Creditors have a right to demand payment if you fall into debt. A statutory demand is a written demand by a creditor to repay a debt owed by an individual or a business.
A statutory demand is often issued after a creditor has tried numerous times to recover the debt from you. It should be taken seriously, and failure to do so could result in being served with a bankruptcy petition.
So, what happens when you get a statutory demand? How long do you have to respond to a statutory demand? What action should you take if you get a statutory demand? Please find out the answers to these questions and more by reading our comprehensive guide.
What does it mean to get a statutory demand?
A statutory demand is a written demand made by a creditor to pay back a debt.
The debt must be at least £5,000 and contain information about your debt and how much you owe your creditors.
You have 18 to 21 days to reply to a statutory demand letter. If you don’t, the creditors will see this as a confirmation that you are unable or unwilling to pay your debt, which could result in them issuing you a bankruptcy order.
A Statutory Demand works differently when you get it for a company or business. Please get further advice regarding this.
How long do I have to reply or act on a Statutory Demand?
You have 18 to 21 days to reply to the demand. The 18 to 21 days start from the date the demand was ‘served’ to you. When it means ‘served’ it means when it was delivered to you.
To ensure you get the statutory demand, your creditor should:
- Hand it to you personally
- Please send it to you via first-class post (the demand usually starts two business days from the date of posting)
- Put it directly through your letterbox
How urgent is a Statutory Demand letter?
A statutory demand letter should be treated with the utmost urgency. Your creditors give you up to 21 days to reply because it will provide you with time to contact them and come up with an arrangement to pay the debt.
If you are not swift in getting the statutory demand sorted, then the creditor will assume you have no intention of paying back the debt and will proceed in other ways to recover the debt from you.
What should I do if I get a Statutory demand?
Getting a statutory demand letter can seem daunting, especially as it puts you at the risk of bankruptcy.
Bankruptcy can greatly impact your life by putting your assets at risk. It is best to agree to respond to the statutory demand as soon as possible as you technically only have 21 days to do so.
We have highlighted some of the options you can consider when you contact your creditors:
1. Pay your creditors back in instalments
If you don’t have a budget, create a budget that looks at your income and expenditure. Look at ways to reduce your expenses and use that extra saving to consider paying back your debt to your creditors.
It is essential to be realistic about how much you can afford as you don’t want it to start affecting your essential living costs.
1. Look at alternative debt solutions
Often, you may have already maximised how much savings you can make on your current expenditure, so another option would be to take out a loan that allows you to consolidate your debt into an affordable monthly payment.
Debt solutions such as Individual Voluntary Arrangements (IVA) or Debt Relief Orders (DRO) offer ways to pay your debts back. They all have their benefits and risks and you do have to check if you meet the eligibility criteria, so speak to one of our advisers if you want to find out more about these.
1. Get advice regarding the Breathing Space Scheme
Whilst you are getting advice regarding these debts, you could be eligible to apply for the Breathing Space Scheme.
The Breathing Space Scheme can stop creditors from taking enforcement action or adding further interest to your debt for 60 days.
Look at our Breathing Space Scheme guide to find out more and whether you meet the eligibility criteria.
1. Get a Personal Guarantor
There might be a friend or family member willing to take a personal guarantee of your debt on their behalf.
This can assure your creditor that someone is also guaranteeing the debt will be repaid. However, it can be risky, too, as the guarantor may be asked to pay some or all of the debt themselves.
1. Lower your debt to under £5,000
You could pay off some of your debt and reduce it below the £5,000 mark. Lowering your debt to this amount will stop the risk of your creditor taking further action to make you bankrupt.
1. Voluntary charge on your property
Your house is probably the most valuable asset, so if you agree with your creditors to add a voluntary charge on your property, then this offers a creditor a stable guarantee that you are serious about paying back your debt to them.
However, you must add some of your clauses to the agreement; for example, they can’t sell the property, and only you can do this. It is essential to get professional advice regarding this matter.
I disagree with the Statutory Demand. What should I do?
If you can’t agree to the Statutory Demand by the creditor, then you can apply for the courts to set aside your demand.
Setting aside a Statutory Demand means challenging what the creditors have asked regarding paying your debt.
What are the reasons for setting aside a Statutory Demand?
You can not set aside a Statutory demand because you want to. There does have to be grounds for the Statutory Demand to be disputed. Here are some of the reasons below:
- You don’t owe the creditors the money they claim you do
- They owe you money (this is a rare occasion, but it can happen)
- You have already agreed on a payment plan for which you have been making the necessary payments, so no debt needs to be paid to them. For example, if a court has agreed that you pay the debt in instalments and you have kept to them
- You have been sent the statutory demand as an administrative error
- The creditors have not followed the correct procedures when issuing you the Statutory Demand. For example, there have given you less time to respond to demand.
- The creditor has waited too long to pursue the debt, and there is no signed agreement. This could mean the debt could be statute-barred.
- The debt or the unsecured part of the debt is below £5,000.
- Your debt is secured against your property which is more than the debt.
Why can’t you set aside a Statutory Demand?
You can’t set aside a statutory demand because of:
- minor errors in the forms
- you are in financial difficulties
- you think the demand is unfair
- if your creditor has already a CCJ out against you. This is because the court judgement will be taken as proof that you owe the debt.
How do I apply to set aside a Statutory Demand?
If you want to apply to have your Statutory Demand set aside, then you will need to fill out two forms detailing the reasons why you dispute the demand:
- Download and fill out the IAA form.
- Include a witness statement. A sample witness statement can be found here.
- Make three copies of each form to the court when you apply.
- Try and provide enough information regarding the grounds for disputing the Statutory Demand. You should get further advice if you are unsure how to fill out the form.
What happens if you have missed the 18-day time limit to apply for setting aside your Statutory Demand?
You may still be able to apply for setting aside your Statutory Demand, even when you have missed the 18-day limit. If you have a good enough reason for your delay and your creditor has not issued a bankruptcy order yet, it might be worthwhile trying.
You will need to add the following wording to your witness statement:
To the best of my knowledge and belief, the creditor(s) named in the demand has/have not presented a petition against me. The reason for my failure to apply to set aside the demand within 18 days after service is as follows….’
What happens after you apply for the setting aside of your Statutory Agreement?
The court could either:
· Dismiss your application
The reason for this could be that you don’t have the grounds to pursue the claim or that you have missed out on information from your application. Therefore it is vital to ensure that everything is included in the document when you send it off.
· Accept your application
This does not mean that the court has accepted your claims; however, the court will set aside a date, time, and place for the hearing. They will also allow your creditors at least five working days’ notice regarding this hearing.
What happens if my hearing to set aside my Statutory Demand is rejected?
If your application is unsuccessful, then a creditor may make you bankrupt. They can do this after the 21-day serving notice has passed.
If a creditor delays the bankruptcy process by more than four months after they have served a Statutory Demand, then they will need to explain to the court why there has been a delay.
Does a Statutory Demand affect my credit rating?
Statutory demands are not recorded on your credit file; however, if a creditor makes you bankrupt, this will be recorded on your credit file.