Death of the "7 day" letter? New Pre-Action Protocol "PAP" for Debt Claims from 1 October 2017

The Ministry of Justice has published the final version of the new Pre-Action Protocol for Debt Claims. This comes into force on 1 October 2017.

Who will this impact?

The PAP applies to any business (including sole traders and public bodies) claiming payment of a debt from an individual (including a sole trader).

However, it does not apply to business to business debts.

Timescales

Under the new Protocol, an individual will now have 30 days to reply to any Letter of Claim.

Previously, there has not been a specific Protocol for the time given to debtors but traditionally they were given 7 days to reply to a Letter of Claim before proceedings issued.

Under the new Protocol, a more detailed Letter of Claim will now be required. It will have to set out the basis of the claim, parties to the contract, the terms of the contract and also include specific enclosures.

The individual debtor is allowed 30 days to respond. This gives them time to admit or deny the debt, make payment or seek time to pay, ask for more information or seek debt advice.

The creditor will be expected to consult with the debtor regarding requests for more time/affordable payment plans. If more documentation is required by the debtor, then the creditor is to supply that within 30 days of the request.

Under the Protocol, proceedings cannot be issued until 30 days after receipt of the completed reply form or 30 days from the creditor providing any documents requested by the debtor, whichever is the later.

A creditor must also allow a reasonable period of time for a debtor to seek legal advice.

Where the debtor has responded to the Letter of Claim but agreement has not been reached, the creditor may give at least 14 days’ notice of their intention to start proceedings, unless there are exceptional circumstances (like the expiry of a limitation period) which means that the creditor cannot wait.

When the Protocol comes into effect on 1 October 2017, parties will need to ensure that they are compliant. Failure to comply may well have adverse cost consequences if proceedings are later issued.

The Protocol emphasises the need for parties to make every effort to resolve cases without the need for court proceedings.

However, the effect of the Protocol is that timescales before issuing proceedings will no doubt increase. There is a risk that debtors will use these extended timescales to delay, meaning that creditors may have to wait more than 30 days from the date of the Letter of Claim before proceedings are issued.

In situations where time is of the essence, the creditor will need to bear in mind the impact of the Protocol and weigh up the risks of not complying with it.

If you have any matters concerning the recovery of debt, please contact our Debt Recovery Team at Chattertons on 01522 541181.