What Actually is a ‘Debt’?
On 1st October 2017, the Pre-Action Protocol for Debt Claims, (the “Protocol”) is to come into force. This raises the question: what is a ‘debt’? For this Protocol, the only ‘guidance’ provided is on the Information Sheet (Annex 1), “you have received this [notice] because a business believes that you owe it money”. None of the draft or consultation papers provide further guidance or seek to define the term ‘debt’ under English law.
The word ‘debt’ is so frequently employed in conversation, it is understandable to think that its’ usage must be governed by clear conventions. However, due to the different subject-matter of statutes in which it has been employed, it seems to be an institution under which many distinct relationships and types of debt are somewhat carelessly grouped.
The starting point of this article is to analyse the language of debt. The etymological connection between the English words ‘debt’, ‘obligation’ and ‘duty’ suggests that debt might, in its orthodox Latin usage, have had the predominantly moral connotation that when you owe someone something, you ought to give it. In the popular sense, the term seems to include all that is due to a person by way of some form of obligation or duty. Nevertheless, there is a crucial distinction between ‘debt’ and ‘duty’. ‘Debt’ ordinarily refers to something due from one person to another (money, goods, or services) but it can be legally written off although the person in debt must try hard to discharge it prior to this occurring. Conversely, ‘duty’ is an undertaking which is by definition morally or legally wrong to not fulfil. Thus, any obligation to pay is limited by the capacity to pay. Therefore, to show that these terms are distinct from one another, it is necessary to be able to judge when and how accounts can be settled. However, because these words are sufficiently close and sometimes used interchangeably, it can be difficult to keep their meanings from blending imperceptibly and, in fact, this conceptual confusion can be used by certain groups to maintain political advantages.
Most frequently, the subject-matter of a debt is a sum of money due by a contract, express or implied, which fixes the amount, independent of extrinsic circumstances. Standing alone, the word ‘debt’ is as applicable to a sum of money which has been promised at a future date as it is to a sum of money which is now due and payable. To distinguish between the two, it is possible to contend that the former is a ‘debt owing’ and that the latter is a ‘debt due’. Hence the term ‘debt’, when the thing due is money, can be defined as a sum of money which is certain without regard to the fact of it being payable now or in future.
It should be noted that ‘debt’ is distinct from ‘accrual’. The latter is most commonly used when referring to the accumulation of interest or expenses over time, which is to be paid or collected in the future.
For the trite stuff now. Where the debt is a sum of money, the person who owes the money is the ‘debtor’ and the person to whom it is owed is the ‘creditor’. The creditor must reasonably believe in the debtor’s ability to pay for a legitimate debt obligation to be generated. If the debtor fails to make repayment by the deadline or within a commercially feasible time limit and if routine efforts at debt collection prove fruitless, then formal legal proceedings may be commenced. It may be possible to attach the debtor’s wages or bank account as a means of forcing payment or to secure a lien, a charge, against the debtor’s property which will permit the law-enforcement officer to seize it, sell it and use the proceeds to discharge the debt. However, debt collection may be impeded by exemption laws, which provide that certain property of the debtor may not be seized and sold in order to discharge a debt.
There is good news amongst this change. There is still no return to debtors’ prisons.
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© Chambers of Lawrence Power