Alexander and Associates
Solicitors
Suite 12, Level 10
“Leura” Building
809 Pacific Highway
CHATSWOOD NSW 2067

Tel: (02) 9413.2600

Fax: (02) 9419.8872

On-site parking via Brown Street car park entrance.

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Debt Collection

When it comes to having a debt repaid, creditors often begin the process with simple steps such as providing accounts rendered and reminder letters. However, in some cases these simple steps are not enough and a creditor may wish to seek legal advice on how to recover the money owing to them.

A solicitor can advise creditors on the best course of action, including advice about the possibility of resolving the dispute in an amicable fashion. For instance, in some cases the debtor may have valid reasons for not paying the amount claimed, such as where the debtor has received a defective product. The creditor may choose to replace or repair the faulty product in exchange for receiving payment.

Ultimately if a debtor refuses to pay the amount claimed, it may be necessary for the creditor to apply for a judgment from a court or tribunal. A solicitor can assist with this process.

Prior to initiating legal proceedings, solicitors may send the debtor a letter of demand on behalf of the creditor. A demand letter sets out a claim that the debtor owes the creditor money and usually states that unless the amount claimed is paid within a specified time period, the solicitor has instructions to initiate legal proceedings on behalf of the creditor.

A demand letter can be an effective tool because it forces the debtor to address the debt seriously. Debtors may seek to reach an agreement with the creditor regarding repayment of the debt, even if the payment takes place by installments.

If a debtor does not repay the debt voluntarily, a solicitor can provide advice as to whether it is financially worthwhile to commence legal proceedings. For instance, the debt may be too small to justify the cost of legal action or the debtor might be impecunious.

Ordinarily creditors have a six year period to commence legal proceedings, starting from the date on which the debt fell due or was acknowledged by the debtor in writing. Ordinarily a claim will be made for interest, as well as for the legal costs incurred as a result of the proceedings.

When legal proceedings are commenced, the debtor will be served with a document called a statement of claim. Even after proceedings have been initiated, it is not too late for the debtor to seek to negotiate repayment of the debt with the creditor. For example, the debtor can admit the debt and offer to repay it through installments at the court office.

Once legal proceedings have been initiated, it is important that the debtor does not ignore the claim. In some cases, the debtor may choose to defend the claim on the basis that they do not owe the amount claimed by the creditor. In other situations, the debtor may have a counter claim against the creditor (such as for faulty goods). If the debtor is served with a statement of claim and does not respond within 28 days, the creditor may apply to the registrar of the court for default judgment.

If a creditor is successful, the amount ordered by the court can include the amount of the debt, interest and legal costs. This is called the “judgment debt”. This amount is payable immediately and is subject to interest from the date of the court's judgment. The debtor remains responsible for the judgment debt plus interest which accrues until the judgment debt is satisfied.

If the debtor does not pay the judgment debt, the creditor may seek to have that debt enforced. The debtor may be required to attend court to be questioned about their finances. The creditor may also seek a garnishee order. Garnishee orders are directed at a third party (such as a bank or employer) who holds money for the debtor. Such orders typically require the bank or employer to pay money out of the debtor's savings or wages to the creditor in order to satisfy the debt.

Other avenues of enforcement are also available to creditors. A court may order that a sheriff seize the debtor's goods and sell them in order to repay the debt. Where the debt is more than $3000 and cannot be satisfied through the sale of the debtor's goods, the court can also order the sale of real property, including the debtor's home. Ultimately, where a debtor is unable to repay their debts, it may be necessary for creditors to initiate bankruptcy proceedings.

When it comes to debt, the best course of action is for debtors and creditors to reach an agreement. Debtors should seek to repay the amount that they owe, even if this requires making arrangements to repay the debt by installments. Repaying the debt as soon as possible is the best way to avoid having to pay additional court costs and interest. From a creditor's perspective, reaching agreement avoids the costs associated with initiating legal proceedings to obtain a judgment against the debtor and subsequently enforcing that judgment against the debtor.

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