Trying to recover long-standing unpaid debt can be extremely frustrating and also time-consuming.
It is important to understand your rights and obligations when you have an outstanding debt that you cannot repay, or a debt you wish to recover from another party. Etheringtons Solicitors can assist you in a range of Debt Recovery matters, whether you are the Debtor (the party owing money) or Creditor (the party to whom money is owed).
Why should you engage the services of an experienced lawyer instead a debt collection agency?
Most debt collection agencies operate on a commission basis and the percentage they charge usually varies between 15% and 20%. If the size of the debt is not substantial, using a debt collector may be a sensible option. However, debt collectors have no power to force payment. If court action is needed the debt recovery agency is highly likely to outsource the legal work to a lawyer.
Correspondence from a debt collection lawyer carries more weight. Lawyers have the ability to commence legal action and enforce debt repayment. They have an understanding of contract law and all legal remedies available when it comes to debt recovery. An experienced debt collection lawyer knows how to escalate the debt recovery process quickly and achieve the results you want.
Debt recovery is not a straightforward process and it is important that you are guided by an experienced litigation solicitor. Please contact Etheringtons Solicitors to discuss your situation further and get appropriate advice.
If a family member, friend or a customer owes you money and they are struggling to make repayments, there are steps you can take to enforce the debt.
When contacting a Debtor about an outstanding debt, it is prudent to ensure that your manner is respectful so as to avoid exposing yourself to accusations of unconscionable conduct.
Debt Recovery Process
Letter of Demand
The first step in attempting to recover the amount owing is to send a Letter of Demand to the Debtor. A Letter of Demand sets out what is owed and gives the Debtor a defined period of time within which to settle the matter by paying you the money that you are owed. The time period for the Debtor to pay is usually either 14 or 28 days. If the Debtor fails to comply with the demand, you can commence proceedings in court to recover the outstanding debt.
In most straightforward debt recovery cases, a Letter of Demand is normally the last letter a Creditor sends before initiating court proceedings.
While Letters of Demand are not court documents, they remain an effective means of forcing the Debtor to take action. It is important that the letter is not threatening or harassing in nature as this is a breach of statutory guidelines.
If there is dispute about who owes the debt or how much is owed, or if the Debtor fails to pay within the time limit, then the Creditor can file an action in court. It is important to note that a Creditor has a limited period of time in which to sue for a debt: in NSW it is 6 years. A Debtor is not liable for a debt if more than 6 years have passed since the debt became due. However, the 6 years could restart if the debt is acknowledged.
Where your matter is heard will depend on the amount of the debt as each court has a jurisdictional limit:
- Local Court of NSW: Under $100 000
- District Court of NSW: From $100 000 to under $750 000
- Supreme Court of NSW: Above $750 000
A debt recovery court action is commenced by filing a Statement of Claim for liquidated damages. You can also claim interest and costs as prescribed by the relevant legislation.
The Debtor will have 28 days from the date they are served with a Statement of Claim to respond by filing a Defence to the claim.
If the Debtor files a Defence, the proceedings will then become a contested litigation requiring evidence to be prepared and hearings to be attended. The burden of proof lies with the Creditor to establish that the Debtor does owe them the claimed amount. This can involve producing documents such as a loan agreement and previous correspondence with the Debtor.
Your Guide to Debt Recovery
Many people will experience some kind of financial hardship in their life. It is important to understand your responsibilities and the obligations of financial providers when you have an outstanding debt that you cannot repay, or a debt you wish to recover from another party.Etheringtons Solicitors can assist you in a range of Debt Recovery matters – whether you are the Debtor (the party owing money) or Creditor (the party to whom money is owed). Download our free guide which answers some of the most frequently asked questions in relation to Debt Recovery.
If the Debtor does not file a Defence within 28 days, the Creditor can file a Notice of Motion in court for a default judgment. This can be enforced in a number of ways, depending on the financial circumstances of the Debtor and the information available to the Creditor.
A Default Judgment means that the Debtor has not responded or offered a Defence to the claims made against them. As a consequence, the Creditor can apply for a Judgment of recovery to obtain the money owed to them. The Judgment is then recorded against the Debtor’s credit file and the debt becomes enforceable against them.
Enforcing a judgment against a Debtor
Creditor can sometimes encounter difficulties enforcing a Judgment if the Debtor applies for an Instalment Order to pay the debt. Often, if a Debtor is suffering financial hardship or not able to pay the debt immediately, agreeing to a payment arrangement under an Instalment Order may be the best avenue.
To be successful in obtaining an Instalment Order, a Debtor has to prove to the Registrar of the Court that that their financial circumstances are such that they cannot afford to pay the debt in full, and can only afford to pay the debt in instalments over a specified period of time. However, the court will also consider the Creditor’s entitlement to the benefit of that Judgment.
If the Debtor fails to comply with the Instalment Order, it ceases to have any effect and the Creditor can proceed to enforce the Judgment in other ways. Further, if the Debtor receives a windfall or obtains better employment at a later date, the Creditor can apply to the court to vary or rescind the Instalment Order on this basis.
The Creditor can object to the Instalment Order if they believe that:
- the Debtor can afford to pay more than they say they can;
- the time taken to pay instalments is unreasonably long; or
- it is obvious the Debtor cannot pay the instalments.
This can be done within 14 days of having received notice. The court will consider the Creditor’s objections and weigh them up against the financial hardship that the Debtor may suffer if the order is not made.
A Garnishee Order for debts is a type of court order that allows a Creditor to recover the debt from a third party. This can include a bank provider, an employer, a rental tenant or any other third party who owes the Debtor money. Once a debt is garnished, the third party must make payments directly to the Creditor to pay off the debts.
Garnishee Orders are filed via the NSW Online Registry or in person at the Local Court. A sealed copy of the Garnishee Order (Form 70) will then be sent to the third party.
Writ for Levy of Property
This is an order to the Office of the NSW Sheriff to seize and sell at auction property belonging to the Debtor. The money from the sale of this personal property (not land) is then used to pay the Judgment amount owed to the Creditor. A Writ for the Levy of Property is valid for 12 months. If, after the expiration of 12 months, the debt remains unpaid, the Creditor can apply for another Writ.
One way that a Creditor can enforce a court Judgment against a Debtor over $10,000 is by issuing a Bankruptcy Notice.
How Can a Business Avoid Debt Recovery?
By way of a credit application process. Before you take on a new customer, you should have the correct systems in place to ensure that you are able to assess the customer’s credit position. Your Credit Application and Terms of Trade should provide you with security over the goods which you have sold to the customer and, if the customer is a corporate entity, ensure that the directors of the company provide you with their personal guarantees. You must, however, ensure that you register any security over goods on the Personal Property Securities Register. We recommend that you speak with a legal professional to assist you with this process to ensure that the registration is not void.
If you need legal advice regarding a debt or are looking for the most efficient way of recovering a debt, please contact Etheringtons Solicitors in North Sydney on 02 9963 9800. Please note the longer you wait, the more difficult it can get to collect your debt.
If you are interested in learning more about the process of Debt Recovery please download Your Guide To Debt Recovery, which is a comprehensive booklet prepared for you to help clearly understand what your options are and how to proceed to the next step.