Navigating the post-Covid debt landscape

Throughout the pandemic, we have continued to collect debts for a large number of clients, and the majority of those who paused activity initially have also restarted collections.

That said, we have worked with those clients to put additional steps in place in consideration of the current situation. The main issue being that we are mindful of the effects on the finances of individuals and households, and in particular how this can impact on people’s mental health.

The subject of mental health and vulnerability of customers has been the main subject of conversation with the collection industry, and whether or not restrictions are in place, the situation remains that you need to understand as much as you can about your customer, their issues and reasons for non-payment. This is done by connecting with the customer, empathising with them and giving them the necessary tools to obtain help and support where needed. This of course includes offering time to pay in consideration of their financial situation.

In further consideration of the effects on individuals during this pandemic, the government introduced certain restrictions to give people some breathing space. This included a suspension of possession of proceedings in addition to the Financial Conduct Authority (FCA) offering their customers payment holidays for up to three months.

While the current Covid restrictions are set to be lifted in March, the government is considering steps to support those in debt. They are planning to expand the eligibility criteria for debt relief orders (DROs), which as you know are a low-cost alternative to bankruptcy for those struggling with debts.

It could mean that DROs can be used by people with up to £30,000 in debt and up to £2,000 in assets. This is an increase on current limits of £20,000 and £1,000 respectively and should give more people in problem debt access to this solution.

The lifting of the current restrictions is not likely to result in an immediate opening of floodgates in collection activity, as most action has continued throughout the period, with additional considerations mentioned earlier. Also, there are a number of steps that have to be taken before getting to the stage of considering repossessing a property for example.

When the restrictions are lifted, if all recovery action has been held during this period, it would be sensible and reasonable to attempt to make contact with the customer before resuming action, or pursuing enforcement whether that is possession proceedings or otherwise. If a customer has not heard anything from you or your representative for some months, I suggest a review of your cases, and a re-start strategy set out, which is likely to vary depending on the stage of claim when paused.

One other point for consideration is when the debt occurred. When you are able to resume full collection and enforcement activity, you may decide to initially focus on debts that predate the pandemic. Those that were incurred in late 2019 or early 2020 may require further investigation and review to determine the likelihood of recovery, which may of course have been impacted by Covid.

You may be surprised to hear that there were 194,203 new County Court Judgements (CCJs) taken out against individuals in England and Wales in the fourth quarter, compared with 112,261 in the previous three months, which indicates that there have been a large number of creditors who continued with legal action throughout this last year or so. That said, while the CCJ number is high, it is of course likely that a large number of these Judgments will not result in enforcement action, whether possession or other enforcement, as they may settle at the Judgment stage.

When pursing recovery of money, you need to be certain that you and your collections team (or legal partners) have the right training and knowledge to record and act on vulnerability or mental health issues, the cases of which continue to rise.

Working with your customer through these difficult times may of course result in successful recovery, avoiding the time and costs involved in pursuing possession or other enforcement.

If you identify that an individual’s circumstances are such that they do not have the means to pay, (they may also be vulnerable, with indications this will be a long term situation), the decision may be made to write off the debt. In these instances, you will know that you have made the right decision, for both your business and the customer.