I've received a solicitors letter about a debt I don't owe - what do I do?

A solicitors letter can be scary.  Especially if you dispute that you owe the money their client is claiming.

The language used is often robust and can feel threatening: talking about interest, late payment fees, solicitors costs, issuing claims or statutory demands and damage to your credit rating.

What should you do?

That depends:  

• If you agree that you owe the money, that it became due within the last six years* and you can pay it, you probably should.  

• If you agree that you owe the money but can't pay it immediately, don't ignore it.  Further interest and charges may be added and action may be taken to escalate things.  Get in touch with the solicitor and try to arrange a lower settlement or payment schedule.  Explain your circumstances and try to reach agreement.  If you speak to them on the phone, follow it up in writing, so there is a paper trail to show the Court if a claim is issued.

• If you dispute the debt (for example it's more than you agreed to, the creditor's contract or terms are unclear, unfair or weren't provided - watch out for the solicitors letter referring to "implied terms" - or you didn't receive the product or service you expected**), you need to make sure a reply is sent as soon as possible raising the dispute.  You may feel able to do that yourself.  If you do not, seek advice.  Your letter should be succinct and factual, detailing the dispute and referring to the contract or terms where possible.  If you agree you owe some of the money (and can pay it), you may wish either to pay it, or make an offer, but you may wish to take advice first.

If you fail to reply, the creditor (the person who is claiming the money) will be able to take further action.  If you are an individual (or sole trader or partner in a business) and the debt is over £5,000, or a company or LLP and the debt is over £750, the creditor may serve a statutory demand.  That is a document which is either handed or sent to you and demands that a debt be paid in full, or that an arrangement be made to pay the money (with security or not) within 21 days.  

The statutory demand procedure can only be used for a debt that is not disputed.  If the debt is disputed, an individual served with a statutory demand may apply to the Court to dispute it, but there's a tight timescale, so urgent steps are needed if you receive one.  

A company or LLP cannot dispute the debt following a statutory demand in the same way
, but may apply to stop the creditor taking further action (including applying to the Court to liquidate the company).  This is a complex area and it is always sensible to take legal advice to ensure you are well supported.

If the debt has been disputed, the creditor cannot use a statutory demand, but may issue a claim if things cannot be resolved between the parties.  If the debt is below £10,000 the creditor will not be able to recover legal fees.  

For debts above £10,000 the fees a creditor can recover are fixed by the Court.  Most lawyers working in debt recovery will charge those fixed fees to their clients for the 'debt recovery' work they do, so will want to limit the work they do to make it cost effective.  

Bear in mind that the purpose of a solicitors letter is often to "scare a debtor into paying", so the creditor wants to keep legal costs low to maximise recovery.  There will often be a fixed process of pre-drafted letters and steps the lawyer will take within set deadlines, so you will need to watch for delays on your part that might lead to them adding the next fixed fee to the debt.  The lawyer's job is to maximise recovery, so a claim is often issued quickly to allow fixed recoverable fees to be added or to take advantage of a debtor failing to reply (or replying poorly) to a claim.  You must always meet court deadlines.

It is always a good idea to keep your own costs in mind too.  If you dispute the debt and instruct a solicitor, your own legal fees would be limited to the same fixed costs mentioned above and you would only be able to recover them if you succeed with your defence to the creditor's claim.  It may be worthwhile offering to take part in an alternative dispute resolution (ADR) procedure early (things like negotiation, mediation, round table meetings, early neutral evaluation - these terms are explained in our glossary).  The Court will expect the creditor to have engaged in a process to try to resolve the debt before issuing a claim.  It can now pause a claim to force the parties to engage in ADR.

If you are at all unsure, or feel overwhelmed dealing with the situation yourself, especially if it isn't straightforward or there a particularly high sum at stake, we can review the letter you've received and your documentation then provide you with real advice for a fixed fee of £250.

*There is a limitation of six years within which a creditor may recover a debt based on a contract.  Take specific legal advice if you are concerned about a debt being "time-barred" (not recoverable because of this time limit).  

**There are lots of reasons why a debt might be disputed.  This is not a full list.  If you're unsure whether to dispute a debt take advice.