If you are facing court action because of late payment on services and unpaid personal debts, the claimant could make a legal claim for a further sum as interest on the debt. 

It boils down to Section 69 of the County Courts Act – or a separate Act for claiming damages in a commercial dispute. 

Don’t get bogged down in the legal jargon and understand the rules on creditors claiming fixed interest against your debt right here in this article.

And if you need further advice, make sure you find personal and free support from a registered charity. Let’s dive into the legal side of things first…

Don’t worry; it won’t bite!

What is the County Courts Act 1894?

This is an Act used to regulate the way county court proceedings are conducted in the United Kingdom, including matters relating to debt. It was devised in 1984 but has been updated and amended over time. 

What is Section 69 of the County Courts Act 1984?

In S.69, the law states that a claimant can ask for the debtor to pay interest on the money they failed to repay. This means when a debtor is asked to repay the debt by a judge, the court can make a further judgment asking the debtor to pay interest on the debt as per a claimant’s request.

You can read the full details here

There’s something identical for those claiming damages against a company for breaking contractual terms…

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What is the Commercial Debts Interest Act 1998?

Under the Commercial Debts Interest Act 1998, also known as the Late Payment of Commercial Debts (Interest) Act, the plaintiff may claim a statutory rate of interest at 8 per cent per annum. 

This interest can be added to commercial debts where one company claims against another company for contractual damages or breaking the terms of a contract, resulting in damages or debt. 

This interest payment of commercial debts must also be claimed as there is no automatic right to the interest payment. If there is no claim made, the 8 per cent interest rate would not be applied.

If you need to know more details, we recommend giving a search on government website pages. 

Is statutory interest simple or compound?

This base rate of interest applied to the debt under the 1998 Act is simple interest rather than compounded interest. 

How do I calculate S.69 statutory interest @ 8% per year?

If you are trying to calculate how much interest your creditor may claim from you, it is possible to work out the statutory interest of your debt. It’s not as simple as just working out 8% of the debt owed. 

The interest available to claim is calculated by:

  1. Multiplying the total debt amount by 0.08
  2. Divide the answer to the above by 365 (= daily rate of interest)
  3. Multiply the daily rate of interest by the number of days the debt has been owed
How to Calculate Statutory Interest

For example, if you have a debt worth £500 that you have owed for 100 days. The claim would be calculated as:

500 (money owed) x 0.08 = 40 (= annual rate of interest)

40 / 365 = 0.11 (= daily rate of interest)

0.11 x 100 (days) = 11

The statutory interest at a rate of 8%, in this case, would equal a sum of £11 awarded to the claimant in interest, and thus added to the debtor’s account to be repaid. 

Why you should aim to avoid legal action

If you genuinely owe money on a loan or credit card, you should aim to avoid legal proceedings. 

Making a late payment is not the end of the road and there is plenty you can still do to avoid a court date. 

Being taken to court might not just make you pay more back in interest (if claimed), but you may be charged with the creditor’s solicitors’ fees for the trial, and other fees relating to the recovery of the debt, including enforcement action.

For example, after the court date, you may have to deal with bailiffs coming to your house. If they do have to visit you, a minimum of £310 will be added to your unpaid debt (Notice of Enforcement fee of £75 + Visiting fee of £235) 

How to avoid debt court action

The initial ways to avoid going to court and potentially having to pay a rate of 8% interest is to communicate with your creditor and:

  1. Negotiate a Payment Plan

Many creditors will welcome offers to repay via a new repayment plan. Often they will reduce the amount you have to pay, but may increase the interest so you pay more over time. Although this might not be ideal, the sum you will pay each month is affordable and prevents you from experiencing financial difficulty. 

Before you agree to a repayment plan like this, ensure you have worked out an accurate budget. Only by knowing what you can realistically afford to repay can you commit to a new agreement with the confidence of not making the situation worse. 

We have a budgeting 101 guide to help you do just that!

  1. Use Free Debt Solutions

But you don’t have to agree to a payment plan directly. Instead, you could try to use a free debt solution offered by charities, such as a Debt Relief Order or a Debt Management Plan. 

There are a number of excellent charities, acting on behalf of debtors to make debt recovery less stressful. 

Grab more info on our site’s dedicated debt solutions page!

  1. Engage a Debt Management Business

Some charities cannot provide formal debt solutions, such as Individual Voluntary Arrangements (IVAs). 

If you need one of these more complex solutions with lots of details, you would need the support of an insolvency practitioner at a debt management business. You pay for their help, but they can sometimes save you money too. 

More assistance with late payment of commercial debts

If you are due to face legal action and want to know more about fixed interest entitlement among creditors, industry news or debt solutions, we recommend speaking with a registered charity offering advice services. 

You can find a registered charity online and their contact details on their website. 

Or search our site to search up-to-date news and information broken down for easy reading. We have divided the website with a clear menu to make it easy for you to search for the information you need.

About the author

Scott Nelson

Scott Nelson is a financial services expert, with over 10 years’ experience in the industry, including 6 years in FCA regulated companies. Read more
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