Dispelling some of those debt recovery misconceptions

Debt recovery myth #6?? Chasing a debt constitutes harassment

Again, there can be some truth to this. The two key words to remember are ?reasonable? and ?proportionate.? It is reasonable and proportionate to chase a debtor for payment if they default, or to send letters in compliance with pre-action protocols advising a debtor that you are intending to take Court action.

It is unreasonable and disproportionate to attempt to contact the debtor several times a day by telephone or social media to remind them they owe you money.?It is not acceptable (and criminal) to physically assault or verbally threaten harm.

Debt recovery myth #7?? A debtor can avoid the debt by making himself bankrupt

From the creditor?s perspective once a debtor enters bankruptcy the debt appears to be ?written off? as there is nothing more the creditor can do. For the debtor, bankruptcy is not an easy option. The debtor?s means and circumstances will be reviewed and assets liquidated. The debtor can also be subject to an Income Payment Order, which requires them to pay their disposable income to the trustee in bankruptcy for the next three years. Whilst the formal bankruptcy normally lasts 12 months, the damage will make obtaining credit or a mortgage extremely difficult.

Debt recovery myth #8?- All contracts or agreements have to be in writing

Whilst it can make life easier, there are only limited circumstances where there is a formal legal requirement for there to be a written contract. If you were so inclined, you could verbally agree with a builder that he will build you a bespoke mansion, in the same way you instruct the window cleaner to wash your windows!

Debt recovery myth #9?? A personal guarantee is no longer valid if the guarantor is no longer associated with the party he offered the guarantee for

The relationship that the guarantor has with the party he is providing the guarantee for is distinct and separate from the relationship between the guarantor and lender. Thus, a person who gives a personal guarantee to the bank for the overdraft of his employer, but is subsequently dismissed by that employer, will remain liable to the bank for the overdraft.

Debt recovery myth #10?? A debt is wiped after six years

A creditor who is owed money under contract and has failed to take formal legal action within six years from the cause of action, will be statutorily barred from issuing an action on that debt. A debt which is statute barred still exists, and can be paid by the debtor.?A creditor with such a debt should consider when the ?cause of action? arose i.e. the date that the debt became formally due. If a debtor has ?acknowledged? the debt at any time since the initial default date, the six year period may have restarted, allowing a Court action to be taken.

If there has been no acknowledgement of the debt, a creditor can still apply to the Court to extend the limitation, though the Court would require very good reasons to do this.?It should also be noted that a creditor is usually only allowed to claim up to six?years interest.

Karen Chapman?is an associate and Stuart Hoysted?is a senior associate at Clarke Willmott?

Image: Shutterstock

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