulated and adhere to a code of conduct Some mediators have specialist areas and work in niche industries. There is a similar register for family matters run by the Family Mediation Council

Next Steps

Where mediation is either unavailable or unsuccessful, creditors naturally turn to debt collectors, and debtors look for guidance. Depending on their financial circumstances, consumers in debt may be able to obtain temporary respite from creditor action through a ‘Breathing Space’ for a period of up to 60 days. A Mental Health Crisis Breathing Space lasts for the duration of treatment plus 30 days. These debt respite tools can only be utilised through a debt advisor regulated by the FCA. Debt advisors can also discuss more well-known options such as an Individual Voluntary Arrangement, Debt Relief Order and Bankruptcy.

For Advice and Support with Debt:

Civil Legal Advice
0345 345 4345

Debt Advice Foundation
0800 043 40 50

Debt Support Trust
0800 085 0226

National Debtline
0808 808 4000 (Freephone)

StepChange Debt Charity
0800 138 1111

The Money Charity
0207 062 8933