What is a third party debt order? Your questions answered
Whether as a debtor, creditor, or third party, doing business often means dealing with debts. In this article, we’ll explain what a third party debt order is, outline your rights and responsibilities, and give some tips on how to navigate the process.
As always, we’ll also show how we at Moore Kingston Smith can provide services to help you and your business manage your funds and avoid legal complications.
What is a third party debt order?
A third party debt order is a court order that allows creditors to recover debts directly from a third party who owes money to the debtor.
The third party can be any person, organisation, or institution that owes the debtor money. In most cases, the debtor’s money is held by a bank or building society.
Other entities that can be third parties include:
- An insurance company, where a debtor is owed an insurance policy payout
- An employer, where a debtor is owed back wages, a redundancy payout, or similar
- A workplace or personal pension provider, where the debtor is eligible for a pension
How to get a third party debt order
To obtain a third party debt order, a creditor must go through the following process:
Obtain a county court judgement (CCJ): A county court judgement (CCJ) is a court order that requires a debtor to pay a debt they owe to a creditor. The CCJ outlines how much is owed, who the debt is owed to, and how and when to pay.
Make an application for a third party debt order: The creditor must make a formal application for a third party debt order to a court. They must demonstrate that the debtor has failed to comply with the terms of the CCJ. To make an application, a creditor must complete form N349 and pay a small application fee. If the creditor is successful then the application fee is added to the debt the debtor owes. If the application is not successful, however, the creditor cannot reclaim the application fee.
Interim third party debt order: Upon receiving the application, the court will grant an interim third party debt order. This order freezes the debtor’s assets held by the third party until a court can determine whether the assets should be paid to the creditor.
Court hearing: A court hearing is scheduled, where the debtor and creditor will each have the chance to present their case. The court will then decide whether to grant a full third party debt order.
Can a third party debt collector take you to court?
A third party debt collector or debt collection agency is a business that specialises in debt recovery. They can either act on behalf of creditors to recover debt owed to creditors or buy debt directly from creditors, effectively becoming a new creditor.
In the former case, a third party debt collector can recommend the creditor take the debtor to court. In the latter, the debt collection agency has all the rights and responsibilities of a creditor. This means that they can take debtors to court – though they don’t have any further powers, and cannot themselves act as bailiffs or court officers.
Key stakeholders
The debtor
The individual, institution, or organisation that owes the debt.
The debtor has the right to object to the creditor’s third party debt order application. If the debtor objects to the application, they have a responsibility to attend the hearing.
An objection to a third party debt order must be filed in writing at least three days before the hearing. If a debtor objects, they must send copies of their written evidence for their objection to the creditor and the third party.
The creditor
The individual, institution, or organisation to whom the debt is owed.
Creditors have rights to take reasonable measures to collect debts, including applying for a CCJ and a third party debt order.
The creditor’s responsibilities include taking reasonable measures to collect the debt, following the proper application process, paying the application fee, and communicating with the court.
The creditor must also ensure that they identify the correct third party. If the third party is a bank, for instance, the creditor does not need to provide the court with an account number for the debtor, but must have good reason to believe that the debtor has an account with the bank – a prior payment from debtor from an account at that bank, for example.
The third party
The individual, institution, or organisation that holds assets belonging to the debtor.
If the third party is a bank or building society, they have the responsibility to:
- Carry out a search to identify accounts held in the sole name of the debtor
- Tell the creditor and the court the account number and if the account is in credit
- Tell the creditor and the court whether the account balance is enough to cover the amount claimed
- If the account does not hold sufficient funds to cover the amount claimed, tell the creditor and the court the full account balance at the time the order was served
- Tell the creditor and the court whether the bank or building society can hold some of the credit balance to offset debit balances or other amounts
A bank or building society has the right to charge the creditor a fee for the costs of the search. This will be deducted from any money owed by the debtor to the creditor.
If the third party is not a bank or building society, they have the responsibility to:
- Tell the debtor or the court if they claim to not owe the debtor any money
- Tell the debtor or the court if they owe the debtor less than the amount claimed in the interim order
The third party has the same rights to object to the application as the debtor. If the third party objects, they must file an objection in the same way, and provide written evidence to the court, the creditor, and the debtor.
Implications
For the debtor
A third party debt order can leave debtors unable to access funds.
If the debtor is an individual and the third party is a bank or building society, the debtor can make an application for a hardship payment order.
A hardship payment order is made by a judge if the debtor can prove that they cannot afford daily living expenses due to their assets being frozen, and requires the third party to release frozen assets to the debtor or another named person, either in a single amount or in specific sums in the weeks before the hearing.
A third party debt order may also harm a debtor’s credit rating and reputation.
For the creditor
A third party debt order provides a creditor with a legal route to recover the money the debtor owes them.
If you or your business are acting as a creditor, a third party debt order can be crucial to ensuring that you have the funds you need to continue operating.
For the third party
The third party is legally obligated to comply with the responsibilities outlined above. Failure to do so could result in penalties or legal action.
Businesses in the financial services sector in particular should be aware of their rights and responsibilities if they are served with a third party debt order. Our financial services advisory offering can help your business be prepared.
How to navigate: Tips and strategies for managing a third party debt order
Understand the process
Educate yourself about the third party debt order process outlined above – including your rights and responsibilities as a debtor, creditor, or third party.
Seek legal advice
If you receive a third party debt order or are considering applying for one, consulting with legal experts is crucial. Our business and corporate legal services advisory offering can help ensure you stay on top of your rights and responsibilities.
Citizens Advice can help provide tips and advice if you are served with a third party debt order, while the government’s pages on the topic will provide you with up to date information.
Be prepared
The best way to avoid the issues of a third party debt order is to settle debts before they get to the stage where a CCJ or third party debt order is a consideration.
For debtors: Explore your options to negotiate payment plans with your creditors. Be transparent and honest, and comply with the terms of any plans you agree.
For creditors: Ensure you do your due diligence before making loans, and only lend to debtors who you believe will be able to pay you.
Whether you’re likely to act as debtor, creditor, or third party, you should always keep accurate records and ensure compliance with any regulations affecting you or your business. Our people advisory offering can help you stay on top of your HR – and manage issues before they get to the stage of court action.
Act promptly
As with everything in business, from court orders to tax regulations and salary structuring, it’s crucial when dealing with a third party debt order to act quickly. If you’re a debtor or third party, seek relevant legal advice as soon as you receive the order.
And always make sure you are ahead of deadlines for things like filing objections and preparing for your court hearing.
If you need to learn more about third party debt orders – or any aspect of managing your business – don’t hesitate to contact us to learn how we at Moore Kingston Smith can help.