You'll come across many terms used in the debt collection and recovery process. If you're not within the industry there are some phrases that you might not understand the definition of. We've put this glossary together to provide definitions for phrases or words that often come up in debt recovery terminology.
What is a debtor?
A debtor is an individual, business, or entity that owes money to another party (the creditor) as a result of borrowing funds, purchasing goods or services on credit, or entering into a financial agreement. The debtor is legally obligated to repay the debt according to the agreed terms, such as a loan repayment schedule or credit card agreement. If the debtor fails to repay, the creditor may take action to recover the owed amount, such as through debt collection or legal proceedings.
What is a Creditor?
A creditor is an individual, business, or entity that is owed money by another party (the debtor). Creditors provide funds, goods, or services on credit, expecting repayment under agreed terms. Examples include banks (for loans), credit card companies, utility providers, or suppliers who offer trade credit. Creditors may enforce repayment through reminders, debt collection agencies, or legal action if the debtor fails to meet their obligations.
What is Debt Collection or Debt Recovery?
Debt collection is the process of pursuing payments from individuals or businesses who have failed to repay debts owed to creditors. It typically involves a series of steps to recover overdue funds, starting with reminders and communications from the creditor. If initial efforts fail, the debt may be handed over to a third-party debt collection agency, who then takes responsibility for recovering the amount owed.
Debt collectors use various methods to contact debtors, including phone calls, text messaging, letters, and emails, to negotiate full repayment, repayment plans or settlements. The process aims to balance the creditor's right to recover owed funds with the debtor's financial circumstances, often encouraging amicable solutions.
The terms debt collection and debt recovery have become interchangeable within the industry.
What is a Credit File?
A credit file in the UK is a detailed record of an individual's or business's financial behaviour, used by lenders and other organisations to assess creditworthiness. It is maintained by credit reference agencies (CRAs) such as Experian, Equifax, and TransUnion. The file contains information that helps determine the likelihood of someone repaying borrowed money. Key components of a credit file include:
- Personal Information: Name, address, date of birth, and electoral roll details (to verify identity and residency).
- Credit Accounts: Details of credit cards, loans, mortgages, and other accounts, including payment history, balances, and credit limits.
- Repayment History: Records of whether payments have been made on time, missed, or defaulted.
- Public Records: Information such as County Court Judgments (CCJs), bankruptcies, Individual Voluntary Arrangements (IVAs), or debt relief orders.
- Financial Associations: Links to other individuals (e.g., joint accounts or shared credit), which can affect creditworthiness.
- Credit Applications: A record of applications for credit, including hard searches (visible to lenders) and soft searches (not visible to lenders but recorded for the individual).
- Fraud Warnings: Any markers indicating potential fraudulent activity linked to the individual.
Lenders, landlords, and utility providers use credit files to evaluate risk when deciding whether to offer credit, loans, or services. A strong credit file (with timely repayments and responsible borrowing) improves the chances of approval and access to better interest rates, while a poor credit file (with missed payments or defaults) can limit financial opportunities. Individuals can access their credit file for free through CRAs to check for accuracy and take steps to improve their credit score.
CCJs: County Court Judgements
A County Court Judgment (CCJ) is a legal ruling issued by a county court in England, Wales, or Northern Ireland against someone who fails to repay a debt. If a creditor takes legal action to recover unpaid money and the court rules in their favour, a CCJ is issued, requiring the debtor to repay the owed amount. The judgment includes details such as the repayment amount, deadline, and payment terms.
CCJs are recorded on the Register of Judgments, Orders, and Fines and can significantly impact the debtor's credit score, making it harder to obtain loans, mortgages, or credit cards. If the debt is repaid within 30 days of the CCJ being issued, it can be removed from the register. Otherwise, it remains for six years, even if the debt is settled later.
The best way to avoid a CCJ is to engage with your creditor or debt recovery agency. If the case goes to court, you should be there to defend your position.
Debtors can challenge a CCJ that has been granted if they believe it's incorrect or unfair by applying to the court to have it set aside. CCJs are a powerful tool for creditors to enforce debt repayment while encouraging debtors to address their financial obligations.
Small Claims Court
The Small Claims Court in the UK is a part of the county court system designed to resolve relatively low-value disputes in a simple, cost-effective, and informal manner. It handles civil cases, typically involving claims of up to £10,000 (or £5,000 for personal injury or housing disrepair claims in England and Wales). Common cases include disputes over unpaid debts, faulty goods, poor services, or minor property damage.
The process is designed to be accessible to individuals and businesses without the need for extensive legal representation. Claimants file their case online or via paper forms, paying a small fee based on the claim’s value. Both parties present their evidence, such as contracts, receipts, or photos, and a district judge makes a decision, often at a short hearing.
Small Claims Court is less formal than higher courts, with simpler rules and procedures, making it easier for people to represent themselves. However, legal costs are generally not recoverable, even if you win, so it’s often used for straightforward disputes where the cost of hiring a lawyer might outweigh the claim’s value. The court’s decisions are legally binding, and enforcement options are available if the losing party fails to comply.
Debt Enforcement
Debt enforcement is the process of legally compelling a debtor to repay an outstanding debt after they have failed to do so voluntarily. In the UK, it typically follows a court judgment, such as a County Court Judgment (CCJ), which confirms the debt is owed. If the debtor still does not pay, the creditor can pursue enforcement.
Common methods of debt enforcement include instructing bailiffs or enforcement agents to seize and sell the debtor’s assets to recover the owed amount, applying for an attachment of earnings order (deducting payments directly from the debtor's salary), or securing a charging order against the debtor's property. In some cases, funds may be recovered directly from the debtor’s bank account through a third-party debt order.
Bailiffs vs High Court Enforcement Officers / Agents
In the UK, bailiffs and High Court Enforcement Agents (HCEAs) both enforce debts, but they operate under different legal frameworks and handle different types of cases. Here’s a breakdown of the key differences:
Bailiffs:
- Jurisdiction: Typically enforce debts related to county court judgments (CCJs), council tax arrears, parking fines, and other lower court orders.
- Authority: Operate under the County Courts Act 1984 and other regulations, with powers granted by the court.
- Process: Must provide notice before visiting a debtor’s property and can seize goods to repay the debt. However, their powers are more limited compared to HCEAs.
- Fees: Charge fixed fees set by the government, which are generally lower than those of HCEAs.
- Types of Debts: Commonly handle smaller debts, such as unpaid utility bills, rent arrears, or traffic penalties.
High Court Enforcement Agents (HCEAs):
- Jurisdiction: Enforce higher-value debts, usually over £600, that have been transferred from the county court to the High Court for enforcement (known as a "writ of control").
- Authority: Operate under the Tribunals, Courts and Enforcement Act 2007 and have stronger enforcement powers than bailiffs.
- Process: Can act more quickly, often without prior notice, and have broader authority to enter properties and seize goods. They are known for being more assertive in recovering debts.
- Fees: Charge higher fees, which are added to the debtor’s total owed amount. These fees are regulated but can be more expensive than bailiff fees.
- Types of Debts: Typically handle larger commercial or personal debts, such as unpaid invoices, business debts, or high-value CCJs.
Differences between Bailiffs and HCEAs:
Bailiffs deal with lower-value debts and operate under county court rules, while HCEAs handle higher-value debts and operate under High Court authority, with more extensive powers and higher fees. Both must follow strict regulations to ensure fair treatment of debtors.
Thumbnail photo by: Kaboompics.com. License: Pexels License.
Banner/article photo from Adobe stock images.